ECON 308 Chapter Notes -Resale Price Maintenance, Sherman Antitrust Act, Clayton Antitrust Act

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Published on 19 Apr 2013
School
McGill University
Department
Economics (Arts)
Course
ECON 308
Kovacic and Shapiro: Antitrust Policy- A century of Economic and Legal Thinking
*Notes: Horizontal agreement: agreement between competing businesses in same
economic sphere; leads to price-fixing and limiting competition
Vertical agreement: agreement between firms at different levels of the supply chain
- Among American statutes that regulate commerce, the Sherman Act is
unequaled in its generality. The Act outlawed every contract, combination or
conspiracy in restraint of trade and monopolization and treated violations as
crimes. By these open-ended commands, Congress gave federal judges
extraordinary power to draw lines between acceptable cooperation and illegal
collusion, between vigorous competition and unlawful monopolization.
- Although the Sherman Act’s first two decades featured no whirlwind of antitrust
enforcement, the courts began shaping the law’s vague terms. The Act’s
categorical ban on every contract in restraint of trade required judges to develop
principles for distinguishing between collaboration that suppressed rivalry and
cooperation that promoted growth.
- The court distinguished between “naked” trade restraints, where direct rivals
simply agreed to restrict output and raise price, and reasonable “ancillary
restraints, which encumbered the participants only as much as needed to expand
output or to introduce a product that no single participant could offer.
- Judges also rejected arguments that price-fixing by competitors was benign
because the cartelists set “reasonable” prices or desired only to halt an endless
downward price spiral.
- The Supreme Court held that resale price maintenance agreements, by which a
manufacturer compels retailers to sell its products above a specified piece, is
illegal per se.
- The Sherman Act’s language and legislative history indicated that Congress
didn’t condemn the status of monopoly, but rather had to define the sort of
behaviour which, when coupled with monopoly power, constituted illegal
monopolization.
- Not until 1904, when it blacked the combination of the Northern Pacific and Great
Northern railroads, did the Supreme Court show that the Sherman Act could
forestall mergers and monopolies.
- In Standard Oil Co vs United States (1991), the Supreme Court directly tackled
the question of dominant firm conduct and left 4 enduring marks:
1. The Court treated Standard’s 90 percent share of refinery output as proof of
monopoly
2. The Court established the “rule of reason” as the basic method of antitrust
analysis. By this standard, judges would assess conduct on a case by case
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Document Summary

Kovacic and shapiro: antitrust policy- a century of economic and legal thinking. *notes: horizontal agreement: agreement between competing businesses in same economic sphere; leads to price-fixing and limiting competition. Vertical agreement: agreement between firms at different levels of the supply chain. Among american statutes that regulate commerce, the sherman act is unequaled in its generality. The act outlawed every contract, combination or conspiracy in restraint of trade and monopolization and treated violations as crimes. By these open-ended commands, congress gave federal judges extraordinary power to draw lines between acceptable cooperation and illegal collusion, between vigorous competition and unlawful monopolization. Although the sherman act"s first two decades featured no whirlwind of antitrust enforcement, the courts began shaping the law"s vague terms. The act"s categorical ban on every contract in restraint of trade required judges to develop principles for distinguishing between collaboration that suppressed rivalry and cooperation that promoted growth.

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