Key Terms
ANTITRUST LAW
Laws designed to protect trade and commerce from unreasonable restraints, monopolies, price fixing, and price discrimina
One more law is critical for this module
Robinson-Patman Act (1936): amended the Clayton Act; specifically prohibits price discrimination that hinders competitio
PRICE DISCRIMINATION
The practice of offering identical or similar goods to different buyers at different prices when the costs of producing
Two critical elements in that definition
1. Same or similar goods 2.
DIRECT PRICE DISCRIMINATION
Seller charges different prices to different buyers. Example: two customers walk in and pay different amounts for the ex
INDIRECT PRICE DISCRIMINATION
Seller offers special concessions to some buyers but not others. Concessions include favorable credit terms, extended pa
DEFINITION
A customer of the seller's customer benefits from the seller's pricing decision downstream. Example: A clothing manufact
COST JUSTIFICATION EXAMPLE
Coffee is cheaper in Hawaii because transportation costs to ship it to the continental United States do not apply. The p
Example
A large retailer that buys enormous quantities demands a lower per-unit price from the manufacturer. A small retailer bu
WHEN IT IS LEGAL
Negotiations for the lower price are conducted fairly AND there is no substantial anticompetitive impact in the market.
WHEN IT IS ILLEGAL
When larger businesses use second line discrimination to freeze out smaller competitors. If smaller competitors cannot a
Summary Table
The Three Lines
RULE
Price discrimination at any line is legal when a seller lowers prices in good faith to meet an equally low price offered
RATIONALE
If lower prices reflect honest competition for customers, courts treat that as market forces working properly. Businesse
FLIP SIDE
If lowered prices are not done in good faith but are an attempt to undercut competition, the business commits predatory