Managerial Economics.Chapter 11: Antitrust, Mergers, and Acquisitions - Custom Scholars
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Managerial Economics.Chapter 11: Antitrust, Mergers, and Acquisitions

question
What is the Sherman Antitrust Act?
answer
Sherman Antitrust Act (1890):
**Every contract that would restrain trade among states or foreign nations is illegal. Aimed at "structure" -- merely having a trust.

**Every attempt to monopolize trade among several states or with foreign nations shall be deemed guilty of a felony. Aimed at "conduct."
question
What is the Rule of Reason?
answer
The decisions in Standard Oil and American Tobacco (1911) by Supremes ruling Sherman Antitrust Act did not make illegal every action that seemed to restrain trade, only those actions that were "unreasonable." Clarified for business the particular business acts that were in violation.

Structure alone is not a criterion for unreasonableness.
question
What is the Per Se rule?
answer
**Per se rule: inherently illegal without requiring any extrinsic proof of surrounding circumstances. A per se violation involves conduct that violates antitrust law regardless of whether the result is reasonable.
question
What is a Merger?
answer
A Merger is a "uniting of interest" in which two companies agree to transfer their capital in a newly formed company.
question
What is a Horizontal Merger?
answer
Horizontal merger: firms are in the same industry and regarded as competitors
question
What is a Vertical Merger?
answer
Vertical merger: firms are either suppliers or customers of each other in the vertical chain.
question
What is a Conglomerate Merger?
answer
Conglomerate merger: form of diversification - firms might be unrelated
question
What is a Fix-it-First policy?
answer
**Instead of blocking a certain horizontal merger, officials allow the merger to proceed after eliminating anticompetitive effects.

Example: Sell off those operations where the firms were direct competitors with substantial market shares
question
What are the merger guidelines?
answer
Determination is made on basis of HHI. DOJ and FTC consider industries with HHI of:
Highly Concentrated:
HHI > 1,800 highly concentrated
Moderately Concentrated:
1,000 - 1,800
Unconcentrated:
HHI<1,000
question
How are merger decisions made based on HHI?
answer
**If pre-merger HHI is between 1,000 and 1,800 and post-merger would not increase HHI by more than 100, the merger will not be questioned.

**If merger increases post HHI by more than 100 FTC is likely to seek injunction to block merger.

**If pre-merger HHI is above 1,800 and post-merger would not increase HHI by more than 50, the merger will not be questioned.

**If merger increases post HHI by more than 50 FTC is likely to seek injunction to block merger
question
What is the Crown Jewels Provision the FTC uses as a merger remedy?
answer
In a Crown Jewel Provision, the FTC has required divestiture of an expanded package of assets, compared to the original assets divestiture proposed by the company, because the original asset divestiture didn't happen in the timeframe order by the Consent Decree.
question
What are 3 examples of Per Se violations?
answer
**Price fixing: agreement between business competitors to sell products at the same price

**Bid rigging: competitors agree in advance who will submit the winning bid on a contract

**Territorial market allocation: each competitor sells exclusively in its allocated market
question
What was the Clayton Act of 1914?
answer
Passed mainly to clarify the rule of reason.
The most important sections:
Sec. 2 made price discrimination unlawful where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly in commerce, or to prevent competition.
Allows price discrimination based on differences ion grade, quality, or quantity of the commodity sold.
question
What is the significance of Section 6 of the Clayton Act?
answer
Section 6 exempts organized labor from anti-trust law.
question
What are 2 major distinctions between the Sherman Act or the Clayton Act?
answer
The Sherman Act can subject someone to criminal proceedings. Also, the Clayton Act is regulated by the FTC.
1 of 15
question
What is the Sherman Antitrust Act?
answer
Sherman Antitrust Act (1890):
**Every contract that would restrain trade among states or foreign nations is illegal. Aimed at "structure" -- merely having a trust.

**Every attempt to monopolize trade among several states or with foreign nations shall be deemed guilty of a felony. Aimed at "conduct."
question
What is the Rule of Reason?
answer
The decisions in Standard Oil and American Tobacco (1911) by Supremes ruling Sherman Antitrust Act did not make illegal every action that seemed to restrain trade, only those actions that were "unreasonable." Clarified for business the particular business acts that were in violation.

Structure alone is not a criterion for unreasonableness.
question
What is the Per Se rule?
answer
**Per se rule: inherently illegal without requiring any extrinsic proof of surrounding circumstances. A per se violation involves conduct that violates antitrust law regardless of whether the result is reasonable.
question
What is a Merger?
answer
A Merger is a "uniting of interest" in which two companies agree to transfer their capital in a newly formed company.
question
What is a Horizontal Merger?
answer
Horizontal merger: firms are in the same industry and regarded as competitors
question
What is a Vertical Merger?
answer
Vertical merger: firms are either suppliers or customers of each other in the vertical chain.
question
What is a Conglomerate Merger?
answer
Conglomerate merger: form of diversification - firms might be unrelated
question
What is a Fix-it-First policy?
answer
**Instead of blocking a certain horizontal merger, officials allow the merger to proceed after eliminating anticompetitive effects.

Example: Sell off those operations where the firms were direct competitors with substantial market shares
question
What are the merger guidelines?
answer
Determination is made on basis of HHI. DOJ and FTC consider industries with HHI of:
Highly Concentrated:
HHI > 1,800 highly concentrated
Moderately Concentrated:
1,000 - 1,800
Unconcentrated:
HHI<1,000
question
How are merger decisions made based on HHI?
answer
**If pre-merger HHI is between 1,000 and 1,800 and post-merger would not increase HHI by more than 100, the merger will not be questioned.

**If merger increases post HHI by more than 100 FTC is likely to seek injunction to block merger.

**If pre-merger HHI is above 1,800 and post-merger would not increase HHI by more than 50, the merger will not be questioned.

**If merger increases post HHI by more than 50 FTC is likely to seek injunction to block merger
question
What is the Crown Jewels Provision the FTC uses as a merger remedy?
answer
In a Crown Jewel Provision, the FTC has required divestiture of an expanded package of assets, compared to the original assets divestiture proposed by the company, because the original asset divestiture didn't happen in the timeframe order by the Consent Decree.
question
What are 3 examples of Per Se violations?
answer
**Price fixing: agreement between business competitors to sell products at the same price

**Bid rigging: competitors agree in advance who will submit the winning bid on a contract

**Territorial market allocation: each competitor sells exclusively in its allocated market
question
What was the Clayton Act of 1914?
answer
Passed mainly to clarify the rule of reason.
The most important sections:
Sec. 2 made price discrimination unlawful where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly in commerce, or to prevent competition.
Allows price discrimination based on differences ion grade, quality, or quantity of the commodity sold.
question
What is the significance of Section 6 of the Clayton Act?
answer
Section 6 exempts organized labor from anti-trust law.
question
What are 2 major distinctions between the Sherman Act or the Clayton Act?
answer
The Sherman Act can subject someone to criminal proceedings. Also, the Clayton Act is regulated by the FTC.
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