Now I want to talk to you about the Clayton Act.
The Clayton Act is basically a refinement of the Sherman Antitrust Act.
It tells companies more specifically what's legal and
what's illegal in terms of pricing activities in these markets.
Now what does it prohibit?
It prohibits certain types of price discrimination, and in particular,
price discrimination between different purchasers
if such discrimination substantially lessens competition.
You're just not allowed to do it.
Now generally, the courts interpret this as price discrimination in business to
business markets.
So if one business is selling to another business,
you're generally not allowed to do price discrimination.
Conversely, in this course we've talked a lot about
price discrimination in business to consumer markets.
That's generally okay.
Some state laws prohibit that, but not a lot.
In general,
you're allowed to price discriminate in business to consumer markets.
You're allowed to offer student discounts, or
senior citizen discounts because they're a form of price discrimination.
The reason the courts think that's okay and the regulatory structure allows it
is because in price discrimination in business to consumer markets,
it's generally the case that people who are poorer, or
at least have less ability or willingness to pay, pay lower prices.
Conversely, in business to business markets,
courts worry that the big players will get the better terms of trade,
the better prices, because they'll have the negotiating power.
And that could become anti-competitive.
So that's why B2B price discrimination is generally illegal.
Now the Clayton Act also prohibits tying arrangements.
Now what are these?
That's an agreement to sell one product but
only under the condition that the buyer purchase an additional product, or
at least won't purchase it from another competitor.
So let me give you the provisions of this and then I'll give you a quick example.
So here are the provisions.
Here's basically the outline of tying arrangements.
First you have to have two separate products or services.
And the purchaser of the tying product, the purchase of that product is
conditioned on the additional purchase of the tied product.