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Antitrust and Trade Regulation
West Virginia University School of Law
Olson, Dale P.

Olson Trade Regulations Fall 2012



Achieve desirable economic results

i. Efficiency in use of resources

ii. Progress, or the growth of total output and output per person

iii. Stability in output and employment

iv. An equitable distribution of income

Promote competition

i. Maintain competitive system / process

ii. Where there is no competition – the loser is the consumer (monopoly)


i. “fairness” means primarily that similarly situated parties are treated similarly and that general notions of fair play are observed

Limit big business

i. Limit social and political power of big business and increase that of small businesses

The ways AT laws are written and applied make them very uncertain.

The basic phenomenon AT deals with is that of monopoly or monopolizing, broadly defined to include collusion between competing firms aimed a jacking up the market price above the competitive level, and also practices such as mergers, that create a danger rather than a certainty of monopoly.

Efficiency is a big goal as well.

3 main ways of structuring the economic system in response:

1. Tradition

2. Central planning – central European / Soviet approach

3. Market System – American system – efficient producer makes more money

Effects of violating Anti Trust Laws

Principal Penalty damages

Damages are multiplied by 3 – an incentive to indulge in Anti-trust activities

Criminal Penalty – Could mean years in prison

Predictable loss of prestige


An Act to Protect Trade and Commerce against Unlawful Restraints and Monopolies

It was the 2nd fed statute to effectively attempt to control business (first was Interstate Commerce Act) and provided significant controls over the railroads.

Section 1 (Restraints of trade): Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. . . Every person who shall make any contract or engage in any combination or conspiracy hereby to be illegal shall be deemed guilty of a felony, and, in conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

Section 2 (Monopolization): Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, #350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

Anti Trust is becoming prevalent in other countries as well.

Look @ HANDOUTS↓ – to how anti trust works in the market place and for consumers.

Identify what the agencies are: mechanisms which may overlap


Created out of the old bureau of corporations. Created in order to enforce not just the antitrust laws, but has very broad jdx under Section 5 – Unfair methods

FTC and Justice Dept split Anti trust jdx. Both are not involved in the same case at the same time.

Does NOT investigate individual claims.

Does not lead to an investigation.

FTC has been fair and active in a number of related areas.

Has not been perceived as a very aggressive enforcer of its mandate.

i. i.e. FTC broke up monopoly when you could only buy wiper blades, batteries, etc. from the Oil Co. Texaco.

FTC has a broader range of activities.

In addition to anti trust – deals with false advertising.

Dod (AT) – Justice Department

The justice dept has criminal actions – which the FTC doesn’t

Both (FTC & Justice Dept) have the authority to investigate cases.

In addition to dealing with anti trust, the Just Dept issues opinion letters / business review letters– when someone applies, only the easy cases are presented. Nothing mandatory about a business review letter. What could have been a promising source of information – hasn’t had that effect.

Whatever competition there was – would of course disappear if those two groups became one group.

Private Actions (3x)

Lawsuits brought on as class actions. Brought on by individuals that didn’t result in significant recoveries for the consumer. A common type of recovery would be that the company would provide coupons of some sort, & provide documentation. The actual rebate / reward may be modest.

These cases mainly serve as deterrence. Does it really matter to ppl who are overcharged? – probably not. But it does matter to companies & has greater significance.

State A/g (State Agencies)


FTC Handout

The specifics of this case are simple.

Rambus participated in setting standards for various components that go into desktops, laptops, etc.

Setting standards – permissible conduct. There is a need for standards. i.e. jean sizing would be considered a procompetitive standard. Having greater predictability is better to the consumer. There is no downside to competition of standardized sizes.

Companies are not required to set standards. The reason standards are set – is b/c components are used and bought from “off the shelf”. A company can make different components for a lot of different manufacturers.

Here, Rambus is accused of being deceitful by failing to identify that the standards it was advocating is what would benefit it. Rambus is a licensing firm – develops internal workings of computers. Doesn’t actually manufacture.

Looking at this in a competitive environment – allowed to get together to facilitate and reduce chaos. The basic activity is neutral, positive from an antitrust perception.

Had competitors known that Rambus was not advocating a standard that was technological superior but rather a economic stake – the outcome would have been much different.

Lying by failing to make an affirmative representation is deception – which has, by the FTC, hurt competition.

Uncertainty – There is now uncertainty as to the viability of Rambus’ revenue stream.

i. There is uncertainty on how profitable Rambus will be.

ii. Also, it is uncertain as to a degree in which competitors will want to deal with Rambus in the future.

iii. In terms of some elements to quantify – to put a dollar figure on the particular activity it is certainly bad news.

iv. Uncertain as to when a remedy will be fixed.

v. The degree to which it’s reputation in the industry will suffer

Look @ FTC Press Release – 2nd & 3rd pages of handout.

When there is act of competition, the process of competition and the viability of competition is a protection for us. It doesn’t guarantee anything. But the advantage of the competitive process, that when there is competition, there is at least the opportunity for the consumer to have greater choices and among those choices would be prices which are lower. We see this most often in the reverse, what we may be more aware of is when we don’t have access to a competitive process. Choices are fewer, and service can be of lesser quality.

We all deal with the post office – which is a monopoly. Because by law, the post office has a statutory monopoly.

The post office cannot pick and choose customers. The post office can’t say, we only deliver mail to the US.

However, Private firms make all sorts of choices. It is either profitable or unprofitable, or fits the business plan or it doesn’t. (i.e. airlines) – So in that sense, it is a choice in both directions. The company that finds a product is unattractive to consumers or doesn’t fit into how it sees itself as a business can generally discontinue.

We don’t, as consumers, have any rights. A retailer can enforce a manufacturer to sell it. We are looking at a range of choices. In terms of the big picture – it is set as the market place.

Allegation revolves around deception. The allegation is very simply, that the standards set came as a result of deception. What Rambus is accused of in this context – is that it lied to others by not saying it owned the technologies…

If this is true, It was used as a means to monopolize.

Rambus is pushing out those who didn’t lie.

Either the standards would not have been adopted or they would be adopted over other terms.

If Rambus would have said “we own these components and we either agree or disagree” – then manufacturers could have agreed or disagreed.


Diff from Rambus b/c here the Justice Dept finds no basis for violation.

Not likely to reduce competition substantially.

Is competition going to be reduced substantially? Does a person going to Lowes to buy a new washer or dryer see significantly reduced competition?

Strong rival suppliers with the ability to expand sales significantly.

There are other companies that are just as advanced as the Whirlpool Company.

Accordingly – will there be a suppression of technology?

There are other suppliers who can provide these technologies effectively.

Efficiencies –

Generally, it costs less money to run one company than it does two. Those efficiencies will be passed in part. Generally, when two companies merge, there will be efficiencies. It may mean that price increases are slower. There will be some price savings which will include price savings consumers.

Not likely to harm consumer welfare

In other words, would I see a difference when I go to buy new appliances?

Are my choices in terms of technology, models, units, etc, still going to be there?

Focused its investigation on residential clothes washers and dryers

Any attempt to raise prices would be unsuccessful

Who is considered to be the customer as viewed by Dept of Justice? – Big box stores (Best Buy, Sears, Home Depot, Lowes, etc.) that buys a lot of these each month. This is not the individual trying to push back against the manufacturer, it is big companies saying “we won’t pay that.” In terms of the match up, Dept of Justice views this as evenly matched. The Dept of Justice does not view the customer as being in a position to be pushed around.

Look at Point C:

Dept is making the point that the Auto industry has found that the American market is no longer served predominantly by American Companies.

This Korean firm has been able to make significant

i. It is a big company that does business world-wide

ii. **The market place is willing to accept Korean branded products in the same way that we accept German products (cars) or Japanese products (technology / cars)

The point is – Markets change. Is it equivalent to people in Morgantown, East Lansing, etc. Will ppl going to Best Buy look at all of them as reasonably comparable?

i. The Dept said that the market has opened up relatively recently, hence, if Whirlpool attempts to monopolize the market or impose significant price increases, consumers will move to other brands.

Most significant point – E – recent manufacturers can take care of themselves.

Point F – Dept’s overall determination that consumers will benefit.

If one of them went out of business, are we better off?

If we ask it in the abstract, do consumers usually benefit? – Not ordinarily in the abstract.

There are lots of advantages which will provide benefits to consumers and consumers will really see the benefit. The assertion is that consumers will really see some benefits.

Founding period 1890 – 1914 – appreciation of big business during that period

Ø The reason trust began to develop during this time:

o It is a law that is aimed unequivocally at a device called a trust

§ The advantage of a business trust – there was no public record of it. It allowed a common direction – sometimes to the point of common management for what had been a group of competing firms.

Period of neglect 1914 – 1937

Period of revival 1937 – present. Anti-trust is sustained in this period the same way it began – a consensus that big business should be checked. The economic issue is whether anti trust law seriously interferes with the requirements of economic efficiency.

The advantage of any kind of conspiracy or collaboration à it reduces a significant element of doubt b/c you know your dispensable or apparent competitor is doing. By controlling you can “rig it” almost. You go from an environment where there is PROFOUND UNCERTAINTY to an environment where there is COMPLETE CERTAINTY.

You have an element of control – if you have control of the price of something, then the incentive is to put aside a marketable environment. Prices are set by the market place – no individual supplier is able to affect the market except by simply walking away from it.

The market is pushed aside – market forces, basic supply and demand – are displaced by agreement by dispensable competitors.

Definition 1: 2nd paragraph– Antitrust laws

Price discrimination – different ppl (companies) – different buyers pay different prices. Comes down to is that pricing can be used to punish, to benefit, to run competitor out of business. To provide advantage. The reason that Walmart is able to sell traditional grocery store – is that Walmart receives significant discounts on what it purchases. It increasingly shutting out the middle man. It increasingly insisting that products be shipped to its warehouse

ties. In terms of who is important in town, who has money, who employees ppl, a car dealership is often very important in rural communities.

Important players in local economies. Car companies are global enterprises. Companies of gigantic size, i.e. General Motors – revenue of $2billion per year.

In terms of what they do – the principle enterprise is vehicles.

Ford & General Motors – these firms haven’t sold their principle product profitably recently. Both of them lose b/t $1500-$2000 on every car.

In building “legacy costs” – promises of different varieties made, highly unionized, etc. – these costs add up and more retired workers than regular workers (the pension plans and retirement plans have made American firms not very competitive). Management helps themselves to lots of money. Money didn’t come out of efficiencies, but came out of salaries of workers.

In terms of the legacy – those pmts have to come from somewhere.

Focus on paragraphs that were identified in handout:

Car dealers have enormous leverage

“Dealers Day In Court laws” – the dealerships which have more local clout will be getting campaign contributions. The political leverage and economic leverage separated in effect.

Dealerships are protected by law. GM cannot simply close down a dealership. (Manufacturers can “punish” a dealership somehow. But there are limits on shutting down a dealership).

Why we don’t see these companies restructuring the same way as soup or cereal companies.

In terms of the latitude of decision making – it is important to note that it varies from one company to another.

Unilateral right to refuse to deal – sellers have the same right “generally speaking”

Today landlords may discriminate against lawyers.

GM eliminated Oldsmobile – in terms of flexibility ~ if board of directors of GM has wanted to shut down Buick, it could. But they must develop a business plan that balances the cost v. the benefits of the enterprise.

Difficulty: these firms are very big, foreign competition is fairly recent. They assumed they would control the market from the beginnings they would control the automobile industry like they did many years ago.

Interest of local dealers & manufacturers are not aligned

It is pointing out that they simply in effect do different things. The retailer is not a manufacturer and a manufacturer is not a retailer. The bottom line is that their interests are similar but they are also some what different.

Dealerships often have more Political influence than automakers do.

They have a commonality to go to WV legislature in getting laws an investment in dealership. In terms of the way that companies deal with car dealerships as opposed to the way Sony deals with electronic dealerships is different. As you see from the article, the co. has a less degree of flexibility in that it would have to buy a company to shut it out.

Impact of the internet on our economy

The appreciation of information is much more visible today than it was a few years ago.

You can look up a certain car, the price of that car in each area, etc.

It empowers consumers. It is an informed decision.

When it comes to a major purchase – increasingly consumers will “do their homework” in order to potentially save money. To feel that they got a fair price. We can at least be informed. We can at least assess what something is selling for and do so with reasonable objectivity.

Some dealerships & states have passed laws limiting the ability to sell purely over the internet. Manufacturers traditionally insist that dealerships provide warranties. When it is purchased, the life span can range from a few years to an extended period.

When the chairman of general motors was asked whether GM would file for bankruptcy? He said 75% of ppl wouldn’t buy car from a company in bankruptcy.

The mere threat of bankruptcy – caused ppl not to think about buying a certain car.

In terms of latitude – what the company can do. That is not in practical terms, an option.

Ford attempted online deals. But dealers objections caused the manufacturers to retreat.

Ford & GM sell their cars through independent dealers.

Olson disagrees with this paragraph. It is important to note that the auto industry goes back 100 years. It wasn’t as big in 1906 as it was today. Reproductions of catalogues where someone could and ppl did buy parts to buy an automobile. (i.e. like you do a computer)

The auto industry grew out of companies that were there. Machine shops, carriage builders and certain manufacturers. The reasons companies would not expand into retail outlets. It is a huge capital investment. Unlike the local business person, the family owned Ford Dealership, Someone in Detroit or Tokyo has very little feel for the market in WV. These were preminately local business and it isn’t a good use of money to invest in an “ancillary business, not primary business”

Increasingly as business becomes more competitive, to report increased earnings and improve return on invested capital. In terms of today’s business approach, the objective would not be to own thousands of dealerships, but rather focus on what you do best and what is profitable. Some suggest that these firms should get out of manufacturing all together. The idea is that a firm like Cisco is not a manufacturer. It sells pieces of equipment but that is different than making pieces of equipment.

With size up to a certain point comes efficiencies (can make things more cheaply) Although there are niche markets, companies have to either be very big or specialized.