By The Credit2B Analyst Team
A Manager’s Guide To Understanding Antitrust Issues
Credit Managers, because they are frequently active in industry groups and communicate with competitors for customer credit references, need to have an understanding of antitrust issues, so that they do not inadvertently step over the regulatory line in the sand.
Certainly, big antitrust cases come to mind: the break ups of Standard Oil and AT&T, the disentangling of Internet Explorer and Media Player from Microsoft Windows, and the recent investigation into Google search processes, for example. But other, less headline-grabbing cases exist. The Justice Department has prosecuted antitrust cases involving bid-rigging cartels affecting hundreds of millions of dollars in contracts to supply food to schools, hospitals, and other public institutions; disaster relief projects; real estate foreclosure auctions; and contracts for the construction of water treatment plants.
Opportunities exist in any industry to step over that line, with possible large fines, jail time, and product overhaul expenses among other penalties. History aside, antitrust issues remain a modern concern to managers.
Five Most-Investigated Antitrust Activities
The first two, Price Fixing and Boycotts, are most important to credit management in its dealings with other industry companies.
Price Fixing: A pricing agreement between business competitors selling the same product or service. This includes conditions of sale including trade credit terms, discounts, rebates, and warranties.
Boycotts: Agreements among competitors not to do business with targeted individuals or businesses, especially if the group of competitors working together holds certain amount of market clout. This also extends to trade associations operating against a business or individual.
Bid Rigging: A form of price fixing and market allocation that involves an agreement in which one party of a group of bidders will be designated to win the bid, even if multiple bids are received.
Geographic Market Allocation: An agreement between competitors not to compete within each other’s geographic territories.
Patent Fraud: Illegal monopolization through the maintenance and enforcement of a patent obtained via fraud on the Patent Office. Also called “Walker Process fraud” from Supreme Court case Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp.
To protect against such abuses, Congress passed various laws over the last century and a quarter: Sherman Act of 1890, Clayton Act of 1914, Federal Trade Commission Act of 1914, Robinson-Patman Act of 1936, and Celler-Kefauver Act of 1950. These and other laws aim to prevent practices deemed to hurt businesses and consumers.
Written in broad terms, the laws offer considerable room for interpretation, but a credit manager should be able to raise a red flag over particular issues — although this is not a substitute for review by legal professionals. Law libraries are filled with antitrust cases and decisions, so the following offers only an overview of potentially antitrust issues. Rule number one remains: get competent legal counsel when unsure about a particular action.
Part 2 of this educational piece will be available on the website in the coming days, focusing on Avoiding Antitrust Problems and Customer Relations.
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