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Chapter 24
Antitrust Laws
Introduction
Chapter Twenty-Four addresses these questions:
• What is the purpose of antitrust law?
• How are antitrust laws enforced, and what are the exemptions under the antitrust laws?
• What does the Sherman Act of 1890 prohibit?
• What does the Clayton Act of 1914 prohibit?
• What other antitrust statutes do business managers need to understand?
• What are the global dimensions of antitrust laws?
Chapter Twenty-Four is significant because antitrust law ensures the functioning of free
markets in the United States. The Sherman Act of 1890 has a significant impact on business
Achieving Teaching Excellence
In-Class Writing
At this point in the semester, instructors could engage in “discussion” with students using
short, in-class writing assignments, rather than engaging in verbal exchanges with them. One
In-Class Writing Assignment One—Using a Case from this Chapter—have students
choose one of the cases the chapter presents that is not followed by critical thinking questions. At
this point in the semester, students should be familiar enough with the critical thinking questions
that they can write good questions on their own. Ask them to write three critical thinking
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In-Class Writing Assignment Two—A Debate Format—pick a case in the book. Ask
students to write an argument in which they explain whether the facts of the case call for
increased government regulation, or whether the facts suggest the need for either deregulation or
Chapter Overview, Topic Outline, and Discussion Questions
Chapter Overview
This chapter begins with an introduction to the meaning of antitrust and a summary of the
federal antitrust statutes. It then discusses enforcement of the antitrust laws and exemptions made
to those laws. Next it examines the types of business conduct that are forbidden by the Sherman
Act, as well as the Clayton Act, the Federal Trade Commission Act, and the Bank Merger Act of
Topic Outline
I. Introduction to Antitrust Law
A. A Definition of Antitrust
B. Law and Economics: Setting and Enforcing Antitrust Policy
C. Goals of the Antitrust Statutes
II. Enforcement of and Exemptions from the Antitrust Laws
A. Enforcement
2. Private Enforcement
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B. Exemptions
III. The Sherman Act of 1890
A. Section 1: Combinations and Restraints of Trade
2. Restraints of Trade
4. Vertical Restraints
a. Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay’s Kloset, Kay’s Shoes
b. Continental TV, Inc. v. GTE Sylvania
B. Section 2: Monopolies
1. Monopolization
a. E.I. DuPont de Nemours and Co. v. Kolon Industries
3. Overwhelming Power in the Market
5. Attempt to Monopolize
IV. The Clayton Act of 1914
A. Section 2: Price Discrimination
1. The Meeting-the-Competition Defense
B. Section 3: Tying Arrangements and Exclusive-Dealing Contracts
C. Section 7: Mergers and Acquisitions
1. Reasons for the Increase in Mergers
3. Relevant Product and Geographic Markets
5. Types of Mergers
7. Enforcement
9. Remedies
D. Section 8: Interlocking Directorates
V. Other Antitrust Statutes
A. Federal Trade Commission Act of 1914
B. Bank Merger Act
VI. Global Dimensions of Antitrust Statues
A. Transnational Reach of U. S. Antitrust Legislation
B. Global Dimensions of U.S. Antitrust Laws
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C. Enforcement
VII. Summary
Discussion Questions for Chapter Twenty-Four
1. Explain why someone might think this statement is true: It matters whether antitrust
regulators prefer the Chicago School or the Harvard School views on antitrust policy.
This statement is true because those who adhere to the Chicago School prefer much less
2. Explain how trusts relate to antitrust law.
The abuse of trust relationships led to the development of antitrust law. Trusts are originally
3. Explain why someone might think this statement is true: Some of the goals of antitrust law
are in conflict.
4. Explain relationships between Section 1 and Section 2 of the Sherman Act.
Both share the same penalties, but they focus on different violations. Section 1 governs
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5. Evaluate this statement: Private lawsuits are not allowed in antitrust cases.
6. How does the concept of privity relate to material in this chapter?
7. What reasons underlie certain exemptions from antitrust statutes?
8. Explain relationships between horizontal and vertical restraints.
9. Explain relationships between tying agreements and monopolies.
Section 1 of the Sherman Act regulates tying agreements, whereas Section 2 of the Sherman
10. Evaluate this statement: Cases that focus on conspiracies to monopolize are more common
than cases that focus on attempts to monopolize.
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11. Evaluate this statement: In price discrimination cases, the Clayton Act governs both tangible
12. Explain relationships between primary, secondary, and tertiary line injuries.
All are forms of price discrimination, but they vary according to who the parties to the price
discrimination are. Different people are victims in each kind of price discrimination.
13. Evaluate this statement: Mergers were a fad in the 1980’s. They are now on the decline.
This statement is flawed. The mergers and acquisitions scene is still hot and growing,
14. How would the Harvard and Chicago schools respond to current trends in the field of
mergers and acquisitions?
15. Explain relationships between horizontal and vertical mergers.
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16. Explain relationships between vertical and conglomerate mergers.
Vertical mergers involve the acquisition of one firm by another at different levels in the
17. Evaluate this statement: Defendants have few defenses in Section 7 cases.
This statement is inadequate because defendants have several defenses in Section 7 cases.
18. Evaluate this statement: Private individuals and corporations rarely bring antitrust actions
because it is too costly.
19. Explain how the Federal Trade Commission Act (FTCA) of 1914 relates to the Sherman and
Clayton Acts.
Answers to Critical Thinking about the Law Questions, Case Summaries,
Answers to Review Questions, Review Problems, and Case Problems
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Suggested Answers to Critical Thinking about the Law Questions
1. Microsoft wants to be free of governmental intervention because it wants to gain market
2. The statement is flawed because it assumes a relatively competitive market. If Microsoft
3. One does not know how the consumer might benefit from having more choices. It is possible
several smaller companies have developed Web browsers that do a better job of meeting
Case Summary—American Needle, Inc. v. National Football League
Between 1963 and 2000, National Football League Properties (NFLP) granted nonexclusive
licenses to a number of vendors, including American Needle, Inc., permitting them to
manufacture and sell apparel bearing team insignias. In December 2000, NFLP declined to
renew American Needle’s nonexclusive license. American Needle filed suit alleging that the
Case Summary—Williamson Oil Co. v. Philip Morris, USA
In the 1990s, four companies controlled the cigarette industry—Philip Morris (PM), R.J.
Reynolds (RJR), Brown & Williamson (B&W), and Lorillard (the manufacturers). PM and
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Suggested Answers to Critical Thinking about the Law Questions
1. There would have had to be communication between the companies to raise the prices. Also,
2. The issue is communication of some kind. There must be some agreement to keep the prices
Case Summary—Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay’s Kloset,
Kay’s Shoes
Leegin refused to sell its goods to stores that did not sell the products at the suggested prices.
PSKS filed suit, alleging that Leegin violated antitrust laws by entering into vertical agreements
Case Summary—Continental TV, Inc. v. GTE Sylvania
This landmark case considers vertical territorial and customer restrictions. The U.S.
Suggested Answers to Critical Thinking about the Law Questions
1. The main issue raised in this case is: Did GTE Sylvania attempt to vertically restrict the
number of Sylvania retailers and was this illegal under the Sherman Act? When Continental
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2. The reason stated by the Court for its conclusion is that whether the per se rule stated in
United States v. Schwinn & Co. should be expanded to include nonsale transactions or
Case Summary—E.I. DuPont de Nemours and Co. v. Kolon Industries
DuPont manufactures and sells para-aramid fiber, a complex synthetic fiber used to make
body armor, fiber-optic cables, and tires. Although several companies around the world
manufacture this fiber, only three sell in the U.S. market—DuPont (based in the United States),
Teijin (based in the Netherlands), and Kolon Industries, Inc. (based in Korea). DuPont is the
Case Summary—Newcal Industries, Inc. v. Ikon Office Solutions
Newcal Industries and Ikon Office Solutions compete in the copier equipment-leasing
market for commercial customers. Newcal alleged that Ikon “tricked” its customers by amending
its lease agreements and service contracts without disclosing that such agreements would
lengthen the terms of the original agreements. When Ikon succeeded in extending the terms of
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The court of appeals reversed and remanded. In support of its decision, the court noted that
Ikon was leveraging a special relationship with its contracting partners to restrain trade in a
wholly derivative aftermarket. Ikon has a contractually-created monopoly over services provided
Case Summary—United States v. Microsoft Corporation
Here, the court decides whether Microsoft has achieved a monopoly through innovation,
patents, and business acumen, or whether it has attained a monopoly by conduct whose
Case Summary—California Dental Association v. Federal Trade Commission
In this case, the U.S. Supreme Court considers whether the California Dental Association
violated Section 5 of the Federal Trade Commission Act when it enacted restrictions on
Suggested Answers to Critical Thinking about the Law Questions
1. Justice Souter asserts that (1) it is difficult for dental customers to get information and (2)
2. Students may make assertions that support unrestricted advertising. First, they may assert
that unrestricted advertising allows customers to get quality information. Second, they may
Case Summary—Carrier Corp. v. Outokumpu Oyj
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Carrier Corporation is a U.S. firm that manufactures air-conditioning and refrigeration
(ACR) equipment. To make these products Carrier used ACR copper tubing bought from
Outokumpu Oyj, a Finnish company. Carrier is one of the world’s largest purchasers of ACR
Answers to Review Questions
24-1. The Department of Justice and the Federal Trade Commission in the public sector are
primarily responsible for enforcement. For instance, the Antitrust Division of the Justice
24-2. Activities exempt under the U.S. antitrust laws include regulated industries, labor union
activities, intrastate activities, agricultural activities, and baseball, activities that fall under
24-3. Horizontal restraints take place between competitors at the same level of the marketing
structure, and are per se illegal. Vertical restraints are restraints agreed to between
24-4. Conglomerate mergers involve the acquisition by one company of a firm that produces
24-5. The United States does not have a monopoly on antitrust law! In recent years, the number
of anti-cartel and fair competition authorities globally has soared as a host of new
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Answers to Review Problems
24-6. The district court granted summary judgment for all defendants on the ground that the
plaintiffs’ case was “sorely lacking” in any evidence pointing to an agreement among the
24-7. The court found Spa Steel’s allegations sufficient to show reasonably contemporaneous
discriminatory sales of goods of like grade and quality and an unlawful harm to
24-8. The key in this case will be the probable impact of the particular merger on competition
in the relevant product and geographic markets. Here, it is possible that Falstaff will be
24-9. In order to win the suit the government would have to prove that Dentsply International,
Inc. was illegally monopolizing the market and maintained this power knowingly. The
24-10. Ford will definitely have to divest itself of Autolite. It doesn’t appear that the government
can require them to stop manufacturing spark plugs for ten years, or that it must purchase
Answers to Case Problems
24-11. In reaching its decision the court focused on the plaintiffs’ contention that because the
game footage involved is owned collectively, the antitrust laws prescribe how the
collective can market and sell the intellectual property it owns. According to the court,
this is precisely what the antitrust laws do not prohibit. Further, the court opined that the
plaintiffs’ assertion that a copyright holder does not have the right to exclude the right of
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24-12. The district court dismissed the case and the court of appeals affirmed. The court noted
that both sides agreed that antitrust law permits a resort operator to organize its business
24-13. The district court granted the defendants’ motion to dismiss the class action complaint for
failure to meet the appropriate pleading requirements. However, the appellate court
reversed, concluding that the non-conclusory allegations in the complaint were adequate
to survive the motion to dismiss. In support of it decision the appellate court noted that
24-14. The court found that it would be difficult to ascertain the amount of damages sustained by
24-15. The court of appeals affirmed the district court’s dismissal of the case for failure to state a
Thinking Critically about Relevant Legal Issues
1. The author is very concerned about fair play and theoretical capitalism. He believed in pure
competition where companies are free from the shadows of large conglomerates.
2. The second-to-last paragraph is a little ambiguous. The author makes it seem as though it is
3. The opposition would argue that this is capitalism in action. Congress and the Courts should