Spotting Companies Breaking Anti-Trust Laws: A Quick Guide

Antitrust laws are regulations that encourage competition by limiting the market power of any particular firm. They are designed to protect consumers from predatory business practices and ensure fair competition. In the United States, antitrust laws are enforced by the Federal Trade Commission (FTC) and the Department of Justice (DOJ). The three main U.S. antitrust statutes are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. These laws serve three major functions: prohibiting price fixing and the operation of cartels, restricting mergers and acquisitions that may lessen competition or create a monopoly, and prohibiting monopolization.

Price fixing and bid rigging

Price-fixing and bid-rigging are illegal and subject to criminal prosecution by the Antitrust Division of the United States Department of Justice. The Sherman Antitrust Act prohibits agreements among competitors to fix prices, rig bids, or engage in other anticompetitive activity.

Price-fixing occurs when the price of a product or service is set by a business, or a group of businesses, intentionally rather than letting market forces determine it naturally. Several businesses may come together to fix prices to ensure profitability. For example, two companies selling very similar products may sell them at the same price to maintain margins, resulting in higher costs than the consumer would otherwise pay.

Bid-rigging is an agreement among competitors as to who will be the winning bidder. This occurs when a purchaser solicits bids to purchase goods or services. The bidders agree in advance who will submit the winning bid. The purchaser, who depends on competition between the bidders to generate the lowest price, receives a "lowest bid" that is higher than the competitive market would bear. There are four basic schemes involved in most bid-rigging conspiracies: bid suppression, complementary bidding, bid rotation, and customer or market allocation.

There are some telltale signs of price-fixing and bid-rigging to look out for. These include:

• 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.
• Fewer competitors than normal submit bids on a project.
• Identical bids submitted by competitors.
• The same bidder bids substantially higher on some bids than on others, and there is no logical cost reason to explain the difference.
• Bids come in way above the agency's estimate for the value of the contract or way above comparable bids by the same companies in other areas.
• An unusual and unexplainable large dollar difference between the winning bid and all other bids.
• Suspicious statements from a seller suggesting that only one firm can sell to a particular customer or type of customer.

These signs are not conclusive evidence of price-fixing or bid-rigging, but they may be an indication of collusion. More investigation by trained lawyers and investigators would be required to determine that.

Mergers and acquisitions

An illegal merger occurs when two companies join in a way that may substantially lessen competition or tend to create a monopoly in a given market. This can harm consumers by leading to higher prices and fewer choices for products and services, and it can also harm workers by potentially reducing wages and employment options.

To assess the risk of harm to competition, authorities will consider how firms in a given industry compete and whether a merger threatens to substantially lessen competition or create a monopoly. They will examine the totality of the evidence available, without attempting to predict the future or calculate precise effects.

The review process for mergers and acquisitions typically involves the following steps:

• Companies report a proposed deal.
• Authorities conduct a preliminary review to determine if it raises any antitrust concerns that warrant further examination.
• If no concerns are identified, the waiting period is terminated, and the parties can proceed with the transaction.
• If competition issues are raised, the agency may extend the review and request additional information to assess the impact on competition.
• If issues are found, the agency can enter into a settlement with the companies or take legal action to block the deal.

To avoid breaking antitrust laws during mergers and acquisitions, companies should be cautious when sharing competitively sensitive information (CSI). Even during the due diligence process, competitors are not allowed to share CSI such as price information, confidential customer data, or detailed research and development plans. To reduce antitrust risks, companies can share CSI with outside counsel or establish a "clean team" to evaluate the information without it providing value to their organisation.

Additionally, merger agreements should include antitrust provisions to protect all parties. These may include "hell or high water" provisions, requiring parties to use their best efforts to complete the deal, and divestiture provisions, requiring buyers to divest assets to address antitrust concerns.

Monopolies and market allocation

Market allocation, also known as bid rigging, is a scheme where two or more entities collude to divide the market based on geographic territories or types of customers. For example, two companies may agree to stay out of each other's territories, resulting in a de facto monopoly for both.

Antitrust laws aim to prevent monopolies and market allocation schemes by promoting competition and limiting the market power of any particular firm. These laws are enforced by government agencies such as the Federal Trade Commission (FTC) and the Department of Justice (DOJ) in the United States.

To determine if a company is breaking antitrust laws, it is important to examine its market share, barriers to entry, control over resources, and any evidence of collusion or market allocation schemes. If a company is found to be engaging in anticompetitive practices, such as market allocation, the enforcing agencies may take legal action, including breaking up monopolies or imposing fines.

In summary, monopolies and market allocation are serious concerns for antitrust regulators, as they can lead to higher prices, reduced competition, and harm to consumers. By enforcing antitrust laws, governments aim to promote fair competition and protect consumers from the negative impacts of monopolies and market allocation schemes.

Tying agreements and predatory pricing

Tying agreements are when a company requires its customers to buy one product in order to purchase another. This is only illegal if it restricts competition and harms consumers. For example, a drug company was found to have required patients to purchase its blood-monitoring services along with its medicine to treat schizophrenia. The company was the only producer of the medicine, but there were many companies capable of providing blood-monitoring services. The company settled the charges by agreeing not to prevent other companies from providing blood-monitoring services.

Anti-competitive practices

Anti-competitive behaviour can be grouped into two classifications: horizontal and vertical restraints. Horizontal restraints regard anti-competitive behaviour that involves competitors at the same level of the supply chain. This includes practices such as:

• Mergers
• Cartels
• Collusions
• Price-fixing
• Price discrimination
• Predatory pricing
• Market allocation
• Bid rigging
• Group boycotts
• Exclusionary exclusive dealing contracts

Vertical restraints implement restrictions against competitors due to anti-competitive practices between firms at different levels of the supply chain, such as supplier-distributor relationships. These practices include:

• Exclusive dealing
• Refusal to deal/sell
• Resale price maintenance
• Tying agreements
• Natural monopolies
• Technology monopolies
• Legal loopholes
• Absorption of a competitor
• Unfair subsidies
• Protectionism
• Patent misuse

In addition, anti-competitive practices can also include:

• Dumping, or predatory pricing
• Dividing territories, or market sharing
• Restrictive terms in contracts
• Selective distribution systems
• Restrictions on the supply of parts or other inputs required by competitors

Frequently asked questions