Illegal Conduct

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Illegal Conduct

Some of the earliest antitrust decisions concerned legal behavior. The courts have ruled that certain kinds of collusive behavior’ are illegal-per se there is simply no defense that will justify these actions. The offenders cannot defend themselves by pointing to some won objective (such as product quality) or mitigating circumstance (such as low profits). The most important class of per se illegal conduct is agreements among competing firms; to fix prices, restrict output, or divide markets. Such actions have the effect of raising prices and lowering output. Even the severest critics of antitrust policy can find no redeeming virtue in price faxing.
Other forms of conduct are also limited by antitrust laws.

These include Predatory pricing. in which a firm sells its goods for less than production costs (usually interpreted as marginal cost or a variable cost). The argument against predatory pricing is that a big company can use its financial resources to cut prices and drive smaller rivals out of business, and then it can jack up prices. In recent years, , some giant discount chains have been accused of predatory pricing by smaller local competitors. contracts or arrangements, whereby a firm will sell product A’ only if the purchaser buys product B Price discrimination, in which a firm sells the same product to different customers at different prices for ,reasons not related to cost or competition. (Recall the discussion of price discrimination in Chapter 10,) Note that the practices on this list relate to a firm’s conduct, It is the acts themselves that are illegal, not the structure of the industry in which the take place.

Perhaps the most celebrated example is the great electric-equipment conspiracy. In 1961, the electric equipment industry was found guilty of price agreement Executives. of the largest companion GE and Nesting house raise prices and covered their tracks like characters in a spy novel by meeting in , hunting lodges. using code names. and making telephone calls from phone booths. Although the top executives in’ these companies were apparently unaware of what the vice presidents just below them were doing. they had put much pressure on their vice presidents for increased sales. The companies agreed to pay extensive damages to their customers for overcharges. and some executives were jailed for their antitrust violations,

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Illegal Conduct