the law of cooperative corporations
DESCRIPTION
The Law of Cooperative Corporations. University of Arkansas LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas April, 2007 James R. Baarda. Antitrust. Antitrust. 1. 2. The problem. 3. Capper-Volstead Act. 4. Scope of behavior. 5. Current issues. Undue price enhancement. - PowerPoint PPT PresentationTRANSCRIPT
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The Law of Cooperative The Law of Cooperative CorporationsCorporations
University of ArkansasUniversity of Arkansas
LLM Program, Agricultural Law, 2007LLM Program, Agricultural Law, 2007Fayetteville, ArkansasFayetteville, Arkansas
April, 2007April, 2007
James R. BaardaJames R. Baarda
AntitrustAntitrust
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5.Undue price enhancement
4.Current issues
3.Scope of behavior
2.Capper-Volstead Act
1.The problem
AntitrustAntitrust
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Syllabus: Antitrust, pp. 1 - 10
1.The problem
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Basic Antitrust RulesBasic Antitrust Rules • Sherman Act (1890)Sherman Act (1890)
- Section 1- Section 1- Section 2- Section 2
Syllabus: Antitrust, pp. 2 - 5
• Clayton Act (1914)Clayton Act (1914)- Merger- Merger- Cooperative exemption- Cooperative exemption
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• FTC Act (1914)FTC Act (1914)Unfair methods of Unfair methods of competitioncompetition
Syllabus: Antitrust, pp. 4 - 5
• Robinson-Patman Act (1936)Robinson-Patman Act (1936)Price discriminationPrice discrimination
Basic Antitrust RulesBasic Antitrust Rules
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• Judicial developmentJudicial development- Monopolization- Monopolization- Restraint of trade- Restraint of trade
Syllabus: Antitrust, pp. 5 - 10
Basic Antitrust RulesBasic Antitrust Rules
• Rule of reasonRule of reason• Per sePer se rules rules
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Syllabus: Antitrust, pp. 5 - 10
Basic Antitrust RulesBasic Antitrust Rules
• MarketingMarketing• PurchasingPurchasing• Early cooperative issuesEarly cooperative issues
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Syllabus: Antitrust, pp. 5 - 10
2.Capper-Volstead Act
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Capper-Volstead Act (1922)Capper-Volstead Act (1922)
• MembershipMembership• StructureStructure• ActionsActions
Syllabus: Antitrust, pp. 10 - 11
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Syllabus: Antitrust, pp. 10 - 11
“Persons engaged in the production of agricultural products
as farmers, planters ranchmen, dairymen, nut or fruit growers
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
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Syllabus: Antitrust, pp. 10 - 11
may act together in associations, corporate or otherwise, with or without capital stock
in collectively processing, preparing for market, handling, and marketing in interstate and foreign commerce
such products of persons so engaged.
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
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Syllabus: Antitrust, pp. 10 - 11
Such associations may have marketing agencies in common;
and such associations and their members may make the necessary contracts and agreements to effect such purposes:
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
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Syllabus: Antitrust, pp. 10 - 11
Provided, however, that such associations
are operated for the mutual benefit of the members thereof, as such producers,
and conform to one or both of the following requirements:
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
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Syllabus: Antitrust, pp. 10 - 11
First, that no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein,
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
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Syllabus: Antitrust, pp. 10 - 11
First, that no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein,
or,
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
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Syllabus: Antitrust, pp. 10 - 11
Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum.
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
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Syllabus: Antitrust, pp. 10 - 11
And in any case to the following:
Third. That the association shall not deal in the products of nonmembers to an amount greater in value than such as are handled by it for members.”
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
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Syllabus: Antitrust, pp. 10 - 11
Capper-Volstead Act (1922)Capper-Volstead Act (1922)
ControlControl
BenefitBenefit
FinanceFinance
USEUSE
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Producer MembershipProducer Membership • Case-Swayne (1967)Case-Swayne (1967)• Packing house membershipPacking house membership• No de minimus rulesNo de minimus rules• “ “Economic consequences”Economic consequences”• Focus exclusively on producersFocus exclusively on producers
Syllabus: Antitrust, pp. 11 - 16
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What is a Producer?What is a Producer?
• NBMA (5NBMA (5thth Cir.) (1977) Cir.) (1977)• Poultry integratorsPoultry integrators• Contract growersContract growers• Words of the statuteWords of the statute• Rationale for the ActRationale for the Act
Syllabus: Antitrust, pp. 16 - 28
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• NBMA (S.Ct.) (1978)NBMA (S.Ct.) (1978)• No breeder flocks, hatcheriesNo breeder flocks, hatcheries• Rationale for exemptionRationale for exemption
- Condition of farmers- Condition of farmers- Exposure to risks +- Exposure to risks +- Inability to respond- Inability to respond
Syllabus: Antitrust, pp. 29 - 47
What is a Producer?What is a Producer?
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• NBMA (S.Ct.) (1978)NBMA (S.Ct.) (1978)• Economic role of memberEconomic role of member• Brennan, concurringBrennan, concurring
- Relative economic positions- Relative economic positions- Conflicts- Conflicts
Syllabus: Antitrust, pp. 29 - 47
What is a Producer?What is a Producer?
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• NBMA (S.Ct.) (1978)NBMA (S.Ct.) (1978)• White, dissentingWhite, dissenting
- Changing agriculture- Changing agriculture- Economic position- Economic position- Risk-bearing- Risk-bearing
Syllabus: Antitrust, pp. 29 - 47
What is a Producer?What is a Producer?
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• Hinote (1993)Hinote (1993)• Catfish farm productionCatfish farm production• Processing issueProcessing issue
Syllabus: Antitrust, pp. 47 - 54
What is a Producer?What is a Producer?
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Foreign MembershipForeign Membership
• Reasons for foreign membersReasons for foreign members• Ocean Spray (2004)Ocean Spray (2004)• Plain meaning of the wordPlain meaning of the word• No untoward impactNo untoward impact
Syllabus: Antitrust, pp. 54 - 60
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Syllabus: Antitrust, pp. 60 - 137
3.Scope of behavior
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Pricing Actions ProtectedPricing Actions Protected
• Entity requirementEntity requirement• Membership entitiesMembership entities• Bargaining, pricingBargaining, pricing
Syllabus: Antitrust, pp. 60 - 84
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Treasure Valley (1974)Treasure Valley (1974)
Syllabus: Antitrust, pp. 63 - 65
Pricing Actions ProtectedPricing Actions Protected
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Central California (1976)Central California (1976)
Syllabus: Antitrust, pp. 67 - 78
Pricing Actions ProtectedPricing Actions Protected
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In re Central California (1977)In re Central California (1977)
Syllabus: Antitrust, pp. 78 - 85
Pricing Actions ProtectedPricing Actions Protected
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Cooperative Marketing Act of 1926Cooperative Marketing Act of 1926
Syllabus: Antitrust, pp. 85 - 86
… may acquire, exchange, interpret, and disseminate past, present, and prospective crop, market, statistical, economic, and other similar information by direct exchange between such persons, and/or such associations or federations thereof, and/or by and through a common agent….
Pricing Actions ProtectedPricing Actions Protected
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Actions Among CooperativesActions Among Cooperatives
• Independent cooperativesIndependent cooperatives• “ “Marketing agencies in common”Marketing agencies in common”
Syllabus: Antitrust, pp. 86 - 91
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Cooperative
Cooperative
Cooperative
Cooperative
Actions Among CooperativesActions Among Cooperatives
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• Maryland Cooperative (1956)Maryland Cooperative (1956)
Syllabus: Antitrust, p. 86
Actions Among CooperativesActions Among Cooperatives
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• Maryland Cooperative (1956)Maryland Cooperative (1956)
Syllabus: Antitrust, p. 86
“Obviously, it must have been contemplated that a common marketing agency would fix the same prices for the products of all its principles and would not discriminate among them.”
Actions Among CooperativesActions Among Cooperatives
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• Treasure Valley (1974)Treasure Valley (1974)
Syllabus: Antitrust, p. 86
“[I]t would follow that without such a separate [marketing] agency [in common], the associations may act together in marketing and make the necessary contracts to accomplish their legitimate purposes.”
Actions Among CooperativesActions Among Cooperatives
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• GVF Cannery (1981)GVF Cannery (1981)• Sherman section 1Sherman section 1
Syllabus: Antitrust, p. 88
“In short, that which agricultural producers may combine to accomplish within a single association, they may lawfully combine to achieve by way of multiple organizations.”
Actions Among CooperativesActions Among Cooperatives
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• Sherman section 2Sherman section 2
Syllabus: Antitrust, pp. 88, 89
“It would be anomalous indeed to hold that a defendant agricultural association’s alleged § 1 combination constituted a legitimate Capper-Volstead purpose, while claims based on the same facts which are brought under § 2 are not similarly protected.”
Actions Among CooperativesActions Among Cooperatives
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• Cape Cod Food Products (1954)Cape Cod Food Products (1954)
Syllabus: Antitrust, p. 88
“It is not unlawful under the antitrust acts for a Capper-Volstead cooperative … to try to acquire even 100% of the market if it does it exclusively through marketing agreements approved under the Capper-Volstead Act.”
Actions Among CooperativesActions Among Cooperatives
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• GVF Cannery (1981)GVF Cannery (1981)
Syllabus: Antitrust, p. 89
“Because an agricultural cooperative may lawfully achieve 100% of a market, it necessarily follows that two or more such organizations may together hold such monopoly power.”
• Fairdale Farms (1980)Fairdale Farms (1980)
Actions Among CooperativesActions Among Cooperatives
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• DOJ equivocationDOJ equivocation
Syllabus: Antitrust, p. 90
“Economic analysis predicts that DFA and Land O’Lakes would find anticompetitive coordination to be profit-maximizing, particularly because both firms … are agricultural cooperatives between whom explicit collusion would be legal and could not be challenged under the antitrust laws.”
Actions Among CooperativesActions Among Cooperatives
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• Related EntitiesRelated Entities• Sunkist v. Winckler & Smith (1962)Sunkist v. Winckler & Smith (1962)
Syllabus: Antitrust, pp. 91 - 93
Actions Among CooperativesActions Among Cooperatives
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• Related EntitiesRelated Entities• Sunkist v. Winckler & Smith (1962)Sunkist v. Winckler & Smith (1962)
Syllabus: Antitrust, pp. 91 - 93
“[T]he 12,000 growers here involved are in practical effect and in the contemplation of the statutes one “organization” or “association” even though they have formally organized themselves into three separate entities.”
Actions Among CooperativesActions Among Cooperatives
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• Sunkist v. Winckler & Smith (1962)Sunkist v. Winckler & Smith (1962)
Syllabus: Antitrust, pp. 91 - 93
“To hold otherwise would be to impose grave legal consequences upon organizational distinctions that are of de minimus meanings and effect to these growers who have banded together for processing and marketing purposes within the purview of the Clayton and Capper-Volstead Acts.”
Actions Among CooperativesActions Among Cooperatives
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Unprotected ActionsUnprotected Actions
Syllabus: Antitrust, pp. 94 - 96
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• Borden (1939)Borden (1939)
Syllabus: Antitrust, pp. 94 - 96
Unprotected ActionsUnprotected Actions
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• Borden (1939)Borden (1939)
Syllabus: Antitrust, pp. 94 - 96
“The right of these agricultural producers to unite in preparing for market and in marketing their products, and to make the contracts which are necessary for that collaboration, cannot be deemed to authorize any combination or conspiracy with other persons in restraint of trade that these producers may see fit to devise.”
Unprotected ActionsUnprotected Actions
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• Maryland & Virginia Milk (1960)Maryland & Virginia Milk (1960)• Purchase of Embassy DairyPurchase of Embassy Dairy• Associated actions and contractsAssociated actions and contracts• “ “Predatory” practicesPredatory” practices
Syllabus: Antitrust, pp. 97 - 104
Unprotected ActionsUnprotected Actions
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• Maryland & Virginia Milk (1960)Maryland & Virginia Milk (1960)
Syllabus: Antitrust, p. 99
“[W]e do not believe that Congress intended to immunize cooperative engaged in competition-stifling practices from prosecution under the antimonopolization provisions of § 2 of the Sherman Act ….”
Unprotected ActionsUnprotected Actions
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• Maryland & Virginia Milk (1960)Maryland & Virginia Milk (1960)
Syllabus: Antitrust, p. 100
“[T]he general philosophy of [Clayton Act § 6 and the Capper-Volstead Act] both was simply that individual farmers should be given, through agricultural cooperatives acting as entities, the same unified competitive advantage – and responsibility – available to businessmen acting through corporations as entities.”
Unprotected ActionsUnprotected Actions
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• Boise Cascade (1968)Boise Cascade (1968)• Independent pulpwood operatorsIndependent pulpwood operators• The “entity”The “entity”
Syllabus: Antitrust, pp. 104 - 108
Unprotected ActionsUnprotected Actions
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• Boise Cascade (1968)Boise Cascade (1968)
Syllabus: Antitrust, p. 108
“Whether or not [exemption applies] … , defendants cannot continue their boycott in violation of their existing contracts, .. Assemble … to dissuade or interfere with [others], nor … persuade or attempt to persuade others not to perform their contracts or … refuse normal business relations … .”
Unprotected ActionsUnprotected Actions
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Treatment of MembersTreatment of Members
• Power in the marketplacePower in the marketplace• Supply/purchasing Supply/purchasing organizationsorganizations• Non-Capper-VolsteadNon-Capper-Volstead• Non-agricultureNon-agriculture
Syllabus: Antitrust, pp. 109 - 112
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• Northwest Wholesale (1985)Northwest Wholesale (1985)• Non-member patronsNon-member patrons• ExpulsionExpulsion• Group boycotts – Group boycotts – per seper se violationviolation
Syllabus: Antitrust, pp. 109 - 112
Treatment of MembersTreatment of Members
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• Northwest Wholesale (1985)Northwest Wholesale (1985)
Syllabus: Antitrust, p. 111
“Although a concerted refusal to deal need not necessarily possess all of these traits to merit per se treatment, not every cooperative activity involving a restraint or exclusion will share with the per se forbidden boycotts the likelihood of predominantly anticompetitive consequences.”
Treatment of MembersTreatment of Members
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• Northwest Wholesale (1985)Northwest Wholesale (1985)
Syllabus: Antitrust, p. 111
“Wholesale purchasing cooperatives … are not a form of concerted activity characteristically likely to result in predominantly anticompetitive effects. Rather, such arrangements would seem to be ‘designed to increase economic efficiency and render markets more, rather than less, competitive.’”
Treatment of MembersTreatment of Members
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• Northwest Wholesale (1985)Northwest Wholesale (1985)
Syllabus: Antitrust, p. 111
“Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted.”
Treatment of MembersTreatment of Members
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MergersMergers• Logic of cooperative mergerLogic of cooperative merger• Maryland & Virginia (1960)Maryland & Virginia (1960)• DFA (2000)DFA (2000)
- Consent decree- Consent decree- Competitive impact- Competitive impact
• Country Lake FoodCountry Lake Food
Syllabus: Antitrust, pp. 112 - 124
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Monopoly PowerMonopoly Power• Cape Cod (1954)Cape Cod (1954)• Fairdale Farms (1980)Fairdale Farms (1980)
Legislative history and Legislative history and sizesize
Syllabus: Antitrust, pp. 124 - 134
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• Fairdale Farms (1980)Fairdale Farms (1980)
Syllabus: Antitrust, p. 130
“[W]hen Congress enacted the Capper-Volstead Act, it did not intend to prohibit the voluntary and natural growth that agricultural cooperatives needed to accomplish their assigned purpose of effective farmer representation.”
Monopoly PowerMonopoly Power
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• Fairdale Farms (1980)Fairdale Farms (1980)
Syllabus: Antitrust, p. 130
“That farmers’ legitimate desires for unity of effort would incorporate of necessity a concept of corporate aggrandizement did not per se make this method of cooperative growth illegal.”
Monopoly PowerMonopoly Power
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Syllabus: Antitrust, p. 134 - 139
• Production controlProduction control- - PotatoesPotatoes- Milk- Milk- Mushrooms- Mushrooms
Monopoly PowerMonopoly Power
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Current Issues - ICurrent Issues - I• Justification and challengesJustification and challenges• National CommissionNational Commission
- - Bergland testimony (1978)Bergland testimony (1978)• Antitrust Modernization Comm.Antitrust Modernization Comm.
- Keith Collins testimony- Keith Collins testimony- National Council testimony- National Council testimony- Other- Other
Syllabus: Antitrust, p. 134 - 139
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Current Issues - IICurrent Issues - II• Local market powerLocal market power• Market concentrationMarket concentration• Competitive market powerCompetitive market power• Food pricesFood prices• Dairy Farmers of AmericaDairy Farmers of America• Strategic alliances, subsidiariesStrategic alliances, subsidiaries
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Current Issues - IIICurrent Issues - III• What is a producer?What is a producer?• Mutual benefit of membersMutual benefit of members• New cooperative statutesNew cooperative statutes• “ “Outside” investorsOutside” investors• What is a cooperative?What is a cooperative?
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Capper-Volstead, Section 2Capper-Volstead, Section 2
• “ “Undue price enhancement”Undue price enhancement”
Syllabus: Antitrust, p. 139
“If the Secretary of Agriculture shall have reason to believe
that any such association
monopolizes or restrains trade …
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• “ “Undue price enhancement”Undue price enhancement”
Syllabus: Antitrust, p. 139
“to such an extent
that the price of any agricultural product
is unduly enhanced by reason thereof …
Capper-Volstead, Section 2Capper-Volstead, Section 2
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• “ “Undue price enhancement”Undue price enhancement”
Syllabus: Antitrust, p. 139
“[the Secretary may issue an order] …
directing [the cooperative] to cease and desist
from monopolization or restraint of trade.”
Capper-Volstead, Section 2Capper-Volstead, Section 2
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• Not exclusive remedyNot exclusive remedy• No price controlNo price control• Remedy directed only to Remedy directed only to “monopolization or “monopolization or restraint restraint of trade”of trade”
Syllabus: Antitrust, pp. 139 - 155
Capper-Volstead, Section 2Capper-Volstead, Section 2
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• What is “undue”?What is “undue”?- Level of price- Level of price- Method of enhancement- Method of enhancement
• What is monopolization or What is monopolization or restraint of trade?restraint of trade?
Capper-Volstead, Section 2Capper-Volstead, Section 2
Syllabus: Antitrust, pp. 139 - 155
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• Enforcement mechanismEnforcement mechanism• Capper-Volstead CommitteeCapper-Volstead Committee
Capper-Volstead, Section 2Capper-Volstead, Section 2
Syllabus: Antitrust, pp. 139 - 155
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ControlControl
BenefitBenefit
FinanceFinance
USEUSE
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5.Undue price enhancement
4.Current issues
3.Scope of behavior
2.Capper-Volstead Act
1.The problem
AntitrustAntitrust