Sherman Act - Refusal to Deal
When is Refusal to Deal with a Supplier or Buyer Illegal?
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Table of ContentsWhat is Refusal to Deal under the Sherman Act?Discussion QuestionPractice QuestionAcademic Research
What is Refusal to Deal under the Sherman Act?
Under the Sherman Act 1, refusals to deal with or boycotts of market participants can be illegal as horizontal restraints of trade. This may be the case when the refusal has anti-competitive aspects but no pro-competitive justification. If the refusal to deal is not a pure restraint of trade, a court would use the rule of reason to determine whether a sufficient restraint of trade is present to make the conduct illegal. The greater the amount of commerce involved in the boycott situation, the more likely it is to be an illegal restraint of trade.
Example: A boycott of a supplier that includes cooperative buying arrangement would be per se illegal if the boycotters possess extensive market power or control some element that is essential for competition. If, on the other hand, an agreement to boycott a particular supplier is suggested, it may not be a restraint of trade. But, if the boycott is monitored by either party and enforced in some manner, it is likely a sufficient restraint on trade to be illegal.
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What factors should a court use to determine whether a refusal to deal with market participants is a naked restraint of trade? Should the effect on trade be examined before a determining whether conduct is per se illegal? What are the arguments for and against this approach?
ABC Corp is a large manufacturer of widgets. 123 Corp is a supplier of material parts used in the manufacture of widgets. ABC refuses to deal with 123 Corp and directs all of its purchases to XYZ Corp, which has an agreement to only supply parts to ABC. ABC believes that limiting orders to 123 Corp will reduce volume and push up the cost per unit. This will hurt all of ABC Corps competitors. Is there any problem with ABCs conduct?