LAW, BUSINESS, &

SOCIETY
11th
Edition

McGraw-Hill

2015 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
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Learning Objectives

Explain how Microsoft violated U.S.

antitrust laws
Analyze when a monopoly has been
created
Identify the potential benefits and
hazards of mergers
Distinguish between horizontal and
vertical mergers
Explain premerger notification
requirements
11-2

Learning Objectives

Describe remedies for mergers

determined to be anticompetitive
Analyze when a horizontal merger is
anticompetitive
Analyze when a vertical merger creates
anticompetitive market foreclosure
Contrast antitrust enforcement in the
United States and the European Union
(EU)
11-3

Microsoft Violates Antitrust

Laws

U.S. Justice Department went against

Microsoft claiming it had violated
various antitrust laws
Done in sole purpose of gaining market
dominance
Case settled outside court with
company agreeing not to retaliate
against other software firms
11-4

Monopoly

Situation in which one firm holds the

power to control prices and/or exclude
competition in a particular market
Legal test for monopolization
Possession of power in the relevant market
Wilful acquisition or maintenance of power

11-5

Monopoly

Antitrust law does not punish efficient

companies who legitimately earn and
maintain large market shares
Oligopoly - Firms sharing monopoly
power
Oligopolistic markets are common in

American life
Produce significant efficiencies and provide
market space for smaller competitors
11-6

Monopoly Analysis
Framework

Define the relevant product market

Define the relevant geographic market
Compute the defendants market
power
Assess the defendants intent
Raise any available defenses

11-7

Product Market

Court seeks to encompass categories

of goods in which defendants products
or services compete
Excludes goods not in the same

competitive arena

Fundamental test is interchangeability

Determined by the price, use, and quality

of the product

11-8

Geographic Market

Any section of the country where

product is sold in commercially
significant quantities
Identified in terms of its unique
economic properties

11-9

Market Power

Market share alone does not establish

monopoly power
Markets remain competitive despite a
firms monopoly due to
Barriers to entry
Economies of scale
Strength of the competition
Trends in the market
Pricing patterns
11-10

Intent and Defenses

Intent
Monopoly finding requires market power

and wilful acquisition of that power

Show of deliberate or unfair conduct
suffices to establish requisite intent

Defenses
Defendant can prevail if the evidence

demonstrates monopoly was earned

11-11

Attempted Monopolization

Sherman Act forbids attempts to

monopolize
Legal test
Defendant engaged in predatory or

anticompetitive conduct
Specific intent to monopolize
Dangerous probability of achieving
monopoly power

11-12

Case: Monopoly

Case
Christy Sports v. Deer Valley Resort

Company
555 F.3d 1188 (10th Cir. 2009)
District court

Issue
Plaintiff brought private antitrust action

against the defendant

Alleged that DVRC had monopoly power and
abused that power to harm Christy Sports
11-13

Case: Monopoly

Case
U.S. v. Syufy Enterprises
903 F.2d 659 (9th Cir. 1990)
District court

Issue
U.S. Department of Justice brought civil

antitrust action to force Syufy to disgorge

the theaters purchased in 198284 from
his former competitors
11-14

Mergers

Motivation
Technological change
Efficiency enhancement
Piles of available cash

Growth opportunities and cost cutting

are drivers of merger activity

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Merger Virtues
Permit the replacement of inefficient
management
Permit stronger competition with previous
rivals
Improve credit access

Produce efficiencies

11-16

Merger Virtues
Offer a pool of liquid assets for expansion and
innovation
Offer tax advantages

Growth by merger is less expensive

Help to satisfy the personal ambitions and needs
of management
11-17

Merger Problems

Too much power in few hands

Trigger a merger movement among
industry competitors
Higher market concentration can lead to
higher prices
Innovation may be harmed
Large companies can shape political
affairs
Large companies cannot be allowed to
fail
11-18

Merger Law

Mergers are addressed by Section 1 of

the Sherman Act
Clayton Act, Section 7 offers the
primary legislative oversight
Merger involves the union of two or
more enterprises
Property of all is transferred to the one

remaining firm

11-19

Categories of Mergers
Horizontal merger
Involves firms that are in direct competition and
occupy the same product and geographic
markets
Vertical merger
Involves two or more firms at different levels of
the same channel of distribution
Conglomerate merger
Involves firms dealing in unrelated products
11-20

Merger Law: Premerger

Notification

Hart-Scott-Rodino Antitrust
Improvements Act (HSR)
Requires mergers and acquisitions to be

reported to the Federal Trade Commission

and the Justice Department
Requires merging firms to provide
documentation about mergers impact on
competition

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Merger Law: Remedies

Merger is allowed if the government

decides that it is not threatening
Government works out an agreeable
settlement if the merger is
anticompetitive
Decides to sue if cases negotiation fails

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Horizontal Analysis

Horizontal mergers raise

anticompetitive risks
Focuses on:
Coordinated effects/collusion
Unilateral effects

Market power
Ability of a seller to profitably maintain

prices above competitive levels for a

significant period of time

11-23

Guidelines for Analyzing

Horizontal Mergers

Market definition
Measurement of market concentration
Identification of likely anticompetitive
effects
Likelihood of future entrants to the
market
Appraisal of efficiencies and other
possible defenses

11-24

Horizontal Analysis

Market
Smallest product and geographic market

Market concentration
Measured by the Herfindahl-Hirschman

Index (HHI)
Government will be concerned about a
merger if the HHI value is greater

11-25

Horizontal Analysis

Adverse effects
Government worry that the merger may

permit monopoly behavior in the market

Ease of entry
Firms charge competitive prices if new

competitors enter post merger market

Defenses
Failing company doctrine
Efficiencies
11-26

Analysis Guideline Changes

Reduced role for market share

Increased attention to adverse
competitive effects
New approach may allow the
government greater flexibility in
proving competition problems

11-27

Vertical Analysis

Vertical merger involves an alliance

between a supplier and a purchaser
Results in market foreclosure violating
Clayton Act
Government is concerned about
anticompetitive effects
Vertical mergers are challenged under

certain conditions

11-28

Figure 11.1 - Vertical Merger

11-29

Case: Horizontal Merger

Case
Federal Trade Commission v. Staples, Inc.

and Office Depot, Inc.

970 F.Supp. 1066 (D.D.C. 1997)

Issue
Defendants Staples and Office Depot

entered into an agreement and plan of

merger
FTC filed suit seeking a temporary
restraining order and injunction against the
merger
11-30

Antitrust Laws and the

International Market

Sherman Act
Applies to the conduct of American business

abroad that has a effect on commerce

Agreement entered into another nation does
not excuse an American firm from the reach of
the Act

Clayton Act
Section 7 is applicable to acquisitions

combining domestic and foreign firms

Applicable to acquisitions not involving
American firms if the effect would harm
competition in the American market
11-31

Antitrust Laws and the

International Market

Federal Trade Commission Act

FTC shares antitrust enforcement authority

with the Justice Department

Section 5 strengthens Clayton 7

Extraterritoriality
U.S. Justice Department claims national

authority to apply antitrust law abroad

Provision to sue foreign firms violating U.S.
antitrust laws

11-32

European Union Antitrust

Enforcement

American and European Union antitrust

policies are compatible
Product of constant consultation

Antitrust decisions of EU regulators

influence business practices worldwide

11-33

Other Nations

Number of nations with competition

laws has increased in the recent years
European Union and China signed a
memorandum of understanding
affirming antitrust cooperation in 2012
Regulators have started to assert
themselves more aggressively in India
Wide range of industries are scrutinized for

alleged price fixing

11-34