Business Law Study Set 1

Business

Quiz 5 :

Government Regulation of Competition and Prices

Quiz 5 :

Government Regulation of Competition and Prices

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Penny Stafford, the owner of Belvi Coffee and Tea Exchange, located in Bellevue, Washington, brought an antitrust suit against Starbucks. She alleged that through its exclusive leases, Starbucks bans other coffee shops from competing. Starbucks has a 73 percent market share, has $8.4 billion in annual sales in the United States, and owns 7,551 of the 21,400 coffeehouses located in the United States. However, if Dunkin' Donuts, Krispy Kreme, and Tim Hortons are included in the gourmet coffee market, Starbucks holds only 43 percent of the coffee market. Starbucks purchased Seattle's Best Coffee (SBC) in 2003 and Torrefazione Italia the same year. Starbucks then closed one-half of all SBC stores and all of the Torrefazione outlets. Starbucks runs 59 stores within a two-mile radius of downtown Seattle. Stafford said that Starbucks has exclusive leases with landlords so that the landlords cannot lease space in the same building to another coffee shop. Does such an exclusive lease violate any antitrust laws, or are such clauses permitted under the law
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The owner of a Company BE, PS sued antitrust against the Company SB through exclusive leases. On the other end just because of exclusive leases of SB Person PS stated that other coffee café owners are unable to open and run cafes due to SB's deals w.r.t lease. The lease includes that the building owners cannot provide space in the same building for another coffee café. Moreover, the SB's cafes are located very close to each other that creates a loss for other cafés in the area.
Antitrust laws stand for collection of federal and state laws to regulate and conduct organization of business corporations fairly and in competitive manner to benefit the consumers.
Exclusive leases:
It is a common conversation when landlords and tenants are negotiating a retail lease. It is a provision that prohibits a landlord from leasing to another tenant which belongs to the same domain of the business as the existing tenant.
According to antitrust law, every contract, which is a combination of trust and conspiracy to limit trade is said to be illegal.
Such an exclusive lease that SB deals with the building owners that prevents them to offer building space to other cafes is illegal and simple violation of any antitrust laws. This is because as per antitrust laws, business corporations must run their businesses fairly and with competitiveness. one cannot prevent other cafes and business corporations to set up at the same building to do business.
Therefore, one can agree that it does violate antitrust law about market allocation. As, SB created a monopoly and person like PS who don't have enough money to open a new coffee shop every 2 blocks can't compete with that.SB put out of business many other coffee shops not only on SBC but around the world.

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The Aspen ski area consisted of four mountain areas. Aspen Highlands, which owned three of those areas, and Aspen Skiing, which owned the fourth, had cooperated for years in issuing a joint, multiple-day, all-area ski ticket. After repeatedly and unsuccessfully demanding an increased share of the proceeds, Aspen Highlands canceled the joint ticket. Aspen Skiing, concerned that skiers would bypass its mountain without some joint offering, tried a variety of increasingly desperate measures to re-create the joint ticket, even to the point of in effect offering to buy Aspen Highland's tickets at retail price. Aspen Highlands refused even that. Aspen Skiing brought suit under the Sherman Act, alleging that the refusal to cooperate was a move by Aspen Highlands to eliminate all competition in the area by freezing it out of business. Is there an antitrust claim here in the refusal to cooperate What statute and violation do you think Aspen Skiing alleged What dangers do you see in finding the failure to cooperate to be an antitrust violation [ Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585]
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Under antitrust laws competitors must cooperate with each other in good faith. For example, radios and newspaper are competitors for advertising. If a radio station has a program coming up it wants to advertise on the news, the newspaper must allow it to advertise unless there's a reasonable basis for them to refuse.
Refer to case Aspen Skiing Company v. Aspen Highlands Skiing Corporation (1985) (472 U.S. 585) to answer question as below.
The following are relevant facts to the case:
1) This is a Supreme Court case to review a jury awarding for damages to Aspen Highlands Skiing Corporation (Highlands)
2) Jury decision was based on Aspen Skiing Company (Ski Co) violating section 2 of Sherman Antitrust Act which prohibits attempts of monopolizing power
3) Both Ski companies had a joint ticket arrangement called the All-aspen ticket. The tickets purchased in either companies were usable in skiing facilities in Aspen. Ski Co the larger company canceled this arrangement which resulted in sale losses by Highland.
The Supreme Court upheld the decision. The court found Ski Co's efficiency claim, unpersuasive as it kept joint ticket arrangements in other locations. It also found that Ski Co undercut ticket prices by offering 3-day and 6-day ticket sales which significantly harmed the business of its competitors, "Ski Co. was not motivated by efficiency concerns…it was willing to sacrifice short-run benefits and consumer goodwill in exchange for a perceived long-run impact on its smaller rival."

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American Crystal Sugar Co. was one of several refiners of beet sugar in northern California, and it distributed its product in interstate commerce. American Crystal and the other refiners had a monopoly on the seed supply and were the only practical market for the beets. In 1939, all of the refiners began using identical form contracts that computed the price paid to the sugar beet growers using a "factor" common to all the refiners. As a result, all refiners paid the same price for beets of the same quality. Though there was no hard evidence of an illegal agreement, the growers brought suit under the Sherman Act against the refiners, alleging that they conspired to fix a single uniform price among themselves to hold down the cost of the beets. The growers sued for the treble damages available under the Sherman Act. Can they recover [ Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219]
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Facts:
• American Crystal Sugar Co.(Defendant) and other sugar refiners companies in California adopted fixed price for beets of similar quality
• Mandeville Island (plaintiff) sold beets to the defendants for sugar refinery. However, they sued contending that the price for amongst the defendants is a violation of the Sherman Act, monopoly of the market (in this case monopsony, single buyer, is a more appropriate term)
• The district court ruled in favor of plaintiff appeals court reversed, plaintiff appealed
The Sherman Act is applicable in the present case on the following reasons:
• The pricing of the beets were influenced by the group of the contractors and reduced the actual price of the beets
• The uniform fixation of the prices should meet the minimum pricing expectations of the sugar beet growers
• As the overall process of the growing takes place in the same state, the law would be applicable
• The growers could recover the best price for the beets with the involvement of the federal bodies
Thus, the Sherman Act is applicable and the growers could recover with the involvement of the law.

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Gardner-Denver is the largest manufacturer of ratchet wrenches and their replacement parts in the United States. Gardner-Denver had two different lists of prices for its wrenches and parts. Its blue list had parts that, if purchased in quantities of five or more, were available for substantially less than its white list prices. Did Gardner-Denver engage in price discrimination with its two price lists [ D. E. Rogers Assoc., Inc. v. Gardner-Denver Co., 718 F.2d 1431 (6th Cir.)]
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Favorite Foods Corp. sold its food to stores and distributors. It established a quantity discount scale that was publicly published and made available to all buyers. The top of the scale gave the highest discount to buyers purchasing more than 100 freight cars of food in a calendar year. Only two buyers, both national food chains, purchased in such quantities, and therefore, they alone received the greatest discount. Favorite Foods was prosecuted for price discrimination in violation of the Clayton Act. Was it guilty
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Run America, Inc., manufactures running shoes. Its shoe is consistently rated poorly by Run Run Run magazine in its annual shoe review. The number one shoe in Run Run Run's review is the Cheetah, a shoe that Run America has learned is manufactured by the parent company of the magazine. Is this conduct a violation of the antitrust laws Do you think it is ethical to run the shoe review without disclosing ownership
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Department 56 is a company that manufactures and sells collectible Christmas village houses and other replica items to allow collectors to create the whimsical "Snow Village" town or "Dickens Christmas." Department 56 has only authorized dealers. Sam's Club, a division of Wal-Mart Stores, Inc., began selling Department 56 pieces from the Heritage Village Collection. Susan Engel, president and CEO of Department 56, refused to sell Department 56 products to Wal- Mart. Does her refusal violate any antitrust laws
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The Quickie brand wheelchair is the most popular customized wheelchair on the market. Its market share is 90 percent. Other manufacturers produce special-use wheelchairs that fold, that are made of mesh and lighter frames, and that are easily transportable. These manufacturers do not compete with Quickie on customized chairs. One manufacturer of the alternative wheelchairs has stated, "Look, it's an expensive market to be in, that Quickie market. We prefer the alternative chairs without the headaches of customizations." Another has said, "It is such a drain on cash flow in that market because insurers take so long to pay. We produce chairs that buyers purchase with their own money, not through insurers. Our sales are just like any other product." Quickie entered the market nearly 40 years ago and is known for its quality and attention to detail. Buying a Quickie custom chair, however, takes time, and the revenue stream from sales is slow but steady because of the time required to produce custom wheelchairs. Has Quickie violated the federal antitrust laws with its 90 percent market share Discuss.
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A P Grocery Stores decided to sell its own brand of canned milk (referred to as private label milk ). A P asked its longtime supplier, Borden, to submit an offer to produce the private label milk. Bowman Dairy also submitted a bid, which was lower than Borden's. A P's Chicago buyer then contacted Borden and said, "I have a bid in my pocket. You people are so far out of line it is not even funny. You are not even in the ballpark." The Borden representative asked for more details but was told only that a $50,000 improvement in Borden's bid "would not be a drop in the bucket." A P was one of Borden's largest customers in the Chicago area. Furthermore, Borden had just invested more than $5 million in a new dairy facility in Illinois. The loss of the A P account would result in underutilization of the plant. Borden lowered its bid by more than $400,000. The Federal Trade Commission charged Borden with price discrimination, but Borden maintained it was simply meeting the competition. Did Borden violate the Robinson- Patman Act Does it matter that the milk was a private label milk, not its normal trade name Borden milk [ Great Atlantic Pacific Tea Co., Inc. v. FTC , 440 U.S. 69]
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David Ungar holds a Dunkin' Donuts franchise. The terms of his franchise agreement require him to use only those ingredients furnished by Dunkin' Donuts.He is also required to buy its napkins, cups, and so on, with the Dunkin' Donuts trademark on them. Is this an illegal tying arrangement What if Dunkin' Donuts maintains that it needs these requirements to maintain its quality levels on a nationwide basis [ Ungar v. Dunkin' Donuts of America, Inc., 429 U.S. 823]
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BRG of Georgia, Inc. (BRG), and Harcourt Brace Jovanovich Legal and Professional Publications (HJB) are the nation's two largest providers of bar review materials and lectures. HJB began offering a Georgia bar review course on a limited basis in 1976 and was in direct, and often intense, competition with BRG from 1977 to 1979 when the companies were the two main providers of bar review courses in Georgia. In early 1980, they entered into an agreement that gave BRG an exclusive license to market HJB's materials in Georgia and to use its trade name "Bar/Bri." The parties agreed that HJB would not compete with BRG in Georgia and that BRG would not compete with HJB outside of Georgia. Under the agreement, HJB received $100 per student enrolled by BRG and 40 percent of all revenues over $350. Immediately after the 1980 agreement, the price of BRG's course was increased from $150 to more than $400. Is their conduct illegal under federal antitrust laws [ Palmer v. BRG of Georgia, Inc., 498 U.S. 46]
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Moore ran a bakery in Santa Rosa, New Mexico. His business was wholly intrastate. Meads Fine Bread Co., his competitor, engaged in an interstate business. Meads cut the price of bread in half in Santa Rosa but made no price cut in any other place in New Mexico or in any other state. This price-cutting drove Moore out of business. Moore then sued Meads for damages for violating the Clayton and Robinson-Patman Acts. Meads claimed that the price-cutting was purely intrastate and, therefore, did not constitute a violation of federal statutes. Was Meads correct Why or why not [ Moore v. Meads Fine Bread Co., 348 U.S. 115]
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During the 1980s, the NCAA, a voluntary unincorporated association of approximately 1,100 educational institutions, became concerned over the steadily rising costs of maintaining competitive athletic programs. As a way of containing those costs, the association imposed salary caps on college and university athletic coaches. The caps on salaries as well as limits on number and types of coaches were imposed pursuant to NCAA procedures and members' votes. A group of coaches filed suit, challenging the caps on salaries and hiring as being anticompetitive. The NCAA responded that it had a goal of containing athletic program costs as well as ensuring that entry-level coaching positions were available. Are the salary caps legal under the federal antitrust laws [ Law v. National Collegiate Athletic Ass'n , 134 F.3d 1010 (10th Cir.)]
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Edwin G. Hyde, a board-certified anesthesiologist, applied for permission to practice at East Jefferson Hospital in Louisiana. An approval was recommended for his hiring, but the hospital's board denied him employment on grounds that the hospital had a contract with Roux Associates for Roux to provide all anesthesiological services required by the hospital's patients. Dr. Hyde filed suit for violation of antitrust laws. Had the hospital done anything illegal [ Jefferson Parish Hosp. Dist. No. 2 v. Hyde , 466 U.S. 2]
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Hines Cosmetic Co. sold beauty preparations nationally to beauty shops at a standard or fixed price schedule. Some of the shops were also supplied with a free demonstrator and free advertising materials. The shops that were not supplied with them claimed that giving the free services and materials constituted unlawful price discrimination. Hines replied that there was no price discrimination because it charged everyone the same. What it was giving free was merely a promotional campaign that was not intended to discriminate against those who were not given anything free. Was Hines guilty of unlawful price discrimination Explain.
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