U.S. v. Gypsum Co. (1950)
Question 1
This was a case, which was argued on October 19, 1950 and decided on November 27, 1950. The proceeding was actually filed in the year 1940 in District Court of United States for Colombia District by United States under the Attorney general’s authority. The complaint that was charged was a long –continued conspiracy or plot by the defendants in the restraint of trade in the gypsum products amongst numerous states and in Columbia District, and a like monopoly, all in desecration of Sherman Antitrust Act.
The defendants, appellees or respondents in this case, were the patentee, United States Gypsum Co. and some other gypsum board manufacturers, the licensees, and some of their officials. It was suspected that this combination had actually acted in concert so as to restrain the commerce in the entire industry under the patent licenses with an intention of organizing the industry and stabilizing prices. The trial court thus granted respondent’s motion to dismiss. The Supreme Court on direct appeal applied clearly erroneous test although above all the evidence consisted undisputed facts and documents.
Question 2
The objective of the U.S. antitrust law is to deal with a number of anti-competitive practices or behaviors, which are not favorable to ethical and healthy business competition. For that reason, this law regulates the organization and conduct of business corporations so as to promote competition that is fair for consumers’ advantage. These laws drive the businesses towards anticompetitive behavior direction.
The defendants in this case had violated this law as stated above. They had violated the main statutes of this law which are the Clayton Act of 1914, The Federal Commission Act of 1914, and Sherman Act of 1890. Generally these acts restrict cartels formation and ban the other collusive practices that are regarded as restraint of trade. Secondly, they restrict organizations’ acquisitions and mergers that substantially lessen competition. In addition, they are against monopoly creation and monopoly power abuse.
Clayton antitrust act addresses discriminative pricing practices where the purchasers of an identical product from the same seller are required to be offered same pricing and discounts. The reason why this law is against discriminative pricing is because this practice gives certain parties competitive advantage over the other competitors in the same market hence this leads to monopoly evolution in the field of commerce.
The Sherman antitrust act prohibits the big players in the commerce from joining their efforts or combining since this result to a competition that is unfair. Moreover, the act is against monopoly where it considers those individuals planning to form a monopoly as guilty of felony and in addition acting in a manner, which may disadvantage the other person within certain business practices or business area.
Question 3
In ruling the competition unfairness in this case, the judges considered a number of factors. For one, they considered extent and trend in the competition. CR8, CR4, and HHI ratios were significant in helping them determine the characteristics and level of competition in the entire industry. As a result, they realized that there was unfair competition in this industry hence they applied the appropriate legal procedures in arresting the situation to ensure that the competition was fair.
Additionally, they considered market structure in their ruling. This takes in aspects like market definition, the degree of competition, and market imperfections. In terms of market definition, they might have considered the type of product and services that were offered in this industry, same prices and the price movements, Geographical market areas, and supply conditions. According to their ruling, it was illegal for the defendants to create a monopoly since the geographical domain of the firm or product did not support dominance or monopolization. Moreover, they considered the industry pricing stabilization through the use of patent licenses by the defendants as a barrier to entry that is illegal according to the U.S. antitrust laws.
Question 4
The plaintiff (United States) complained that the defendants (Gypsum Co., gypsum board manufacturers, patentee, and licensees and some of their officials) engaged in anticompetitive business practice or conduct by acting in concert so as to restrain the commerce in the entire industry under the patent licenses with an intention of organizing the industry and stabilizing prices hence this was viewed as discouraging fair competition that is advantageous to the consumers. The defendant had actually used an anticompetitive price strategy through liaising with the patentee, licensees and some of their officials to form a monopoly. In addition, the defendant had used a non-price strategy through liaising with them to form mandatory and prohibitory orders to those already in industry and those trying to penetrate the industry.
Question 5
The defendant’s conduct was anticompetitive in nature meaning that they transformed the market from being competitive to uncompetitive. This conduct negatively affected the other competitors in the industry since they could not compete fairly. This means that their business activities were affected as they could not control the market hence this led to losses and eventually their closure. The defendants also created entry barriers where those firms that wanted to enter into the industry could not enter.
Question 6
After the plaintiff (United States) concluded the evidence it had in chief at trial, a 3 judge District Court granted respondents’ motion to dismiss on the ground that there was no any right to relief that had been shown. This court used Rule 41(b) of Federal Rules civil procedure to take this legal action.
Question 7
The Supreme Court on direct appeal applied clearly erroneous test, although principally the evidence consisted undisputed facts and documents. This court in its legal action stated that, "in so far as this finding and others to which we shall refer are inferences drawn from documents or undisputed facts . . . Rule 52(a) of the Rules of Civil Procedure is applicable."
Question 8
It is interesting to note that the model of structure-Conduct-Performance has essentially been applied in this case. This model is actually a strategy paradigm, which assumes that a market structure determines the conduct and performance of a firm. This model has actually been used in this case like an analytical framework in making relations among the market structure, the market conduct, and market performance.
In this case, the judges utilized the three elements of this paradigm in delivering their verdict. Structure refers to the set of variables, which are quite stable overtime and also affect behavior of the buyers and/or sellers. In determining whether the market failed to follow the perfect market conditions as it was required in the industry, the judges basically considered the degree of product differentiation, demand concentration, supply concentration, and market entrance barriers. In addition, they considered the technology that was available and the type of the product that was being offered. For that reason, this helped them to make an informed judgment since the market was supposed to be a perfect competitive and not a monopoly.
In terms of conduct, the court used this element to determine how the sellers and buyers in the industry were behaving both amongst each other, and amongst themselves. This helped the judges to make a decision on whether the organization and conduct of the defendants was promoting fair competition in the industry for the benefit of the consumers. As a result, the court realized that the defendant’s conduct failed to promote fair competition in the market as they violated the United States antitrust laws. In real sense, Gypsum Co. conduct was anticompetitive in nature because they monopolized the market through collaborating with the patentee and licensees.
Last but not least, the court utilized the third element in delivering its verdict. Performance is essentially measured through a comparison of firms’ results in the industry in terms of efficiency, and various ratios that are used in assessing the profitability levels. In reality, it was not possible to assess the performance of this company because there was not fair competition that allows easy comparison of results for different firms. In addition, various variables such as production efficiency, resource allocation, and quality of product were not present as expected in a competitive market in this case since the conduct of the defendants led to a monopoly market structure that is believed to be disadvantageous to the consumer. Therefore, this element was much applicable in this case.
References
Scherer, F. M. (2005). Patents: Economics, policy, and measurement. Cheltenham, UK: E. Elgar Pub.
Herrmann, R., Röder, C., & Connor, J. M. (2000). Are structure-conduct-performance hypotheses of competition policy valid?: Econometric evidence for the case of new food product introductions. Berlin [u.a.: Duncker & Humblot.
Utton, M. A. (2011). Cartels and Economic Collusion: The Persistence of Corporate Conspiracies. Cheltenham: Edward Elgar Pub.
Inger, E. M. (1968). Antitrust economics: Selected legal cases and economic models. Englewood Cliffs, N.J: Prentice-Hall.
