Deck 16: Antitrust

Question 1

The court stated that the plaintiffs in this case simply proved that the defendants acted as rational oligopolists. What sort of evidence would establish that the defendants actually were engaging in an illegal price-fixing scheme?

Answer 1

Given case
The case involves antitrust lawsuit between wholesalers and the manufacturers of the cigarettes in United States.
The question is about the economic costs related to the use of circumstantial evidences in decision making.
Evidence
There exist two types of evidences, as follows:
1. Direct evidences : Directly support the truth without any additional proof.
2. Circumstantial evidence : Support or connect a conclusion through inference.
Evidences that show direct as well as inferential proofs may include the following:
1. Increasing the prices and persistent profits despite a decline in demand for the goods and services,
2. Meeting between two competitors before the price change,
3. Direct evidences such as letters, emails, contracts, minutes of meetings that indicate that competitors agreed to fix prices.

Question 2

You work in sales and are friendly with a sales representative from one of your employer's competitors. Your children are in the same class at school, so you see each other frequently. While watching a Saturday soccer game, you talked about a new sales promotion that your company plans to offer. Is it ethical to have such a conversation? Is it legal? Should it matter whether the promotion is the subject of an advertisement in the trade magazines?

Answer 2

Given case
A salesman talks with another salesman from a competitor company about a new sales promotion that her company is going to offer in near future.
The question is about the legality and ethicality of the act.
Ethical grounds
Ethics are the socially acceptable behaviors an individual is expected to demonstrate under different set of conditions.
Ethics demand that an employee must behave in a way to ensure the confidentiality of information that her employer entrusted. If she breaks this trust and shares this with a competitor, it can be considered unethical.
Legal grounds
It is also illegal to discuss the future plans with competitors. Discloser of such information (trade secrets) to a competitor can result in loss as the competitor can take advantage of this information to compete with the organization.
Various laws such as trade secrets law prohibit such discussion.
Any information that a company plans to make public is not considered as trade secret. Hence, this information can be shared in such discussions without working about ethical or legal consideration.

Question 3

The court recognized that there are economic costs associated with using circumstantial evidence to distinguish between lawful conscious parallel decision making within an oligopoly and illegal collusive price-fixing. What are some of these economic costs?

Answer 3

The case involves antitrust lawsuit between wholesalers and the manufacturers of the cigarettes in the United States. The case considers the economic costs related to the use of circumstantial evidences in decision making.
Following two types of evidences are involved in this case:
1. Direct evidences : Directly support the truth without any additional proof.
2. Circumstantial evidence : Support or connect a conclusion through sufficient inference.
Organizations are social entities that a society allows to work by using social resources for betterment of the society. Organizations compete to bring better product and services for society.
Using circumstantial evidences in monitoring and determining the legality of action of corporations will deter the organizations sprit and will result in the following costs:
1. The organization will fail to deliver the returns to shareholders,
2. The organizations will seize to compete in terms of costs,
3. The organizations will not invest in innovation and new ideas.
4. Price and output will also get affected in this case.
All these costs would incur on the basis of the evidences, which does not even directly demonstrate the illegal behavior.

Question 4

The two largest newspapers in Chicago are the Chicago Tribune and the Sun Times, and the two largest supplemental news providers are the New York Times News Service and the Los Angeles Times/Washington News Service. In addition to printing the work of its own staff, the Tribune has a contract with the New York Times News Service pursuant to which the Service provides news and other material of interest to the Tribune on an exclusive basis in the Chicago area. The Sun Times has a similar exclusive arrangement with the Los Angeles Times/Washington News Service. As a result of these exclusive contracts, Chicago's third largest newspaper, the Daily Herald, could not obtain newsfeed from either service. It was also unable to obtain newsfeed from the third most popular provider because it was owned by the Tribune, which refused to license its stories to a competitor in its home market. The Daily Herald challenged this pattern of exclusive distributorships as a violation of section 1 of the Sherman Act, claiming that it effectively denied the Herald the opportunity to subscribe to the best supplemental news services. Does a pattern of exclusive distributorships in a market violate the Sherman Act? In what way could the news services' practices harm consumers? What if the Herald could show that it had tried to outbid the Tribune or the Sun Times for their supplemental news service subscriptions? Would the Herald's argument be stronger if the exclusive agreements were long-term agreements? [Paddock Publications, Inc. v. Chicago Tribune Co., 103 F.3d 42 (7th Cir. 1996).]

Question 5

Research in Motion (RIM), manufacturer of the BlackBerry smartphone, sued its direct competitor Motorola, alleging that Motorola violated section 2 of the Sherman Act when it broke a commitment to standard-setting organizations to license patents that covered wireless communications technology included in international standards on "fair, reasonable, and nondiscriminatory" (FRAND) terms. What would RIM have to prove to establish this claim? [Research in Motion Ltd. v. Motorola, Inc., 644 F. Supp. 2d 788 (N.D. Tex. 2008).]

Question 6

Gerber, Heinz, and Beech-Nut, manufacturers of baby food, account for essentially the entire market in the United States. A number of retail stores filed an antitrust class action against the companies alleging that they had violated section 1 of the Sherman Act by engaging in an unlawful conspiracy to fix prices. The class presented evidence that sales representatives employed by the three companies exchanged price information about their products, including, on occasion, sending each other advance notice of price increases. The class of store owners also introduced evidence of e-mails indicating that the companies were aware of anticipated price increases before they were announced in the market. One memo stated that Heinz would not try to secure a majority base of distribution in a sales area because it had agreed to a "truce" with Gerber. Did the companies violate the antitrust laws? Would you need any additional evidence to make this determination? [ In re Baby Food Antitrust Litigation , 166 F.3d 112 (3d Cir. 1999).]

Question 7

Will a dealer who sells a manufacturer's products in an exclusive territory be able to successfully sue the manufacturer under the Robinson-Patman Act if the manufacturer is offering lower prices to dealers in other exclusive territories? [Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006).]

Question 8

S. manufacturers want to bring a suit against Japanese manufacturers, alleging a conspiracy to take over the U.S. automobile industry by exporting low-priced products to the United States while keeping the prices artificially high in Japan. The U.S. manufacturers tell you, their attorney, that the Japanese manufacturers have formed an association in which they discuss market conditions in the United States, potential or actual import restrictions, surcharges, and simplification of export procedures, as well as other topics.
a. In light of these facts, what are the chances of successfully bringing an antitrust suit against these manufacturers? Assume that there are no conflictof- law or other procedural problems created by the manufacturers being in another country.
b. What if instead of discussing the topics listed above, the manufacturers discussed the details of individual sales, production, inventories, current price lists, and future price trends?
c. What if they discussed average costs, freight rates, and terms of past transactions without identifying buyers or sellers? [ Matsushita Electric Industrial Co. v. Zenith Radio Corp. , 475 U.S. 574 (1986).]

Question 9

Leegin Creative Leather Products, Inc. is a manufacturer of leather apparel. In order to focus its brand on quality, Leegin refused to sell its products to retailers who intended to sell the products below Leegin's suggested retail prices. Five years after establishing this policy, Leegin discovered that Kay's Kloset was selling its products below the recommended prices. When Kay's refused to comply with Leegin's request to raise prices, Leegin stopped shipping its products to Kay's. PSKS, Inc., Kay's parent company, sued Leegin, claiming violation of antitrust laws. What facts would each party have to marshal to prove its case? What result? [PSKS, Inc. v. Leegin Creative Leather Products, Inc., 615 F.3d 412 (5th Cir. 2010).]

Question 10

Locked-out professional basketball players Carmelo Anthony, Chauncey Billups, Kevin Durant, Leon Powe, and Kawhi Leonard file a class-action lawsuit against the National Basketball Association (NBA). The plaintiffs allege that by refusing to allow players to work, the NBA created an illegal group boycott, price-fixing agreement, and price restraint in violation of the Sherman Act. The only offers the owners made to settle the dispute would drastically reduce player salaries and effectively wipe out the competitive market for most NBA players. What result? Was filing this suit an effective tactic by the players? How would you respond if you were the lead negotiator for the owners? [Brown v. Pro Football, Inc., 518 U.S. 231 (1996); American Needle, Inc. v. National Football League, 130 S. Ct. 2201 (2010).]