Trade Regulations Outline
· Antitrust deals with what is, at root, an economic phenomena
· Monopoly or monopolizing – collusion between competitive firms aimed at jacking up the market price above the competitive level
· Also certain mergers that don’t create a monopoly, but do cause economic danger
o Monopoly pricing – firms create a false scarcity of their products in order to drive the price of the products up, causes inefficiency which is why antitrust laws exist
o No enforcement in areas where competition is less efficient than monopoly because the costs of monopoly pricing are outweighed by the economies of
centralizing production in one or a very few firms.
Reasons for antitrust –
Allocate efficiency (enough output to satisfy all demand of consumers who value product above cost of producing) – Chicago School (often maps onto consumer welfare, but not always)
Technological innovation, dynamic efficiencies
Post-Chicago: neoclassical price theory too simple + efficiency may not be sole goal of AT;
income distribution effects (M charging supra-competitive price effects wealth transfer from consumer to M)
impersonal nature of market removes political element
freedom of opportunity to enter and compete
autonomy, freedom of K
populism – but at tension w/ economic reasons b/c tradition favors small bus.
Sherman Act – 1890
SA forbids ALL contracts in restraint of trade – broader than common law, which made unreasonable restraints illegal – 1897, US v. Trans-Missouri Freight (association had set rates for transport from Mississippi to West Coast)
Actual language –
An act to protect trade and commerce against unlawful restraints and monopolies
Section 1 – 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 declared to be illegal 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.
Section 2 – 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.
Restrictive Covenants –
· State and federal courts adopted the reasoning from the decisions in Addyston Pipe, and Mitchel v. Reynolds – “a promise to refrain from competition that imposes a restraint that is not ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade.”
· Second restatement of contracts –
o A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade if
§ The restraint is greater than is needed to protect the promisee’s legitimate interest, or,
§ The promisee’s need is outweighed by the hardship to the promisor and the likely injury to the public
o Promises imposing restraints that are ancillary to a valid transaction or relationship include the following: (these are allowable)
§ A promise by the seller of a business not to compete with the buyer in such a way as to injure the value of the business sold;
§ A promise by an employee or other agent not to compete with his employer or other principal;
§ A promise by a partner not to compete with the partnership.
· Courts generally analyze three dimensions when determining whether a covenant is unnecessarily burdensome:
o 1. The geographic area covered by the restraint
o 2. Duration of covenant
o 3. Whether the scope of the restraint is unreasonably broad
· Very common in employment contracts to stop past employees from going to competitors and disclosing information
· Restrictive covenant cases today mostly handled under state law but the enforcement of an overly restrictive covenant by a dominant firm that prevents a new entrant from coming into a concentrated market could give rise to an antitrust Sherman violation.
Penalties for Antitrust crimes – in 2004, harsher criminal and civil penalties enacted. Max 10 years imprisonmen
ite purchases beyond its current capacity.
(i) Isn’t that odd – the court frowns on activity that expands output and thus lowers price! Would it be better if they restricted their capacity and increased prices to encourage new entrants?
(ii) Note the Chicago School would vehemently reject this approach – according to it, the only evil of monopoly is reduced output.
(b) Court says it’s intent was clearly to exclude competitors
(i) Graglia: of course that was one of its reasons – the only real question is whether the other reasons outweigh this one.
(ii) Graglia: determining intent is redundant. Intent must be determined from acts – thus it’s the acts that are prohibited. Performance of the act presumes intent; intent is nothing more than desiring the natural and foreseeable consequences of one’s actions.
(a) Ex: gender discrimination in firehouses. Does it matter if the other firemen do or don’t want women around if the women can’t carry hoses to the top of a building? The only real question is if the proffered reason – we need people who can do their job – is a valid reason for exclusion. The fact that they may just not want women around is ancillary to that question.
(iii) Graglia: the use of intent is even more troublesome in antitrust – isn’t your intent supposed to be to succeed? Doesn’t that usually mean making your competitors less successful? The problem is the law is drawn to moralisms, which forces the judges to make policy decisions they aren’t supposed to make.
(3) The court dismisses ALCOA’s claim that they priced their goods reasonably – which makes sense. We can’t guarantee that monopolists will price reasonably in the future, and we don’t have to have constant judicial oversight.
c) Additional Points on ALCOA
(1) What if ALCOA argued it had reasonable return on its investment? Doesn’t matter; competition can lower costs, which would yield lower prices – but retain the same return on investment.