Let's start with the granddaddy of them all, the Sherman Antitrust Act.

We start with this act because this is the act from which much of the rest of

the regulatory structure flows.

Now what does it prohibit?

It prohibits agreements, conspiracies, or trusts in restraint of trade.

You're just not allowed to do it.

If you think that language is broad and

could prohibit a lot of different activities, you're right.

Basically anything the government finds

might restrain trade could be prohibited under the Sherman Antitrust Act.

The act itself has two types of violations.

One called a per se violation, and

that's Latin meaning through itself, and rule of reason violations.

Basically per se violations are violations that if you did it, you're guilty.

It doesn't make any difference what your intentions were,

if you get caught doing it you are guilty of violating the act.

For example price fixing, you are not allowed to get on the telephone or

the email or the text and communicate with your competitors about prices.

You can't get on the phone and

say hey let's all raise prices and we'll all be better off.

Yes, that might be true, if you all raise prices you would make more money and

be better off, but that's anti-competitive and

that is a per se violation of the Antitrust Act.

Also, territorial divisions are another example of this.

You can't say I'll take all the territory east of Mississippi,

you take all the territory west of the Mississippi and

we just won't compete with each other, we won't get in each others way.

That is anti-competitive and it is a per se violation.

Then, there's another broader set of violations called

rule of reason violations.

And in these types of violations, motivation does matter.

Sometimes it can be legal, sometimes it can be illegal.

But any agreement the court might find will ultimately end up causing higher

prices could cause you trouble as a rule of reason violation.

For example, predatory pricing.

What is predatory pricing?

It is pricing below your cost with the intention

of driving your competitor out of business.

You might understand right away that is anti-competitive,

you're attempting to drive your competitor out of your business.

If the courts find that that is your motivation,

you could be guilty of a rule of reason violation under the Sherman Antitrust Act.

Now, a couple of cases that the courts are interested in.

These cases give you an idea of the types of things that bother the court,

that bother the government, and might make them bring a case.

So there's the Department of Justice versus Deere & Company case.

In that case Deere was trying to acquire Precision Planting from another company,

specifically Monsanto.

So Precision Planting was a type of high-speed planting equipment.

But the allegation of the government was that this acquisition would

reduce competition for high-speed planting equipment and it might

increase prices in the future and it might decrease innovation in the future.

So that's why they would be interested in that case.

Another case is the Department of Justice vs DirecTV.

The background on this is that DirecTV exchanged non-public information

with three competitors to gain bargaining leverage and reduce the risk of

lost subscribers when they were negotiating rights to the Dodgers games,

to rebroadcast Dodgers games.

Now what caught the court's attention?

Well, what caught the court's attention was they were sharing information

with competitors, and this might reduce competition.

So sharing information with competitors is something that the courts really pay

attention to and is something that you need to watch for.

So for the Sherman Antitrust Act there's some significant takeaways.

First, this act is big.

Second of all, it is broad.

It covers a lot of ground and it gives the government a lot of prosecutorial

authority to say that something restrain trade and therefore is illegal.

So be careful.

The Sherman Antitrust Act

Market and Competition in Pricing Strategy

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