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By the end of this section, you will be able to:

  • Analyze restrictive practices
  • Explain tying sales, bundling, and predatory pricing
  • Evaluate a real-world situation of possible anticompetitive and restrictive practices

The U.S. antitrust laws reach beyond blocking mergers that would reduce competition to include a wide array of anticompetitive practices. For example, it is illegal for competitors to form a cartel to collude to make pricing and output decisions, as if they were a monopoly firm. The Federal Trade Commission and the U.S. Department of Justice prohibit firms from agreeing to fix prices or output, rigging bids, or sharing or dividing markets by allocating customers, suppliers, territories, or lines of commerce.

In the late 1990s, for example, the antitrust regulators prosecuted an international cartel of vitamin manufacturers, including the Swiss firm Hoffman-La Roche, the German firm BASF, and the French firm Rhone-Poulenc. These firms reached agreements on how much to produce, how much to charge, and which firm would sell to which customers. The high-priced vitamins were then bought by firms like General Mills, Kellogg, Purina-Mills, and Proctor and Gamble, which pushed up the prices more. Hoffman-La Roche pleaded guilty in May 1999 and agreed both to pay a fine of $500 million and to have at least one top executive serve four months of jail time.

Under U.S. antitrust laws, monopoly itself is not illegal. If a firm has a monopoly because of a newly patented invention, for example, the law explicitly allows a firm to earn higher-than-normal profits for a time as a reward for innovation. If a firm achieves a large share of the market by producing a better product at a lower price, such behavior is not prohibited by antitrust law.

Restrictive practices

Antitrust law includes rules against restrictive practices    —practices that do not involve outright agreements to raise price or to reduce the quantity produced, but that might have the effect of reducing competition. Antitrust cases involving restrictive practices are often controversial, because they delve into specific contracts or agreements between firms that are allowed in some cases but not in others.

For example, if a product manufacturer is selling to a group of dealers who then sell to the general public it is illegal for the manufacturer to demand a minimum resale price maintenance agreement    , which would require the dealers to sell for at least a certain minimum price. A minimum price contract is illegal because it would restrict competition among dealers. However, the manufacturer is legally allowed to “suggest” minimum prices and to stop selling to dealers who regularly undercut the suggested price. If you think this rule sounds like a fairly subtle distinction, you are right.

An exclusive dealing    agreement between a manufacturer and a dealer can be legal or illegal. It is legal if the purpose of the contract is to encourage competition between dealers. For example, it is legal for the Ford Motor Company to sell its cars to only Ford dealers, for General Motors to sell to only GM dealers, and so on. However, exclusive deals may also limit competition. If one large retailer obtained the exclusive rights to be the sole distributor of televisions, computers, and audio equipment made by a number of companies, then this exclusive contract would have an anticompetitive effect on other retailers.

Questions & Answers

what is taxation
K.visor Reply
levy paid by eligible individuals and companies to the government
Kingt
tax
Raji
A means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Governments use taxation to encourage or discourage certain economic decisions.
Raji
a source of economic revenue in which working citizens pay levy which varies from one individual to the other.
Vanessa
monies paid by residents of a country to the government in which the residents benefit indirectly
Kotey
it's the government, looking for funding to create public goods and services so that everyone can be happy.
Sinethemba
what is taxation?
jacob Reply
In simple term. Taxation can be defined as compulsory payment levy on company or individual by the government. It can be direct or indirect.
salawu
what is capital
K.visor
its nice
Belaisan
disadvantage of money
Bigdreamz Reply
Please any Ghanaian schooling at KNUST?
Prince Reply
combining factors of production is the role of
Richard Reply
the situation in economic where by a more valuable good is sold at a low price while less valuable good is sold at a higher price .how can we describe this situation in economic
Fung
price discrimination
Fayaz
deman and supply
Samim
price discrimination
Citizen
enterlrenure
Fayaz
causes of high elasticity of demand
Onyango Reply
causes of high elasticity of supply
Onyango
what is optimazation
lepekola
what is trade offs
lepekola
A trade-off  is a situational decision that involves diminishing one quality, or property of a design in return for gains in other aspects.
Addin
what is indifference curve ?
abdullah
its represnted by the loops of points and gives same level of satisfaction
hisham
what is enterpreneurship
Kukoyi
Entrepreneurship is the talent, knowledge and willingness individual has to engage in an activity that can result in new kind of firm
Addin
what is the short run industry supply curves?
james
I think there' s a mistake. P = - 0.4 + 0.2Qs is the supply curve and not the demand curve. Am I correct?
Valeria Reply
Qs is quantity supplied
The
This is what I think
The
this eaquation is supply curve Qs=P-0.4 the relationship is positive when the price increase the Qs increase....
mukhtaar
since Qs is quantity supplied P= -0.4 + 0.2Qs =>P +0.4=0.2Qs =>P/0.2 + 0.4=Qs I made Qs the subject of the formula or equation. So your answer is correct
The
P = -0.4 + 0.2Qs is the same as P/0.2+0.4=Qs Price has a direct relationship with the quantity supplied i.e the higher the price the higher the quantity supplied. that is why it is +0.4(this is the quantity and it is postive) and P/O.2(is the price and it is positive).
The
For the demand equation let me give an example 0.2P-0.4=Qd. Here the P is postive(+0.2) and the quantity which is -O.4 is negative( because of the negative sign(-) there is an inverse relationship between price and quantity. For quantity demanded the higher the price the lower the quantuty.
The
It's how I understand it
The
0.2P-0.4=Qd. the equation is wrong because the price have direct ralationship Quantity demanded but the correct equation is-0.2P -0.4=Qd so the higher price the lower Quantity
mukhtaar
I think the relationship is inverse because of the negative sign(-)
The
ok You mean the price and quantity demanded should be negative(inverse relationship) for Qd and the price and quantity supplied should be postive(direct relationship) for Qs
The
thank you for the correction
The
yes because it got a positive gradient of +0.2
Michael
This is the mistake I found: "Since P is on the vertical axis, it is easiest if you solve each equation for P. The demand curve is then P = 8 – 0.5Qd and the demand curve is P = –0.4 + 0.2Qs. Note that the vertical intercepts are 8 and –0.4, and the slopes are –0.5 for demand and 0.2 for supply."
Valeria
dear price do not depend on quantity. rather quantity depends on price. so the equation should be Qty=0.2Px-0.4
Michael
please can someone generate supply equation for me
David Reply
ok
Detto
Qs=f(P,Pr,G,E,Z,Pf,)
The
where p is price, Pr is price of related goods, G is goals of a firm E is supplier's future expectation of prices,Z is other related factors, Pf is cost of factors of production.
The
I think it's wrong
The
if Qd=90-p Qs=90+p
The
the coefficient of price must be positive since supply curve is positively slopping
Kotey
yes
The
it's true. thank you
The
welcome
Kotey
ok
The
OK, thank you
David
no one can do that, you must determine the the key factors for the commodity, like price, income, prices of alternative commodity, and other factors, if you want the main equation, you must have 4 values, 2 values for each quantity and price, for one commodity
Chief
What is the acceptable definition of economic?
bilya Reply
The economics is the optimal use for the resources, this is general definition, but from my point view it is the production,
Chief
diagram of perfectly inelastic
Muhd Reply
this platform is okay
K.visor
chi-square test is used to test A. Analysis of variance B. Association between the qualitative variables C. Difference between means of two distribution drawn from the same population D. Difference between the means of two distribution drawn from different population
Syk Reply
the Answer Should Be D
Amanuel
Confirm?
Syk
A
Satyanarayana
The answers is D
Lawrence
Thank you
Syk
What is economic?
bilya
is the system that study the difference between resources and the growth population
Messi
Economics studies humanbehaviour as a relation between ends and scarce means which have alternative uses
Kotey
rigth .....but economic has different concepts
Messi
yes
Kotey
what is equilibrium
Obed Reply
it is that point where price is equal to output or rather a point where demand is equal to supply
Fung
it is a point where consumer get maximum satisfaction and producers maximise profit or minimise loss
Imtiyaz
thanks
Obed
supply equal demand in one point
Messi
it's a point where supply and demand meets/equal whether profit or loss
deany
how to compute budget constraint
Kristine Reply
how to calculate balance of payment deficit
Fung
How to calculate National income
Obed
what is indifference curves
abdullah
what,how and for whom to produce
kunle Reply
those are problem that producer face in the process of production due to scarcity
Richman
gm
Diodo
a particular selected product is produced in a systematic hygiene condition and is produced for the customers.
Madhu
what are the factors of economic growth?
Povuuro Reply
tax, imports and exports, etc
deany

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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