Page 177 - Business Principles and Management

Unit 2
Ethics tip
It is illegal for competing
companies to discuss pricing CLAYTON ACT
strategies. This can be seen
as collusion, or attempting
to fix prices, and can result
in fines or jail time.
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For example, agreements among competitors to set selling prices on goods are un-
lawful. If three sellers met and agreed to set the same selling price on the same
product each sold, they would all be violating the Sherman Act.
Like the Sherman Act, the Clayton Act of 1914 was aimed at discouraging monop-
olies. One part of the law forbids corporations from acquiring ownership rights in
other corporations if the purpose is to create a monopoly or to discourage competi-
tion. Corporation A cannot, for example, buy more than half the ownership rights
of its main competitor, Corporation B, if the aim is to severely reduce or eliminate
competition.
Another section of the Clayton Act forbids business contracts that require
customers to purchase certain goods in order to get other goods. For example, a
business that produces computers cannot require a buyer also to purchase sup-
plies, such as paper and software, in order to get a computer. Microsoft Corpora-
tion was charged with such a violation. Microsoft required computer makers that
wanted to buy its dominant Windows operating system to also accept its Internet
Explorer browser. The result of this action was to severely damage the sales of
Netscape’s Navigator browser, which was Microsoft’s dominant competitor.
ROBINSON-PATMAN ACT
The Robinson-Patman Act of 1936 amended the portion of the Clayton Act
dealing with the pricing of goods. The main purpose of the pricing provisions in
both of these laws is to prevent price discrimination. For example, a seller can-
not offer a price of $5 a unit to Buyer A and sell the same goods to Buyer B at
$6 a unit. Different prices can be set, however, if the goods sold are different in
quality or quantity. Buyer A is entitled to the $5 price if the quantity purchased
is significantly greater or if the quality is lower. The same discounts must then
be offered to all buyers purchasing the same quantity or quality as Buyer A.
WHEELER-LEA ACT
In 1938, the Wheeler-Lea Act was passed to strengthen earlier laws outlawing
unfair methods of competition. This law made unfair or deceptive acts or prac-
tices, including false advertising, unlawful. False advertising is advertising that
is misleading in some important way, including the failure to reveal facts about
possible results from using the advertised products. Under the Wheeler-Lea Act,
it is unlawful for an advertiser to circulate false advertising that can lead to the
purchase of foods, drugs, medical devices, or cosmetics, or to participate in any
other unfair methods of competition.
FEDERAL TRADE COMMISSION
The Federal Trade Commission (FTC) was created as the result of many busi-
nesses demanding protection from unfair methods of competition. The FTC
administers most of the federal laws dealing with fair competition. Some of the
unfair practices that the FTC protects businesses from are shown in Figure 7-1.
OTHER FEDERAL AGENCIES
In addition to the FTC, the federal government has created other agencies to ad-
minister laws that regulate specialized areas of business, such as transportation and
communication. Figure 7-2 lists some of the more important agencies.