The Clayton and Robinson-Patman Acts

    The Clayton Act sought to prohibit mergers insofar as they tended to lessen com petition. But it said nothing about purchases of one company's assets, rather than its stocks, by another company. In 1950, however, the Celler-Kefauver amendment to the Act targeted purchases of assets, as well.

      Mergers often create economies of scale. Horizontal mergers enlarge firms by joining former competitors. Vertical mergers link separate stages in the manufacture or marketing of a product or service. Conglomerate mergers help firms bear risk. Often, it is not obvious how to classify any particular merger. Courts must determine cross-elasticity of supply and demand to define the outer limits of the relevant markets.

      In a horizontal merger case, the plaintifF seeks to prove that the merger produces "undue concentration" in the relevant market. Under the foreclosure theory, a vertical merger threatens competition by blocking third parties' access to suppliers or sales outlets. Conglomerate mergers have been successfully challenged on three grounds: potential competition, entrenchment, and reciprocity.

      The Clayton Act also outlaws tie-ins, exclusive dealing, and reciprocal deals. All three potentially harm competition by interfering with the buyer's or seller's freedom of choice. For a tie-in to be illegal, the tied products must be distinct, the seller must have market power in the tying product's market, and the tie-in must affect more than a minimal amount of commerce.

      There have been two very different approaches to merger policy. Advocates of economic analysis regard most mergers favorably, insisting that the competitiveness of a market does not depend upon any particular balance of large and small firms. Advocates of multivalued analysis regard the accumulation of gigantic assets as suspicious even if it proves no immediate threat of uncompetitive pricing

      Adopting the economic approach, the Reagan Administration Justice Department has focused on market concentration, setting forth the conditions that lead to collusion or monopoly. Its revised 1984 guidelines measure market concentration with the Herfindahl-Hirschman Index (HHI), which takes account of the variation in market share among the firms in a market.

      Price discrimination can cause injury to competition among sellers or buyers. Predatory pricing typically occurred when a national firm targeted certain geographic markets for cut rates that were intended to hurt local competition. The main force behind the 1936 amendment was small-business groups concerned about competition at the buyer's level from chain stores. Sellers may rebut a charge of price discrimination by showing that they sought to meet a rival's low price. Differences in price may also be justified by differences in the seller's costs associated with the two sales.

      Under the 1936 Robinson-Patman Act, an amendment to the Clayton Act, a prima facie price discrimination case requires actual, nearly simultaneous sales of tangible goods of "like grade and quality, " to at least two different customers, at directly or indirectly different prices. The Act specifically outlaws brokerage allowances, promotional allowances, and special services or side items provided to some buyers and not others.

      Many scholars have charged that the Robinson-Patman Act is overly technical, poorly written, and hostile to competition. The prospect of treble damages suits under the Act has had a dampening effect on competition, but courts, and public opinion, are becoming increasingly tolerant of competitive pricing.