Useful Notes on the Process of Pricing and Distribution in International Business

Around 80 countries have antitrust legislations. Most Southeast Asian nations and Latin American nations are either having these laws or drafting them. In the European Union, the competition policy is found within Articles 85 and 86 of the Treaty of Rome and in the US – The Sherman Act of 1890, The Clayton Act of 1914, The Federal Trade Commission Act of 1914, and the Robinson – Patman Act of 1936 deal with illegal anticompetitive behaviors. The US enforces its antitrust laws abroad, both civilly and criminally, and in fact, is far more aggressive than any other country in the world in extending the extraterritorial reach of such laws.

The Antitrust Division of the Department of Justice in the US has specifically targeted international price-fixing and market-allocation cartels in its enforcement efforts. Not only have the cartel fines (civil penalties) collected have increased but many top executives of cartels (including foreign nationals) have been sentenced to imprisonment (criminal penalties). Following this lead, many other countries are also focusing their antitrust enforcement efforts more intensely on international cartels.

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The US has entered into agreements with many countries, which include Australia, Brazil, Canada, The EU, Germany, Israel, and Japan, to enhance abilities of the governmental authorities to investigate and prosecute international cartel activities. However, if competition is to be seen on a worldwide scale, it will raise the question of infringement on sovereignty of nations which occurs due to extraterritorial application of any nation’s law abroad. There are many countries, including The US having made special allowances for international businessmen with regard to antitrust laws.

In the US it is the Department of Justice, in the EU the EU Commission and in Japan the Fair Trade Commission (FTC) are charged with antitrust law enforcement. In India recently Competition Commission has been established. In terms of strictness, the US laws are the toughest and then comes the European Union Antitrust laws. Of the important differences in antitrust laws, regulations and practices between the US and other countries, one is that the US applies its laws extraterritorially.

The other difference is that the US law takes cognizance on per-say basis, i.e., even if an action (like price fixing) does not cause any injury or damage. In the US 90% of the complaints are initiated by the parties. But in Japan a private party can do so only if the FTC has investigated the case first. Due to laxity in enforcement by the FTC, it is often named as “toothless tiger”.

Following business practices are relevant to antitrust actions:

i. Horizontal Restraints:

Such restraints occur at the same level in the chain of distribution, like among the manufacturers or among the wholesalers (some countries do allow price agreements among competitors). Illegal horizontal restraints include price-fixing and bid rigging; group boycotts and concerted refusals to deal; geographical or otherwise market allocation; agreeing to restrict advertising; and joint ventures.

ii. Vertical Restraints:

Such restraints do not occur among the competitors but between members of a distribution chain. Such restraints include resale price maintenance (RPM) agreements (a large number of nations do have legal provisions for RPM but with numerous variations);

Non- price agreements between a manufacturer and a dealer (e.g., location restrictions, service obligations or customer or territorial limitations); and tie-in-sales.

Tying Arrangements. The buyers are forced to buy another product too for which there is likely to be no customer demand.

Antitrust law is also concerned with monopoly power of firms which will exclude competitors from the market, reduce output and thus raise prices. According to the US Supreme Court monopolisation consists of two elements:

i. The possession of monopoly power in the relevant market (a firm having a market share in excess of 70% is likely to be deemed to have monopoly power), and

ii. Unfair attainment or maintenance of that power, as opposed to growth or development as a consequence of a superior product, business acumen, or historic accident (possession of monopoly power attained through predatory pricing or coercive behavior is prohibited).