Question

In Re: Cardizem CD

a. What are the two standards used to determine violations of Section 1 of the Sherman Act? Identify and explain each.

b. Which tests did the courts apply in Cardizem? What did they rule in each of those cases? Why?

c. Restraint of trade: (1) What is meant by horizontal restraint? (2) What is meant by vertical restraint? (3) Which standard is applied to each of these restraints? (4) Illustrate the differences in a vertical restraint and a horizontal restraint, using McDonald’s, Burger King, and Wendy’s restaurants.

d. Price fixing: (1) What is price fixing? (2) Is price fixing legal? (2) Which test is usually applied to price fixing arrangements?

Answer 1

a) the section 1 of Sherman act deals with restriction of trade by unlawful engagement in a combination or through a conspiracy by individuals or organisations. The violations of section 1 of the Sherman act can be determined by existence of horizontal agreements and vertical restraints. The requirements for proving section 1 consists of establishment of conspiracy between two or more independent entities for the purposes of restricting trade which results in injury to interests of another, along with impacting interstate or International commerce of the United States.

Horizontal agreements consists of per se violation such as price fixing, agreements among suppliers to boycott certain entities, allocating markets and rigging bids. A person violation is presumed to result in causation of harm by really engaging in an act or illicit behaviour with no proof of injury being required to establish causation of harm. Vertical restraints refer to agreements made between manufacturers and suppliers or distributors to prevent competition from practicing commercial activity in the manner and with all rights which every normal individual deserves. Vertical restraints are identified by using the rule of reason to analyse whether the behaviour violates antitrust law. The rule of reason used to determine whether the anti competitive behaviour which is indulged in outweighs any Pro competitive aspects that may exist. The caveat to the rule of reason states that in case of a significant market existing for any goods to an extent that a competitive does not have the power to control the market of those goods any business decision to restrict its own goods by a company will not be considered as adversely affecting competition.

b) Court applied the per se test Android that a first say illegal restraint of trade was applicable as a contract had been entered into between HMR and Andrx pharmaceuticals incorporated was the restriction of trade by controlling the supply of cardizem in the market for benefit of HMS.

The rule of reason analysis was used to establish that antitrust laws were violated or not and the court found adequate proof of the agreement violating antitrust laws. The agreement was mutually beneficial to both company resulting in injury to consumers, the state and other companies in the segment.

C) horizontal restaurants consists of price fixing, market allocation collective beading and agreements among suppliers to Boycott. The standard applied for identification is of course a violation which means presuming to have caused harm by the mayor act of engaging in the illicit behaviour without requiring any proof of injury. vertical restaurants agreements between manufacturers and suppliers and distributors to prevent competition from entering for surviving within the market and is tested by application of the rule of reason to understand if the agreement was harmful to another.

Horizontal restaurant wood consist of McDonalds and burger King signing agreement to orperate in collusion with each other, by sharing Markets and fixing prices of the burgers at a cost just below Wendy's and even use economies of scale for procuring for both companies together and putting a conditional clause to suppliers that they would purchase from them only if the same product was not supplied to Wendy's. This is a vertical restraint and can even extend to suppliers bye bye agreements are entered into prospective suppliers of vendors offering products at lower prices with condition of exclusivity for McDonalds and burger King. For example for opening up of outlets within an airport McDonalds and burger King insist that their outlets will be opened only on the condition that Wendy's is not allowed to open an outlet within the airport area.

D) price fixing involves agreement between competitors to manipulate prices of rice levels which may be on the basis of terms and conditions of sale Pokemon it is our services. It is an agreement between two or more competing produces of a specific commodity or service within a defined geographical area to set, raise or maintain prices for the goods or services at the wholesale or retail level and need not necessarily involve every competator but involves most of the competitors in the particular market. Sunny price fixing agreements to establish adhere to uniform price discounts, to eliminate discounts to a certain class of customers for all customers to adopt a specific formulation for competition of selling price by all competitive an agreement on common terms and conditions to be applied for sale agreement not to sell a product through any bidding process or refuse to advertise price. Price fixing is illegal and the test which is applied usually is not existence of uniform price because that results out of healthy competition within any market. apply indicator price increases announced by all competitive at a similar time especially when it is prior to an important event which is likely to impact the sale purchase of the particular product or service. Meetings of competitors of Communications are effective evidence of the collusion for price fixing but it is very difficult to prove and generally requires testimony from a member of the conspiracy.