Fruit-of-the-Plant Seed Company is engaged in the agricultural seed industry in the Midwest. The firm currently has about 40 percent of the market for these products. GreatGro Seed Corporation competes with Fruit-of-the-Plant in the same states

Question

Carbonate has about 35 percent of the market. If Fruit-of-the-Plant were to acquire the stock and assets of GreatGro, would Fruit-of-the-Plant be in violation of any of the antitrust laws? If so, which one? Discuss fully.

Answer 1

Section 7 of the Clayton Act prohibits the type of action by Bubbly suggested in this question—a horizontal merger that would increase market concentration. Other factors include the overall concentration of the relevant market, that market's history of tending toward concentration, and whether the merger is apparently designed to establish market power or restrict competition. Based on the facts stated in the question, most of these factors are present.
Thus, the major antitrust law being violated is Section 7 of the Clayton Act. Section 7 pro¬hibits any person or business organization from acquiring the stock or assets in an¬other business where the result would be a significantly increased market share and the effect would most likely be to substan¬tially lessen competition. The removal of a competitor who controls 35 per¬cent of the market (GreatGro) combined with the 40 percent held by the acquiring company (Fruit-of-the-Plant) definitely could drive out the remaining small competitors and be a barrier to future entrants into this market. Either the U.S. Department of Justice or the Federal Trade Commission could file for di-vestiture of the resulting firm if these parties were to merge.