Sherman Act - Refusal to Deal - Explained
When is Refusal to Deal with a Supplier or Buyer Illegal?
Written by Jason Gordon
Updated at April 6th, 2023
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
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.
Next Article: Sherman Act - Territorial Agreement Back to: ANTITRUST LAW
Discussion Question
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?
Practice Question
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?
Related Topics
- Antitrust Law (Intro)
- What is Antitrust Law?
- What are the Major Antitrust Laws?
- What government agency enforces antitrust law?
- What Sanctions are available under antitrust law?
- What is the Sherman Act of 1890 (Sherman Act)?
- What is a Contract, Combination, of Conspiracy in restraint of trade?
- What is Per Se Illegality and the Rule of Reason?
- What is a Monopoly?
- Herfindahl Hirschman Index (HHI) Definition
- What businesses are exempt from the Sherman Act?
- Horizontal Restraint Sherman Act?
- Sharing Information?
- Refusal to Deal?
- Territorial Agreement?
- Price Fixing?
- Resale restraint?
- Exclusive dealing?
- Tying products?
- Territorial agreements?
- What is Monopolization under the Sherman Act?
- What is the Clayton Act of 1914 (Clayton Act)?
- What is price discrimination under the Clayton Act?
- What are special arrangements prohibited under the Clayton Act?
- When are tying contracts an illegal restraint under the Clayton Act?
- When are reciprocal dealing contracts an illegal restraint under the Clayton Act?
- How does the Clayton Act regulate mergers and acquisition?
- FTC Act Antitrust Law