Lecture04Bup

Lecture04Bup - Regulatory Responses to "the Trust...

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Unformatted text preview: Regulatory Responses to "the Trust Problem" Cooperation, Competition, and the Struggle over Antitrust Legislation in the U.S., 18801914 Lecture Overview Lecture Overview State common law principles of business regulation prior to modern antitrust era. The common law of contracts and combinations in restraint of trade Lecture Overview State common law principles of business regulation prior to modern antitrust era. The common law of contracts and combinations in restraint of trade The antitrust movement and the agrarian laws (1880s) "Free and unrestricted competition Lecture Overview State common law principles of business regulation prior to modern antitrust era. The common law of contracts and combinations in restraint of trade The antitrust movement and the agrarian laws (1880s) "Free and unrestricted competition The debate between advocates of business cooperation and competition Lecture Overview State common law principles of business regulation prior to modern antitrust era. The common law of contracts and combinations in restraint of trade The antitrust movement and the agrarian laws (1880s) "Free and unrestricted competition The debate between advocates of business cooperation and competition The Sherman Act of 1890 and it's evolution From common law, to agrarian law, to "rule of reason" Lecture Overview State common law principles of business regulation prior to modern antitrust era. The common law of contracts and combinations in restraint of trade The antitrust movement and the agrarian laws (1880s) "Free and unrestricted competition The debate between advocates of business cooperation and competition The Sherman Act of 1890 and it's evolution From common law, to agrarian law, to "rule of reason" The FTC and Clayton Acts of 1914 Business Regulation in the States Prior to the Antitrust Movement Business Regulation in the States Prior to the Antitrust Movement State-level regulation by common law Business Regulation in the States Prior to the Antitrust Movement State-level regulation by common law What is the common law (distinguish from statute law)? Business Regulation in the States Prior to the Antitrust Movement State-level regulation by common law What is the common law (distinguish from statute law)? Judge-made customary law vs. legislative acts of current majority will Business Regulation in the States Prior to the Antitrust Movement State-level regulation by common law What is the common law (distinguish from statute law)? Judge-made customary law vs. legislative acts of current majority will Authority of common law comes from grounding in traditional practice, ancient patterns of use Business Regulation in the States Prior to the Antitrust Movement State-level regulation by common law What is the common law (distinguish from statute law)? Judge-made customary law vs. legislative acts of current majority will Authority of common law comes from grounding in traditional practice, ancient patterns of use Organic and experiential Business Regulation in the States Prior to the Antitrust Movement State-level regulation by common law What is the common law (distinguish from statute law)? Judge-made customary law vs. legislative acts of current majority will Authority of common law comes from grounding in traditional practice, ancient patterns of use Organic and experiential Expressive of community values Business Regulation in the States Prior to the Antitrust Movement State-level regulation by common law What is the common law (distinguish from statute law)? Judge-made customary law vs. legislative acts of current majority will Authority of common law comes from grounding in traditional practice, ancient patterns of use Organic and experiential Expressive of community values Incremental and evolutionary Business Regulation in the States Prior to the Antitrust Movement Key instrument of state business regulation: The common law of contracts and combinations in restraint of trade Business Regulation in the States Prior to the Antitrust Movement Key instrument of state business regulation: The common law of contracts and combinations in restraint of trade Two distinct bodies of regulatory principles: Business Regulation in the States Prior to the Antitrust Movement Key instrument of state business regulation: The common law of contracts and combinations in restraint of trade Two distinct bodies of regulatory principles: The common law of CONTRACTS in restraint of trade Business Regulation in the States Prior to the Antitrust Movement Key instrument of state business regulation: The common law of contracts and combinations in restraint of trade Two distinct bodies of regulatory principles: The common law of CONTRACTS in restraint of trade The common law of COMBINATIONS in restraint of trade The Concept of "Restraint of Trade" "Restraint of trade" and the "ideology of free labor" To restrain trade: To place artificial restrictions on the right to enter into an occupation of one's choosing and compete freely in the marketplace The Concept of "Restraint of Trade" "Restraint of trade" and the "ideology of free labor" To restrain trade: To place artificial restrictions on the right to enter into an occupation of one's choosing and compete freely in the marketplace The Concept of "Restraint of Trade" "Restraint of trade" and the "ideology of free labor" To restrain trade: To place artificial restrictions on the right to enter into an occupation of one's choosing and compete freely in the marketplace The Concept of "Restraint of Trade" "Restraint of trade" and the "ideology of free labor" To restrain trade: To place artificial restrictions on the right to enter into an occupation of one's choosing and compete freely in the marketplace Contracts in Restraint of Trade What is a contract in restraint of trade? A formal agreement in which one party to contract agrees to stop competing with other party Contracts in Restraint of Trade What is a contract in restraint of trade? A formal agreement in which one party to contract agrees to stop competing with other party A contract to withdraw from the marketplace Contracts in Restraint of Trade What is a contract in restraint of trade? A formal agreement in which one party to contract agrees to stop competing with other party A contract to withdraw from the marketplace A contract to cease engaging in a line of work Contracts in Restraint of Trade Courts broadly intolerant of contracts in restraint of trade Enforce only under limited conditions Apply "rule of reason" Distinguish b/w contracts that reasonably and unreasonably restrain trade Contracts in Restraint of Trade A reasonable restraint was an ancillary restraint A restrictive arrangement subsidiary/incidental to some other legitimate purpose: Contracts in Restraint of Trade A reasonable restraint was an ancillary restraint A restrictive arrangement subsidiary/incidental to some other legitimate purpose: A transfer of business property between two parties Contracts in Restraint of Trade A reasonable restraint was an ancillary restraint A restrictive arrangement subsidiary/incidental to some other legitimate purpose: A transfer of business property between two parties An agreement by a master craftsman to take on an individual as an apprentice Contracts in Restraint of Trade A reasonable restraint was an ancillary restraint A restrictive arrangement subsidiary/incidental to some other legitimate purpose: A transfer of business property between two parties An agreement by a master craftsman to take on an individual as an apprentice A reasonable restraint was also a partial restraint A restrictive arrangement of limited application Contracts in Restraint of Trade Example #1: Contract to purchase independent hardware store for $1M Includes agreement that seller will not open competing hardware store within 20 mile radius of existing firm Why? Is there a legitimate rationale for this restraint of trade? Why Restrain a Seller's Right to Practice His/Her Trade? Why Restrain a Seller's Right to Practice His/Her Trade? Protect the fair market value of property just purchased Why Restrain a Seller's Right to Practice His/Her Trade? Protect the fair market value of property just purchased What are the elements of fair market value? Why Restrain a Seller's Right to Practice His/Her Trade? Protect the fair market value of property just purchased What are the elements of fair market value? Value of real/physical property (land, buildings) Why Restrain a Seller's Right to Practice His/Her Trade? Protect the fair market value of property just purchased What are the elements of fair market value? Value of real/physical property (land, buildings) Value of stock of goods (on floor/in warehouse) Why Restrain a Seller's Right to Practice His/Her Trade? Protect the fair market value of property just purchased What are the elements of fair market value? Value of real/physical property (land, buildings) Value of stock of goods (on floor/in warehouse) Regular patterns of customer traffic Why Restrain a Seller's Right to Practice His/Her Trade? Protect the fair market value of property just purchased What are the elements of fair market value? Value of real/physical property (land, buildings) Value of stock of goods (on floor/in warehouse) Regular patterns of customer traffic Records of actual monthly/year sales revenue Why Restrain a Seller's Right to Practice His/Her Trade? Protect the fair market value of property just purchased What are the elements of fair market value? Value of real/physical property (land, buildings) Value of stock of goods (on floor/in warehouse) Regular patterns of customer traffic Records of actual monthly/year sales revenue Goodwill (community reputation attached to business) Product quality, excellent service, honest dealing Contracts in Restraint of Trade Common law judges uphold these restraints as "reasonable" "partial," "indirect," "ancillary" restraints Incidental to some other legitimate business purpose Of limited application Contracts in Restraint of Trade Judges refuse to enforce "unreasonable" restraints Scope of restriction too great Unreasonably restrains individual right to practice trade Seller $1M Buyer Old Pharmacy Seller New Pharmacy Buyer Old Pharmacy 20 MILE RADIUS 20 MILE RADIUS Seller New Pharmacy Buyer Old Pharmacy 20 MILE RADIUS Reasonable contract in restraint of trade 20 MILE RADIUS Seller New Pharmacy Buyer Old Pharmacy 20 MILE RADIUS Reasonable contract in restraint of trade 20 MILE RADIUS Partial: Ancillary to legitimate business purpose Seller Seller New Pharmacy Buyer Old Pharmacy New Pharmacy 20 MILE RADIUS Reasonable contract in restraint of trade 20 MILE RADIUS Partial: Ancillary to legitimate business purpose Seller New Pharmacy Buyer Old Pharmacy 20 MILE RADIUS Reasonable contract in restraint of trade 20 MILE RADIUS Partial: Ancillary to legitimate business purpose Seller New Pharmacy Seller New Pharmacy Seller New Pharmacy Buyer Old Pharmacy 20 MILE RADIUS Reasonable contract in restraint of trade 20 MILE RADIUS Partial: Ancillary to legitimate business purpose Seller New Pharmacy Seller New Pharmacy 80 MILE RADIUS Buyer Old Pharmacy 80 MILE RADIUS Seller New Pharmacy Seller New Pharmacy 80 MILE RADIUS Buyer Old Pharmacy 80 MILE RADIUS Seller New Pharmacy Seller Unreasonable contract in restraint of trade New Pharmacy 80 MILE RADIUS Buyer Old Pharmacy 80 MILE RADIUS Seller New Pharmacy Not ancillary to legitimate business purpose Seller Unreasonable contract in restraint of trade New Pharmacy 80 MILE RADIUS Buyer Old Pharmacy 80 MILE RADIUS Seller New Pharmacy Not ancillary to legitimate business purpose Object: Direct suppression of competition Seller Unreasonable contract in restraint of trade New Pharmacy 80 MILE RADIUS Buyer Old Pharmacy 80 MILE RADIUS Master Transfer of Knowledge Apprentice Leather Craft New Master Leather Goods 20 MILE RADIUS Old Master Leather Goods 20 MILE RADIUS New Master Leather Goods 20 MILE RADIUS Reasonable contract in restraint of trade Old Master Leather Goods 20 MILE RADIUS New Master Leather Goods 20 MILE RADIUS Reasonable contract in restraint of trade Old Master Leather Goods 20 MILE RADIUS Partial: Ancillary to legitimate business purpose New Master Leather Goods New Master Leather Goods 20 MILE RADIUS Reasonable contract in restraint of trade Old Master Leather Goods 20 MILE RADIUS Partial: Ancillary to legitimate business purpose New Master Leather Goods New Master Leather Goods 80 MILE RADIUS Old Master Leather Goods 80 MILE RADIUS New Master Leather Goods New Master Leather Goods 80 MILE RADIUS Old Master Leather Goods 80 MILE RADIUS New Master Leather Goods Unreasonable Contract in Restraint of Trade New Master Leather Goods 80 MILE RADIUS Old Master Leather Goods 80 MILE RADIUS New Master Leather Goods Unreasonable Contract in Restraint of Trade Not ancillary to legitimate business purpose New Master Leather Goods 80 MILE RADIUS Old Master Leather Goods 80 MILE RADIUS New Master Leather Goods Unreasonable Contract in Restraint of Trade Not ancillary to legitimate business purpose Object: Direct suppression of competition New Master Leather Goods 80 MILE RADIUS Old Master Leather Goods 80 MILE RADIUS Combinations in Restraint of Trade Reference to horizontal combinations Voluntary agreements among natural competitors to stop competing Abide by common schedule of Prices Output levels Market shares Pools, cartels, trusts as examples of combinations in restraint of trade Different forms of Horizontal Combination Cartels and RR pools--the loosest form of combination Both ownership and day-to-day management of individual property units are decentralized Rational reorganization of productive enterprise difficult Defection easy (esp. likely when business times get bad) -- Restrict Output -- Raise Prices -- Stabilize Prices STEEL CARTEL -- Restrict Output -- Raise Prices -- Stabilize Prices Inefficient Producers STEEL CARTEL Efficient Producers Defect -- Restrict Output -- Raise Prices -- Stabilize Prices Inefficient Producers STEEL CARTEL Efficient Producers Defect Different forms of Horizontal Combination Trusts and Holding Companies--a tighter form of combination Ownership remains decentralized, but day-to-day management transferred to central director In exchange, owners received certificates entitling them to some share of aggregate profits. -- Restrict Output -- Raise Prices -- Stabilize Prices STEEL TRUST Different forms of Horizontal Combination Merger--Tightest form of combination Ownership and management concentrated In many instances, beyond the reach of the law to regulate. Rights of property Combinations in Restraint of Trade Combinations in restraint of trade apply to looser forms of combination Broadly tolerated by common law courts Horizontal arrangements to restrict competition a part of a citizen's right of voluntary association Public welfare not compromised as long as Potential competitors free to enter the market Not survival goods ("necessaries of life") Horizontal Combination of Watch Makers Voluntary Arrangement to Restrain Competition b/w Natural Competitors Example: Price-Fixing Combination Horizontal Combination of Watch Makers Voluntary Arrangement to Restrain Competition b/w Natural Competitors Example: Price-Fixing Combination 1. Watches not "necessaries of life" Horizontal Combination of Watch Makers Voluntary Arrangement to Restrain Competition b/w Natural Competitors Example: Price-Fixing Combination 1. Watches not "necessaries of life" 2. Restrictions are voluntary Potential Competitor Horizontal Combination of Watch Makers Voluntary Arrangement to Restrain Competition b/w Natural Competitors Example: Price-Fixing Combination 1. Watches not "necessaries of life" 2. Restrictions are voluntary Actions to restrict entry of new firms into market illegal at common law (Remember predatory pricing?) Potential Competitor Horizontal Combination of Watch Makers Voluntary Arrangement to Restrain Competition b/w Natural Competitors Example: Price-Fixing Combination 1. Watches not "necessaries of life" 2. Restrictions are voluntary Horizontal Combination of Watch Makers Voluntary Arrangement to Restrain Competition b/w Natural Competitors Example: Price-Fixing Combination 1. Watches not "necessaries of life" 2. Restrictions are voluntary Horizontal Combination of Watch Makers Competitor Voluntary Arrangement to Restrain Competition b/w Natural Competitors Example: Price-Fixing Combination 1. Watches not "necessaries of life" 2. Restrictions are voluntary Contracts to restrict defections from combination not enforceable at common law (Remember RR pools prior to ICA?) Horizontal Combination of Watch Makers Competitor Voluntary Arrangement to Restrain Competition b/w Natural Competitors Example: Price-Fixing Combination 1. Watches not "necessaries of life" 2. Restrictions are voluntary ...
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This note was uploaded on 04/02/2008 for the course POL SCI 147C taught by Professor James during the Winter '08 term at UCLA.

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