Thursday, January 27, 2011

Antitrust "Common Sense Guidelines"

I was surprised to find this book freely posted on the Internet. here are the Common Sense Guidelines that I give to my students:

Do not discuss prices with your competitors. That is one of those black-and-white areas. The enforcement authorities can be counted on to bring a criminal prosecution if they learn that you have met with your competitors to fix prices or any other terms of sale. Jail time is increasingly common.

Do not agree with your competitor to stay out of each other’s markets. It may be tempting to seek freedom of action in one part of the country by agreeing with a competitor not to go west if he will not come east. Avoid that temptation. The consequences of the discovery of such behavior by the enforcement authorities are likely to be the same as the unearthing of a price-fixing conspiracy.

Feel free to join trade associations and to participate in activities that do not affect the vigor of your competition with your fellow members. Safety standards, industrysponsored promotion of a generic product (“take the family to the movies”; “wool is comfortable in the summer”; “natural gas burns cleaner”), and other activities that do not diminish the intensity of your competition with others in the industry are perfectly acceptable. So, too, are exchanges of information that do not affect prices in future transactions. But beware of meetings with competitors that result in discussions of business tactics, customers, costs, and ultimately prices. Be on guard at all times at trade association functions; leave if the meeting turns to what might be construed as price-fixing or market sharing.

Do not join forces with some of your competitors to the disadvantage of a few others. Here we enter a gray area. Some forms of cooperation, such as joint research and development activities, are permissible if their main purpose is to improve efficiency; others, especially those that deny the excluded competitor access to an essential facility on reasonable terms, are more questionable.

Compete vigorously for all the business you can get. There is nothing in the antitrust laws that penalizes success achieved by lawful methods. Adopt any new marketing or pricing strategies for which you have a sound business justification. If you are efficient enough to offer a product that garners a large market share on its merits—because it is either cheaper or better, or both—do not worry. Big is not bad.

Do not price below some meaningful measure of cost with the intention of using deep pockets to drive out a competitor or discourage a new entrant. That is one of those gray areas, since some below-cost pricing is acceptable (for example, introductory offers) and since the courts have not clearly defined the measure of cost to be used. But that is an area of sufficient exposure to warrant careful review of any planned actions, particularly if you have a large market share.

If you have some significant market power, consider the effect on competitors of any planned action. Market power can be measured either by your share of the market—and most business people do not need an elaborate economic study to define the product and geographic dimensions of the market in which they are operating—or by the possession of considerable freedom of action in setting prices. If the planned action is likely to hurt your competitors badly, be sure that such harm is a byproduct of moves that have a sound business justification.

Feel free to suggest retail prices to dealers but not to coerce them to accept those prices. Send them suggested price lists and promotional literature mentioning price. But do not extract an agreement from them to charge that price or threaten cancellation of dealerships if they elect an independent pricing strategy: guidance, yes; persuasion, yes; agreements, no; coercion, no.

Impose such restrictions on distributors and dealers as contribute to your ability to compete with rival brands. You can cancel nonperforming dealers, but keep good records to document their poor performance in case a dispute arises about the circumstances.

Do not tie the sale of one product to another. Such arrangements might be allowed in a few rare instances—to ensure effective functioning of complicated equipment, to name one. But they generally fall afoul of the law.

Use exclusive dealing arrangements if they are justified by business necessity. The higher your market share and the longer the term of the agreement, the more important a compelling business justification.

Charge all customers the same price, unless the cost of serving them varies. But feel free to cut prices to any customer to meet the lower price of a competitor.

Institute and support a vigorous, custom-designed antitrust compliance program. Only a commitment by very top management, supported by competent counsel, can provide the ounce of prevention that prevents the authorities and private plaintiffs from administering their weighty cures: jail terms, fines, and large damage claims.

Consult with counsel when specific problems or questionable activities occur. While this book gives you a general overview of the law and the issues, antitrust law is highly fact-specific. There is no substitute for competent advice based on the detailed facts unique to your situation.


  1. "There is nothing in the antitrust laws that penalizes success achieved by lawful methods. "

    Alcoa aluminum would beg to differ...

  2. "Charge all customers the same price, unless the cost of serving them varies. But feel free to cut prices to any customer to meet the lower price of a competitor."

    Academia fails this spectacularly. Universities have rather impressive powers of price discrimination by raising their prices very high then subsidizing those who are less able to pay (need based scholarships) and those who have a lot of opportunity to go elsewhere with their money (ability based scholarships).

  3. The motorcycle parts business doesn't play by these rules...they threaten to take away "preferred dealer status" (volume discount) if you advertise prices significantly below their "suggested retail" prices so we bundled a tire change with the tire and gave a discount on the install. "Do not tie the sale of one product to another" seems absurd. So all you have to do is discount which is effectively the same thing?

  4. Thank God, this is a country of laws, where rules are respected, I understand that antitrust laws, is one of the best things that ever happened to this country since with clear exceptions, the markets that allow this type of agreement, pressure setting, ending diminishing or eliminating competition.
    The elimination or decrease of the competition, in the short term enables maximization of the profit of the firms operating under monopolies, oligopolies, but, in the long run, the market is damaged or affected, so like them, since these seek alternatives that allows you to obtain substitute products, at reasonable prices, as well as to users of these types of products and/or services, a type of psychological revenge on that firm that thought they were oppressing.
    In my case, particularly, when I had that travel from Latin America, via American Airline, I felt as though I did not received value for the money that pays for the service. They had old planes, and their flight attendants services was not quality. Yes, we compared these services offered by this same airline within their domestic flights in the United States, whose services felt much better than those to international destinations.
    The introduction of jetblue in this market, gave me my opportunity to “have revenge” and never again see myself in the need to fly by the previously mentioned airline. Since there was a new one that seemed to be out of the concert of high prices and low quality of service.
    References: Froeb, McCann, Ward, Shor: (2014) Managerial Econonics. A Problem Solving Approach, Ohio: South Western Cengage Learning