Chapter%2019 - NC State University Chapter 19: Antitrust...

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Chapter 19: Antitrust Chapter 19: Antitrust David Baumer Legal Environment of Business in the Information Age Spring 2003 NC State University
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Capitalism Capitalism Free markets generally produces lower prices, more variety, and better quality that any other system, but Market failures occur where One firm monopolizes an industry Firms conspire not to compete based on price Firms merge rather than compete Firms tie the sale of one product to another product There is significant evidence that innovation must be rewarded with a patent which is a legal monopoly
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Antitrust Law Antitrust Law A major challenge is distinguishing between legitimate competition and anti-competitive conduct It is not against antitrust law to create a superior product that dominates a market, but It is illegal to engage in deliberate conduct for the purpose of monopolizing a market Distinguishing between the two scenarios above is difficult
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Antitrust Law Antitrust Law In many antitrust cases, the market share of the def. is an important factor Acts by a firm with a large market share may be illegal, but the same acts by a smaller firm would not be illegal Market share is defined as MS = FS/TS*100, where MS is market share, FS is firm sales, and TS is total sales within the industry It is a characteristic of many high tech industries that one firm becomes the industry standard and therefore has a very high market share, e.g., MS Windows
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Section 1 of the Sherman Act Section 1 of the Sherman Act Section 1 of the Sherman Act prohibits every Contract, conspiracy, or combination In restraint of trade Since every contract restrains trade to some extent the courts outlawed unreasonable trade restraints In some cases, courts apply per se rules to agreements that are almost always anti-competitive such as price fixing If a firms join together and fix prices , the court do not try to determine if the agreement is anti-competitive
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Section 1 of the Sherman Act Section 1 of the Sherman Act Per rules have been applied to agreements among rival firms at the same level in the market Manufacturing, distribution, retailing If rival firms agree on price, territory, or customers it is per se illegal under Section 1 of the Sherman Act For other agreements the courts have used the rule of reason When the rule of reason is used the pro versus anti- competitive consequences of the agreement are weighed against each other Examples include exclusive dealerships which can be justified on efficiency grounds but could foreclose a significant share of the market
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Antitrust Laws Antitrust Laws The federal antitrust laws only apply to actions that affect interstate commerce in the U.S. The
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This note was uploaded on 09/26/2011 for the course BUSINESS 411 taught by Professor Staff during the Spring '11 term at Youngstown State University.

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Chapter%2019 - NC State University Chapter 19: Antitrust...

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