trade practices
DESCRIPTION
Trade Practices. Common law Covenant not to compete Must be reasonable Society demands laws against predatory business practices Legislation Laws are vague Reliance on court interpretation. Antitrust Laws. Views Chicago School Promote economic efficiency - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/1.jpg)
Trade Practices
• Common law– Covenant not to compete– Must be reasonable– Society demands laws against predatory
business practices• Legislation
– Laws are vague– Reliance on court interpretation
![Page 2: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/2.jpg)
Antitrust Laws
• Views– Chicago School
• Promote economic efficiency• Large firm size derived from superior competition• Less concern about vertical restraints
– Traditionalists• Promote social goals• Favor more enforcement• Large firms possess economic & political power
![Page 3: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/3.jpg)
Penalties
• Pleas– Guilty, not guilty, nolo contendre
• Nolo contendre same penalty as guilty, but cannot be used in civil cases
• Criminal penalties– Prison– Fines up to $10 million
![Page 4: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/4.jpg)
Penalties
• Civil remedies– Treble damages– Attorney fees
• Equitable remedies– Injunction– Dissolution (cease business)– Divestiture– Divorcement (separate)– Contract cancellation
![Page 5: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/5.jpg)
Sherman Act
• Monopoly– Monopoly power
• Relatively inelastic demand curve• Market share over 50%
– Relevant market• Geographic market• Submarket• Product market
– Purposeful or willful attempt to monopolize– Attempt does not need to be successful, but to have a dangerous
probability of success– Exception: monopoly acquired through superior skill, foresight & industry
![Page 6: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/6.jpg)
Sherman Act
• “Contract, combination, or Conspiracy”– Joint action– “conscious parallelism” does not prove an
agreement to joint action• Rule of reason• Per se violation
![Page 7: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/7.jpg)
Sherman Act
• Horizontal Price-fixing– No defense– Minimum prices – Maximum prices– List prices– Following a price leader– Production limitations– Limitations on competitive bidding– Credit arrangement agreements
![Page 8: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/8.jpg)
Sherman Act
• Division of Markets– Agreement to divide a market– Reduces interbrand competition– Per se violation
• Group Boycotts & Refusals to Deal– Well intentioned– Per se violation; unless firms do not have market power– Anti-competitive
![Page 9: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/9.jpg)
Sherman Act
• Joint ventures– Subject to court consideration
• Exceptions– Noerr-Pennington doctrine– Prior approval
![Page 10: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/10.jpg)
Vertical Trade Restraints
• Resale Price Maintenance– Minimums – rule of reason– Maximums – per se violation– Inhibits intrabrand competition– Consignments usually ok– No enforcement of “suggested retail price”
• Sole Outlets & Exclusive Distributorships– Subject to “rule of reason”– Amount of interbrand competition
![Page 11: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/11.jpg)
Vertical Trade Restraints
• Customer & Territorial Restrictions– Subject to “rule of reason”– Free-rider problems– Interbrand v. intrabrand competition– Market power of manufacturer– More favorable to new manufacturers
![Page 12: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/12.jpg)
Vertical Trade Restraints
• Tying arrangements– Distort competition– Per se violation
• Market power• Tie-in affects substantial amount of commerce
– Defenses• New-industry• Goodwill
![Page 13: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/13.jpg)
Vertical Trade Restraints
• Exclusive Dealing or Requirements Contracts– Inhibit intrabrand competition– Treated more leniently than tying arrangements– Generally ok if manufacturer does not have great
market power– Rule of reason
• Degree of competition decrease• Duration of the agreement• Entry barriers
![Page 14: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/14.jpg)
Vertical Trade Restraints
• Price Discrimination (Robinson-Patman Act)– Purchases must be made at the same time– Can apply to indirect charges– Like grade or quality– Injury to competition– Defenses
• Legitimate cost differences• Meeting the competition
– Illegal for buyers as well
![Page 15: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/15.jpg)
Horizontal Mergers
• Eliminates competition• May increase market power to distort competition• May increase industry concentration• Supreme Court more lenient since the 70’s• Failing company• Small company• International markets
![Page 16: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/16.jpg)
Vertical Mergers
• May block competitors’ access to market• May eliminate a potential competitor (firm
itself)• Eliminate benefits of threatened
competition• Courts historically have not examined
efficiency arguments
![Page 17: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/17.jpg)
Conglomerate Mergers
• Related businesses• Geographic extension
![Page 18: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/18.jpg)
Interlocking Directorates
• Illegal under the Clayton Act– Large firms– Anticompetitive agreements would violate
antitrust laws
![Page 19: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/19.jpg)
Exemptions• State Act
– Must be a formal state policy– Must be supervised by the state
• Petitioning the Government– Exempts political activity
• Unions– Monopolies– Group boycotts
• Specific regulated industries– Insurance– Banking– Airlines– Utilities– Financial services
![Page 20: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/20.jpg)
Federal Trade Commission• Deceptive Advertising
– Claims that can be proven false– Implied representations
• Regulates franchising• Cooling off periods• Unsolicited mail• Sweepstakes/contests• Negative option plans• Mail order merchandise• Telephone solicitations
![Page 21: Trade Practices](https://reader036.vdocuments.net/reader036/viewer/2022081520/56815fba550346895dceb620/html5/thumbnails/21.jpg)
Lanham Act
• Trademark infringement• Appropriating another’s name of likeness
for commercial purposes• Trade dress infringement• “palming off” or “passing off”