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Price Fixing Texaco, Inc., and Shell Oil Co. are competitors in the national and international oil and gasoline markets. They refine crude oil into gasoline and sell it to service station owners and others. Between 1998 and 2002, Texaco and Shell engaged in a joint venture, Equilon Enterprises, to consolidate their operations in the western United States and a separate venture, Motiva Enterprises, for the same purpose in the eastern United States. This ended their competition in the domestic refining and marketing of gasoline. As part of the ventures, Texaco and Shell agreed to pool their resources and share the risks and profits of their joint activities. The Federal Trade Commission and several states approved the formation of these entities without restricting the pricing of their gasoline, which the ventures began to sell at a single price under the original Texaco and Shell brand names. Fouad Dagher and other station owners filed a suit in a federal district court against Texaco and Shell, alleging that the defendants were engaged in illegal price fixing. Do the circumstances in this case fit the definition of a price-fixing agreement Explain. [ Texaco Inc. v. Dagher , 547 U.S. 1, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006)]
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Price fixing is a horizontal restraint in trade. It is when competitors team up and fix a price to either lock out competitors with lower prices. In another version, competitors hike up prices and benefit off consumers.
However, in this case, these gas companies were not necessarily competitors. Instead, they had committed themselves to a joint venture, essentially merging operations in the different regions of the United States. Thus, they were not engaged in price fixing in the traditional sense. In essence, they were just setting prices as a single entity would.
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SPECIAL CASE ANALYSIS: Resale Price Maintenance Agreements.
Go to Extended Case 47.2, Leegin Creative Leather Products , Inc. v. PSKS, Inc., 551 U.S. 877, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007), on pages 919 and 920. Read the excerpt and answer the following questions.
(a) Issue: The dispute in this case was between which parties and turned on what legal issue
(b) Rule of Law: In resolving this dispute, what common law rule did the Court overturn, and what rule did the Court create to replace this rejected precedent
(c) Applying the Rule of Law: What reasons did the Court give to justify its change in the law, and how did the new rule apply in this case
(d) Conclusion: In whose favor did the Court rule and why
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a) The issue was whether a per se rule of price fixing applied to vertical agreements.
b) The per se rule of price fixing in a horizontal agreement context means that when competitors agree to fix a price, it is inherently anti-competitive. It becomes a restraint on trade, which is violation of the Sherman Act, Section 1.
c) Here, the court found that the per se rule only applies when the court has determined the type of agreement at issue. They found that horizontal agreements are different than vertical agreements fixing a minimum resale price. In fact, unlike horizontal agreements, minimum resale prices can stimulate competition as well as restrict competition.
d) Because vertical agreements can stimulate competition and, thus, are not inherently anticompetitive, a per se rule cannot apply to vertical agreements in the same way it is applied to horizontal agreements to price fix. Therefore, the court found in favor of Leegin, the original defendant, and reversed the lower court's decision.
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What factors might the courts consider in applying the rule of reason to minimum resale price maintenance agreements
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The court would want to measure the anticompetitive effects, including a decreased output, stimulation in interbrand competition, and the increase in options to consumers at different price levels. The court is really focusing on the actual economic effects and what would beneficial to stimulating the market.
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Croup Boycott Jorge's Appliance Corp. was a new retail seller of appliances in Sunrise City. Because of its innovative sales techniques and financing, Jorge's caused the appliance department of No-Glow Department Store, a large chain store with a great deal of buying power, to lose a substantial amount of sales. No-Glow told a number of appliance manufacturers from whom it made large-volume purchases that if they continued to sell to Jorge's, No-Glow would stop buying from them. The manufacturers immediately stopped selling appliances to Jorge's. Jorge's filed a suit against No-Glow and the manufacturers, claiming that their actions constituted an antitrust violation. No-Glow and the manufacturers were able to prove that Jorge's was a small retailer with a small market share. They claimed that because the relevant market was not substantially affected, they were not guilty of restraint of trade. Discuss fully whether there was an antitrust violation.
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QUESTION WITH SAMPLE ANSWER: Section 1 of the Sherman Act.
Allitron, Inc., and Donovan, Ltd., are interstate competitors selling similar appliances, principally in the states of Illinois, Indiana, Kentucky, and Ohio. Allitron and Donovan agree that Allitron will no longer sell in Indiana and Ohio and that Donovan will no longer sell in Illinois and Kentucky. Have Allitron and Donovan violated any antitrust laws If so, which law Explain.
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A QUESTION OF ETHICS: Section 1 of the Sherman Act.
In the 1990s, DuCoa, L.P., made choline chloride, a B-complex vitamin essential for the growth and development of animals. The U.S. market for choline chloride was divided into thirds among DuCoa, Bioproducts, Inc., and Chinook Group, Ltd. To stabilize the market and keep the price of the vitamin higher than it would otherwise have been, the companies agreed to fix the price and allocate market share by deciding which of them would offer the lowest price to each customer. At times, however, the companies disregarded the agreement. During an increase in competitive activity in August 1997, Daniel Rose became president of DuCoa. The next month, a subordinate advised him of the conspiracy. By February 1998, Rose had begun to implement a strategy to persuade DuCoa's competitors to rejoin the conspiracy. By April, the three companies had reallocated their market shares and increased their prices. In June, the U.S. Department of Justice began to investigate allegations of price fixing in the vitamin market. Ultimately, a federal district court convicted Rose of conspiracy to violate Section 1 of the Sheiman Act. [ United States v. Rose, 449 F.3d 627 (5th Cir. 2006)]
(a) The court "enhanced" Rose's sentence to thirty months' imprisonment, one year of supervised release, and a $20,000 fine based, among other
things, on his role as "a manager or supervisor" in the conspiracy. Rose appealed this enhancement to the U.S. Court of Appeals for the Fifth Circuit. Was it fair to increase Rose's sentence on this ground Why or why not
(b) Was Rose's participation in the conspiracy unethical If so, how might Rose have behaved ethically instead If not, could any of the participants' conduct be considered unethical Explain.
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Tying Arrangement John Sheridan owned a Marathon gas station franchise. He sued Marathon Petroleum Co. under Section 1 of the Sherman Act and Section 3 of the Clayton Act, charging it with illegally tying the processing of credit-card sales to the gas station. As a condition of obtaining a Marathon dealership, dealers had to agree to let the franchisor process credit cards. They could not shop around to see if credit-card processing could be obtained at a lower price from another source. The district court dismissed the case for failure to state a claim, Sheridan appealed. Is there a tying arrangement If so, does it violate the law Explain. [Sheridan v. Marathon Petroleum Co., 530 F.3d 590 (7th Cir. 2008)]
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Should the Court have applied the doctrine of stare decisis to hold that minimum resale price maintenance agreements are still subject to the per se rule Why or why not
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Price Fixing About 80 percent of the digital music purchased in the United States was controlled by several companies that produce, license, and distribute music sold as digital files over the Internet or on compact discs. The companies formed joint ventures called MusicNet and Duet to sell music to consumers. Through these ventures, the music sellers could communicate about pricing, terms, and use restrictions. Because the prices were so high, however, most consumers avoided them. Instead, song-by-song distribution over the Internet became more common. As a result, the music companies were forced to lower prices, but most sales were still done through MusicNet as the distributor. Eventually, the music companies agreed to a price of 70 cents wholesale for songs distributed on the Internet, but they refused to sell through another distributor, eMusic, which charged 25 cents per song. A group of consumers, including Kevin Starr, brought a lawsuit alleging that the music companies engaged in a conspiracy to restrain the distribution of Internet music and to fix and maintain artificially high prices. Do the consumers have a credible antitrust case to pursue in this situation Discuss. [ Starr v. Sony BMC Music Entertainment , 592 F.3d 314 (2d Cir. 2010)]
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Price Discrimination The customers of Sodexho, Inc., and Feesers, Inc., are institutional food service facilities such as school, hospital, and nursing home cafeterias. Feesers is a distributor that buys unprepared food from suppliers for resale to customers who run their own cafeterias. Sodexho is a food service management company that buys unprepared food from suppliers; prepares the food; and sells the meals to the facilities, which it also operates, under contracts with its clients. Sodexho uses a distributor, such as Sysco Corp., to buy the food from a supplier, such as Michael Foods, Inc. Sysco pays Michael's list price and sells the food to Sodexho at a lower price- which Sodexho has negotiated with Michael-plus an agreed mark-up. Sysco invoices Michael for the difference. Sodexho resells the food to its facilities at its cost, plus a "procurement fee." In sum, Michael charges Sysco less for food resold to Sodexho than it charges Feesers for the same products, and thus Sodexho's customers pay less than Feesers's customers for these products. Feesers filed a suit in a federal district court against Michael and others, alleging price discrimination. To establish its claim, what does Feesers have to show What might be the most difficult element to prove How should the court rule Why [ Feesers, Inc. v. Michael Foods, Inc., 498 F.3d 206 (3d Cir. 2007)]
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CASE PROBLEM WITH SAMPLE ANSWER: Monopolization.
When Deer Valley Resort Co. (DVRC) was developing its ski resort in the Wasatch Mountains near Park City, Utah, it sold parcels of land in the resort village to third parties. Each sales contract reserved the right of approval over the conduct of certain businesses on the property, including ski rentals. For fifteen years, DVRC permitted Christy Sports, LLC, to rent skis in competition with DVRC's ski rental outlet. When DVRC opened a new midmountain ski rental outlet, it revoked Christy's permission to rent skis. This meant that most skiers who flew into Salt Lake City and shuttled to Deer Valley had few choices: they could carry their ski equipment with them on their flights, take a shuttle into Park City and look for cheaper ski rentals there, or rent from DVRC. Christy filed a suit in a federal district court against DVRC. Was DVRC's action an attempt to monopolize in violation of Section 2 of the Sherman Act Why or why not [ Christy Sports, LLC v. Deer Valley Resort Co., 555 F.3d 1188 (10th Cir. 2009)]
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Restraint of Trade In 1999, residents of the city of Madison, Wisconsin, became concerned that overconsumption of liquor seemed to be increasing near the campus of the University of Wisconsin-Madison (UW), leading to more frequent use of detoxification facilities and calls for police services in the campus area. Under pressure from UW, which shared these concerns, the city initiated a new policy that imposed conditions on area taverns to discourage reduced-price "specials" believed to encourage high-volume and dangerous drinking. In 2002, the city began to draft an ordinance to ban all drink specials. Tavern owners responded by announcing that they had "voluntarily" agreed to discontinue drink specials on Friday and Saturday nights after 8 P.M. The city put its ordinance on hold. UW student Nic Eichenseer and others filed a suit in a Wisconsin state court against the Madison-Dane County Tavern League, Inc. (an association of local tavern owners), and others, alleging violations of antitrust law. On what might the plaintiffs base a claim for relief Are the defendants in this case exempt from the antitrust laws What should the court rule Why [ Eichenseer v. Madison-Dane County Tavern League, Inc., 2006 WI App 226, 725 NW.2d 274 (2006)]
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