Understanding Antitrust Laws: Protecting Consumers and Competition, Exams of Business

Download Understanding Antitrust Laws: Protecting Consumers and Competition and more Exams Business in PDF only on Docsity! U.S. Department of Justice Washington, DC 20530 Antitrust Enforcement and the Consumer Many consumers have never heard of antitrust laws, but when these laws are effectively and responsibly enforced, they can save consumers millions and even billions of dollars a year in illegal overcharges. Most States have antitrust laws, and so does the Federal Government. Essentially, these laws prohibit business practices that unreasonably deprive consumers of the benefits of competition, resulting in higher prices for inferior products and services. This pamphlet was prepared to alert consumers to the existence and importance of antitrust laws and to explain what you can do for antitrust enforcement and for yourself. 1. What Do the Antitrust Laws Do for the Consumer? Antitrust laws protect competition. Free and open competition benefits consumers by ensuring lower prices and new and better products. In a freely competitive market, each competing business generally will try to attract consumers by cutting its prices and increasing the quality of its products or services. Competition and the profit opportunities it brings also stimulate businesses to find new, innovative, and more efficient methods of production. Consumers benefit from competition through lower prices and better products and services. Companies that fail to understand or react to consumer needs may soon find themselves losing out in the competitive battle. When competitors agree to fix prices, rig bids, or allocate (divide up) customers, consumers lose the benefits of competition. The prices that result when competitors agree in these ways are artificially high; such prices do not accurately reflect cost and therefore distort the allocation of society’s resources. The result is a loss not only to U.S. consumers and taxpayers, but also the U.S. economy. When the competitive system is operating effectively, there is no need for government intrusion. The law recognizes that certain arrangements between firms—such as competitors cooperating to perform joint research and development projects—may benefit consumers by allowing the firms that have reached the agreement to compete more effectively against other firms. The law does not condemn all agreements between companies, only those that threaten to raise prices to consumers or to deprive them of new and better products. But when competing firms get together to fix prices, to rig bids, to divide business between them, or to make other anticompetitive arrangements that provide no benefits to consumers, the Government will act promptly to protect the interests of American consumers. 2. What Are the Federal Antitrust Laws, and What Do They Prohibit? There are three major Federal antitrust laws: • The Sherman Antitrust Act • The Clayton Act • The Federal Trade Commission Act The Sherman Antitrust Act The Sherman Antitrust Act has stood since 1890 as the principal law expressing our national commitment to a free market economy in which competition free from private and governmental restraints leads to the best results for consumers. Congress felt so strongly about this commitment that there was only one vote against the Act. The Sherman Act outlaws all contracts, combinations, and conspiracies that unreasonably restrain interstate and foreign trade. This includes agreements among competitors to fix prices, rig bids, and allocate customers. The Sherman Act also makes it a crime to monopolize any part of interstate commerce. An unlawful monopoly exists when only one firm controls the market for a product or service, and it has obtained that market power, not because its product or service is superior to others, but by suppressing competition with anticompetitive conduct. The Act is not violated simply when one firm’s vigorous competition and lower prices take sales from its less efficient competitors—that is competition working properly. Sherman Act violations involving agreements between competitors usually are punished as criminal felonies. The Department of Justice alone is empowered to bring criminal prosecutions under the Sherman Act. Individual violators can be fined up to $1 million and sentenced to up to 10 years in Federal prison for each offense, and corporations can be fined up to $100 million for each offense. Under some circumstances, the maximum fines can go even higher than the Sherman Act maximums to twice the gain or loss involved. The Clayton Act The Clayton Act is a civil statute (carrying no criminal penalties) that was passed in 1914 and significantly amended in 1950. The Clayton Act prohibits mergers or acquisitions that are likely to lessen competition. Under the Act, the Government challenges those mergers that a careful economic analysis shows are likely to increase prices to consumers. All persons considering a merger or acquisition above a certain size must notify both the Antitrust Division and the Federal Trade Commission. The Act also prohibits other business practices that under certain circumstances may harm competition. Federal antitrust investigations results from complaints received from consumers or people in business by phone or mail or in person. On the Federal level, you can contact the Antitrust Division at its Washington offices or any of its offices in Chicago, New York, and San Francisco (addresses and telephone numbers are provided at the end of this pamphlet). The Antitrust Division’s headquarters offices are in the Main Justice Building at 10th Street and Pennsylvania Avenue, NW in Washington, D.C. You can also reach the Antitrust Division through any of the offices of the United States Attorneys, which are found in most large cities throughout the United States. 7. How Can You Know If the Antitrust Laws Are Being Violated? If any person knows or suspects that competitors, suppliers, or even an employer are violating the antitrust laws, that person should alert the antitrust authorities so that they can determine whether to investigate. Price-fixing, bid-rigging, and customer- allocation conspiracies are most likely to occur where there are relatively few sellers who have to get together to agree. The larger the group of sellers, the more difficult it is to come to an agreement and enforce it. Keep an eye out for telltale signs, including, for example: • Any evidence that two or more competing sellers of similar products have agreed to price their products a certain way, to sell only a certain amount of their product or to sell only in certain areas or to certain customers. • Large price changes involving more than one seller of very similar products of different brands, particularly if the price changes are of an equal amount and occur at about the same time. • Suspicious statements from a seller suggesting that only one firm can sell to a particular customer or type of customer. • Fewer competitors than normal submit bids on a project. • Competitors submit identical bids. • The same company repeatedly has been the low bidder on contracts for a certain product or service or in a particular area. • Bidders seem to win bids on a fixed rotation. • There is an unusual and unexplainable large dollar difference between the winning bid and all other bids. • The same bidder bids substantially higher on some bids than on others, and there is no logical cost reason to explain the difference. These signs are by no means conclusive evidence of antitrust violations. More investigation by trained lawyers and investigators would be required to determine that. But they may be an indication of collusion, and the people who enforce the antitrust laws want to hear about them. 8. What Is the Public’s Role in Antitrust Enforcement? Effective antitrust enforcement requires public support. Public ignorance and apathy can weaken antitrust enforcement more than anything else. Whether you are a businessperson or a consumer, if you encounter business behavior that appears to violate the antitrust laws, do not hesitate to inform the enforcement authorities of your suspicions. That is often the only way violations can be uncovered, and failing to uncover and punish antitrust violations not only penalizes consumers and taxpayers but also the vast majority of honest businesspeople who scrupulously observe the antitrust laws. If you detect an antitrust violation, you can perform a triple public service: (1) you can help put an end to unlawful conduct that may be costing consumers millions or even billions of dollars; (2) you can put money in the form of criminal penalties into the Federal treasury; and (3) you can help recover other unlawful charges, because the Government or affected consumers may bring an antitrust action to collect damages. You can write or call the Antitrust Division of the Department of Justice at any of the following locations. Washington, D.C. Office of Deputy Assistant Attorney General for Operations Antitrust Division, U.S. Dept. of Justice 950 Pennsylvania Avenue NW, Suite 3218 Washington, DC 20530 202-514-3543 Citizen Complaint Center Antitrust Division, U.S. Dept. of Justice 950 Pennsylvania Avenue NW, Suite 3322 Washington, DC 20530 1-888-647-3258 (toll free in U.S. and Canada) 202-307-2040 Washington Criminal I Section Antitrust Division, U.S. Dept. of Justice 450 Fifth Street NW, 11th Floor Washington, DC 20530 202-307-6694 Washington Criminal II Section Liberty Square Building 450 Fifth Street NW, 11th Floor Washington, DC 20530 202-616-5949 Chicago Antitrust Division, U.S. Dept. of Justice Rookery Building 209 South LaSalle Street, Suite 600 Chicago, IL 60604-1204 312-984-7200 New York Antitrust Division, U.S. Dept. of Justice 26 Federal Plaza, Room 3630 New York, NY 10278-0140 212-335-8000 San Francisco Antitrust Division, U.S. Dept. of Justice 450 Golden Gate Avenue, Room 10-0101 Box 36046 San Francisco, CA 94102-3478 415-934-5300