Business Law Chapter 46 Homework Antitrust Law Answers Business Scenarios

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CHAPTER 46

ANTITRUST LAW

ANSWER TO CRITICAL THINKING QUESTION

IN THE FEATURE

DIGITAL UPDATE—CRITICAL THINKING

Which companies in Europe do you think may have pressured the European Union to

lodge its antitrust complaint against Google? Undoubtedly, the numerous comparison

shopping sites throughout Europe that have declined insignificance brought pressure on the

European Union Antitrust Commission. These sites including BizRate, LeGuide, and Nextag. A

few years ago these sites were popular and profitable. They no longer are. And ten years ago,

there were many other similar comparison shopping sites, all of which have gone out of

business

ANSWERS TO QUESTIONS

AT THE ENDS OF THE CASES

CASE 46.1—LEGAL REASONING QUESTIONS

1. How did McWane’s Full Support Program harm competition? Explain. McWane,

Inc., is the dominant producer of domestic ductile iron fittings. When Star Pipe Products entered

2. What did the Federal Trade Commission conclude in this case? What “factual and

economic” evidence supported this conclusion? In the McWane case, the Federal Trade

Commission (FTC) identified the relevant product market for domestic pipefittings produced for

domestic-only projects, found that McWane, Inc., the dominant producer of domestic ductile iron

fittings, had monopoly power in that market, and determined that McWane’s “Full Support

Program” harmed competition.

McWane adopted its “Full Support Program” when Star Pipe Products entered the

market. McWane told its distributors that unless they bought all of their domestic fittings from

3. Instead of imposing an exclusivity policy, what action might McWane have taken to

benefit its customers and compete with Star? Instead of imposing an exclusivity policy,

McWane, Inc., the dominant producer of domestic ductile iron fittings, could have benefitted its

customers and competed with Star Pipe Products, or almost any other new entrant into the

domestic pipefittings market by simply dropping prices.

CASE 46.2—CRITICAL THINKING

SOCIAL

Do predatory-bidding schemes ever benefit consumers? Explain your answer. Yes. A

predatory-bidding scheme can benefit consumers by leading to lower prices. A predator’s high

ECONOMIC

Why does a plaintiff alleging predatory bidding have to prove that the defendant’s

“bidding on the buy side caused the cost of the relevant output to rise above the

revenues generated in the sale of those outputs”? Because without proof of a likely

CASE 46.3—CRITICAL THINKING

LEGAL ENVIRONMENT

How would TransWeb’s injury have been “shared by all consumers in the relevant

markets” if TransWeb had not sued until after it had been driven out of those markets by

3M’s actions? If TransWeb, LLC had not proceeded with its suit until after 3M Innovative

Products Co.’s actions had excluded TransWeb from the relevant markets, TransWeb’s injury

would have been “shared by all consumers” in those markets by the increased prices charged

by 3M for its products. As the U.S. Court of Appeals for the Federal Circuit noted, “TransWeb

proved at trial that increased prices for fluorinated filter * * * respirators would have resulted

had 3M succeeded in its suit.”

ETHICAL

What does 3M’s conduct suggest about its corporate ethics? The conduct by 3M Innovative

Products Co. in the TransWeb case suggests greed and deception in the firm’s fraudulent use of

the patent system and its abuse of the legal system to obtain an unfair market advantage.

TransWeb, LLC makes respirator filters made of nonwoven fibrous material to be worn at

dirty and polluted worksites. At an industry exposition, the company distributed samples of this

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material. 3M employees obtained some of the samples. At the time, 3M was experimenting with

filter materials.

ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

1A. Per se v. rule of reason

Because ICANN is at a higher level of the distribution process than Verisign, it is imposing a

2A. Horizontal v. vertical restraint

Because ICANN and Verisign are firms at different levels in the distribution of top-level domain

3A. Directors

If ICANN’s directors were chosen by those with a commercial interest in the Internet, the

4A. Best defense

ICANN’s best defense is to assert that a standardized set of registry services is efficient and has

6 UNIT NINE: GOVERNMENT REGULATION

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

The Internet and the rise of e-commerce have rendered our current antitrust

concepts and laws obsolete. When our antitrust laws were written, the possibility of intense

nationwide and even global competition was not possible. Today, in contrast, the Internet has

increased competition to such a degree that few, if any, sellers of most products can maintain

prices that are significantly higher than prices offered by other sellers anywhere in the

ANSWERS TO ISSUE SPOTTERS

AT THE END OF THE CHAPTER

1A. Under what circumstances would Pop’s Market, a small store in a small, isolated

town, be considered a monopolist? If Pop’s is a monopolist, is it in violation of Section 2

of the Sherman Act? Why or why not? Size alone does not determine whether a firm is a

2A. Maple Corporation conditions the sale of its syrup on the buyer’s agreement to buy

Maple’s pancake mix. What factors would a court consider to decide whether this

arrangement violates the Clayton Act? Why or why not? This agreement is a tying ar-

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ANSWERS TO BUSINESS SCENARIOS

AT THE END OF THE CHAPTER

46-1A. Group boycott

This is a classic case of an anticompetitive group boycott in violation of the Sherman Act,

Section 1. No-Glow Department Store and the manufacturers have reached an agreement

46–2A. Antitrust laws

Yes. The major antitrust law being violated is the Sherman Act, Section 1. Allitron and

Donovan are engaged in interstate commerce, and the agreement to divide marketing territories

ANSWERS TO BUSINESS CASE PROBLEMS

AT THE END OF THE CHAPTER

46–3A. Section 2 of the Sherman Act

No. DVRC’s action does not represent an attempt to monopolize in violation of the Sherman Act.

DVRC merely returned to a position that it had a right to from the beginning. In their contract

DVRC had expressly informed Christy that their relationship could change at any time. Thus

46-4A. Price fixing

The participants in Music Net appear to have engaged in a conspiracy to fix the prices (and

terms) under which their music would be sold online. This may have violated the Sherman Act.

The antitrust laws, including the Sherman Act, are intended to limit restraints of trade—

46–5A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Price discrimination

Spa Steel satisfies most of the requirements for a price discrimination claim under Section 2 of

the Clayton Act. Dayton Superior is engaged in interstate commerce, and it sells goods of like

grade and quality to at least three purchasers. Moreover, Spa Steel can show that, because it

46-6A. Section 1 of the Sherman Act

No, the standard set by the National Collegiate Athletic Association (NCAA) and the National

Federation of State High School Associations (NFHS) for non-wood baseball bats did not violate

Section 1 of the Sherman Act. Underlying this section is the assumption that society is harmed if

rival firms join in an agreement that restrains competition. Under the rule of reason, the courts

46-7A. Mergers

Yes, the affiliation between St. Luke’s and Saltzer violated antitrust law. Under Section 7 of the

Clayton Act, a merger violates antitrust law “where the effect * * * may be to substantially

lessen competition.” This can occur when a merger results in a combination’s obtaining

monopoly power in the relevant market. An important consideration is market concentration.

46–8A. Section 1 of the Sherman Act

The agreement between Manitou North America Inc. and Gehi Co., both makers of telehandlers

(a type of forklift), to allocate territories within Michigan among certain dealers for each

manufacturer and to limit the dealers’ selection of competitive products to certain models is a

horizontal trade restraint. A territorial or market division such as this agreement is a violation of

10 UNIT NINE: GOVERNMENT REGULATION

46–9A. A QUESTION OF ETHICS—Section 1 of the Sherman Act

(a) In his appeal, Rose contended in part that the price-fixing and market-allocating

conspiracy among the competitors had expired before he had become the president of DuCoa,

citing the increase in competitive activity among the companies at the time that he assumed the

presidency. The U.S. Court of Appeals fro the Fifth Circuit affirmed the lower court’s sentence.

The district court did not clearly err by . . . apply[ing] the . . . manager enhancement.”

(b) Rose’s participation in the price-fixing and market-allocating conspiracy among the

chlorine chloride competitors could be perceived as unethical in part because his activities were

illegal. Section 1 of the Sherman Act (and other statutes not at issue in this case) prohibit price–

fixing and market allocation. If ethics is defined as morally correct behavior, and compliance with

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ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS

AT THE END OF THE CHAPTER

46–10A. Antitrust violations

(a) The plaintiffs could base a claim for damages and an injunction on an allegation

(b) The defendants might contend that they could not be held liable for anticompetitive

actions or agreements voluntarily undertaken by private entities can qualify for antitrust