Antitrust Law HW - Research Paper Example

Antitrust Law Anti-trust laws make it illegal to continue such business practices that encourage monopolistic behavior. The Sherman Antitrust Act 1890 outlawed "every contract, combination…or conspiracy in restraint of trade or commerce" between states or foreign countries (Law.com, 2011). The Sherman Act pronounces such contracts, alliances, and planning illegal that limits flow of commerce between states and in foreign trade as well. Firms in competition cannot reach agreements on price-fixing, manipulating bids, and selection of customers.

Monopolistic firm behavior is criminal, therefore, not permitted by the Sherman Act. When competitor companies enter into agreement arrangement, the Sherman Act becomes applicable for punishing criminal offence (The U.S. Department of Justice, 2009). The Clayton Antitrust Act 1914 improved by the Robinson-Patman Act of 1936, checks discrimination among customers through pricing and does not allow mergers, acquisitions or takeovers of one company by other if the impact reduces competition in a big way. The U.S.

Department of Justice enforces the anti-trust law through the Antitrust Division for the federal government (Law.com, 2011). It is a civil statute rectified in 1950. It regulates mergers and acquisitions that possibly reduce competition. The government after studying the impact of such business functions resulting in price increase takes action against the firms. It is mandatory for mergers and acquisitions above a specific size to inform the Antitrust Division and the Federal Trade Commission.

The Clayton Act also controls such business functions that under some situations may damage competition (The U.S. Department of Justice, 2009). The current scenario on antitrust has changed very much; it has become a part of global business. Jurisdiction of the antitrust law has crossed national boundaries between countries (Gifford, 2003). Antitrust laws help consumers avail the benefits of competition, reducing prices of products and services. Price fixing, bid rigging, and customer selection are such antitrust violations that happen when two or more competitor selling firms reach a compromise on charging of price for their commodities, which is higher than reasonable price hike; they mutually take a decision not to sell their products below a specific price.

Bid rigging generally happens when firms manipulate the bidding process such a way that a specific firm wins the bidding for contracts allotted by the local, state, and federal government. Customer-allocation agreements happen to be reached through a setting among competitors to divide customers on geographical grounds so that there is no competition to a single firm in a particular area. Such price-fixing, bid-rigging and customer-selection agreements are manipulative, planned by sellers, which are against the common interests of the consumers (The U.S. Department of Justice, 2009).

Sellers enter into secret agreements to misguide and cheat customers by opting out of competition. It is the loss of taxpayers’ money by manipulating market forces in their favor, thus, snatching customers’ right to competitive byproducts from genuine competition (The U.S. Department of Justice, 2009). 2. Explain why selling gasoline for less than cost violates the law. Identify which law it violates and why/how it violates that law? Selling gasoline below its cost price is an offence under the law passed by a number of U.S. states, as it is tantamount to harming competition.

There is no minimum price fixing under the state sale-below-cost (SBC) laws unlike “fair trade” laws. These SBC laws have been enacted by a number of states on selected goods like milk, cigarettes, liquor, and petroleum products. SBC laws specifically for retail gasoline sale were enacted in Montana in 1991 and in Colorado and Missouri in 1993 (Anderson and Johnson, 1999). SBC laws on gasoline are enacted to save small companies from competition with bigger ones. Research has proved that states where SBC laws related to retail gasoline are applicable, rates of gasoline are higher.

With the awarding of decision in the Standard Oil Company case by the Supreme Court, predatory pricing has been declared illegal under the U.S. antitrust laws. For considering firm’s price predatory, Areeda and Turner (1975) have an argument that if price is less than short –run marginal costs and average total costs, only then it should be taken as predatory (Anderson and Johnson, 1999). Gasoline-specific SBC laws are supported because big, vertically expanded firms and retail volume selling marketers pose a threat to small retailers of gasoline.

Big guns of the market first lower their prices below the cost so that there remains no competition from small retailers and to discourage new entrants from entering the retail sale market. As soon as rivals disappear, the big firm raises the price to monopolistically leverage the market to excessively recover the losses (Anderson and Johnson, 1999). References Anderson, Rod W.., Johnson, Ronald N. (May 1999). Antitrust and sales-below-cost laws: the case of retail gasoline. Review of Industrial Organization, 14(3).

Retrieved from ABI/INFORM Global Antitrust Laws. (2011). In Laws.com. Retrieved from http://dictionary.law.com/Default.aspx?selected=2410 Gifford, Daniel J. (2003). Introduction: the Sullivan conference on global antitrust law and policy. Antitrust Bulletin, 48 (2). Retrieved from ABI/INFORM Global Principle. (2011). In Competition Law. Retrieved from http://encyclopedia.thefreedictionary.com/ANTI-TRUST+LAW U.S Department of Justice. (2009). Antitrust enforcement and the consumer.