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Pricegrabber.com is a website that helps online shoppers find the lowest-priced goods on the Internet. But it cannot always find the cheapest items because some online sellers are afraid to list their prices. If you go to Amazon.com, for example, you will see some items for which there is no price, just the legend, "To see our price, add this item to your cart." Amazon does that for fear that, after the Leegin case, manufacturers will refuse to supply items that it sells below the established retail price. Manufacturers worry that if they do not set some floor to their prices, other retailers will drop the products altogether. eBay and Amazon argue that the consumer is best served by a free market that permits them to set whatever prices they want. What is your view on RPM?
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"Resale-Price-Maintenance" (RPM):
"Resale-price-maintenance" is also called as vertical-price-fixing. The manufacture fixes the least price of the product that the seller must sell. This is the only way a retailer can earn enough profits.
The manufacturer threatens the retailers that if they give below the fixed price, they would be cut off. This is done to maintain the brand image of the product.
Mr. X's view on Resale-Price-Maintenance:
Mr. X feels that it is legal for a manufacturer to cut-off retailers who discount prices because the company wants to retain a brand name. In addition, the retailers want to sell the product at a lower rate which attracts the consumers to buy the product and it also induces them to buy other brands and products from the retail shop.
The retailers are trying to sell their products at a loss that would affect the brand name of the product. Hence, it is legal to have resale price maintenance.
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In New York City, 50 bakeries formed an association. They developed a system of distribution under which stores were allowed to buy only from a single baker. A store that wanted to shift to another baker had to consult the association and pay cash to the former baker. The association also decided to raise the retail price of bread. All the association's members printed the new price on their bread sleeves. Are the bakeries in violation of the antitrust laws?
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Case synopsis:
In the city of Nyrk, there was an association among 50 bakeries. The system of distribution to buy from a single seller is being followed. The association planned to increase price of bread and hence all the bakeries accepted and printed the new price on the bread sleeves.
Violation of antitrust law:
The violations of antitrust laws are as follows:
• Per se
• Rule-of-reason
The violations of "per se" are automatic whereas the violations of "rule of reason" are considered to be illegal only if they have an "anti-competitive impact."
Per se illegality:
Per se illegality refers to an action that is illegal regardless of situation.
The competing firms come together with an agreement regarding supply of goods. Price fixing is an example of per se illegality.
Rule of reason:
Rule of reason refers to an action that is determined as illegal by considering the evidence.
For example, if a firm having higher market share, allows demand and supply to determine the price, then it is not illegal.
Bakeries in the violation of antitrust laws:
The bakeries are said to violate the antitrust law as per the illegality of "per se" It is considered to be illegal for firms to increase the price of bread on their own unless they really face problems in manufacturing-cost.
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After acquiring the Schick brand name and electric shaver assets, North American Phillips controlled 55 percent of the electric shaver industry in the United States. Remington, a competitor, claimed that the acquisition of such a large market share was a violation of the law because the increased competition from Phillips would decrease Remington's profits. Does Remington have a valid claim?
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Phillip's acquisition of 55 percent of the electric shaver industry does not constitute a violation of antitrust laws because for a number of reasons. Antitrust laws were created
• To prohibit the wrongful acquisition of a monopoly.
• To prohibit acts that reduces competition.
Remington is claiming that the increased competition from Phillips will hurt their profits, which may be true, but this does not reduce competition; it forces Remington and other competitors to adapt by offering different products and/or by adjusting their prices.
Controlling 55 percent of the electric shaver industry is not a monopoly; regardless of market share control, a monopoly does not exist unless one group can exclude competitors or set prices. Unless there is evidence to suggest that Phillips is able to keep competitors out of the market, Remington's claim is not valid.
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All the first-run movie theaters in Silicon Valley charge the same prices for tickets. If one cinema raises its prices, so do the others. What is this type of activity called, and is it a violation of the antitrust laws? (a) Refusal to deal; it is a rule of reason violation.
(b) Conscious parallelism; it is not a violation in itself.
(c) Price fixing; it is a per se violation.
(d) Resale price maintenance; it is a rule of reason violation.
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Samantha manufactures 60 percent of the titanium screws sold in the United States. Does she have a monopoly on this product? What would you need to know to answer this question?
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Texaco sold gasoline in Spokane, Washington, to independent retailers and also to Gulf Oil, which operated its own filling stations and also sold to retailers. Texaco charged a substantially lower price to Gulf than to the independent retailers. These retailers sued Texaco, alleging that this price structure violated the RPA. At trial, the retailers presented evidence that they could not compete against Gulf. Texaco did not present evidence that the different prices it charged reflected the costs of serving these two sets of customers. Did Texaco violate the RPA?
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Are horizontal price fixing and vertical price fixing per se violations of the Sherman Act? (a) Yes, Yes
(b) Yes, No
(c) No, Yes
(d) No, No
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ETHICS Clarice, a young woman with a mental disability, brought a malpractice suit against a doctor at the Medical Center. As a result, the Medical Center refused to treat her on a nonemergency basis. Clarice then went to another local clinic, which was later acquired by the Medical Center. Because the new clinic also refused to treat her, Clarice had to seek medical treatment in another town 40 miles away. Has the Medical Center violated the antitrust laws? Was it ethical to deny treatment to a patient?
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Suppose that Masi Bikes insists that retailers cannot sell its Soulville 10 model for less than $1,099. The company threatens to cut off any retailers who discount that price. But bicycle stores would like to use these bikes as a loss leader-selling them at a lower price to lure customers. Is it legal for Masi to cut off retailers who discount prices?
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Proponents of the Post Chicago School argue that federal antitrust regulators should undertake enforcement actions that will lead to lower consumer prices. Look at the five cases in this chapter. Are the courts' decisions likely to cause consumer prices to go up or down? Do you agree with the courts' decisions?
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YOU BE THE JUDGE WRITING PROBLEM American Academic Suppliers (AAS) and Beckley-Cardy (B-C) both sold educational supplies to schools. When BC's sales began to plummet, it responded by reducing its catalog prices. It also offered an additional discount in states in which AAS was making substantial gains. What claim might AAS make against B-C? Is it likely to prevail in court? Argument for AAS: B-C has committed predatory pricing. The company is selling below cost for the purpose of driving us out of business. Argument for B-C: Even if we were to drive AAS out of business, we do not have enough market power to recoup our losses.
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Is it appropriate for U. S. antitrust laws to apply overseas? Should businesspeople who never set foot in the United States be liable for activities they conducted in their own countries?
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If Sterling Steel (SS) refused to buy concrete from Carat Concrete (CC) unless CC bought steel from SS, would that arrangement be a violation of antitrust laws? (a) Yes, a per se violation.
(b) It used to be a violation but is no longer.
(c) Yes, if it has an anticompetitive impact.
(d) Yes, if SS has a monopoly.
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A horizontal merger is illegal if _________. (a) the resulting company controls at least 90 percent of the market
(b) the resulting company controls at least 50 percent of the market
(c) the resulting company has the ability to exclude competitors
(d) all of the above
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Reserve Supply Corp., a cooperative of 379 lumber dealers, charged that Owens- Corning Fiberglass Corp. violated the Robinson-Patman Act by selling at lower prices to Reserve's competitors. It presented proof that these prices had harmed competition. Owens-Corning admitted that it had granted lower prices to a number of Reserve's competitors to meet, but not beat, the prices of other insulation manufacturers. Is Owens-Corning in violation of the RPA? (a) Yes, because the RPA requires that manufacturers charge all competitors the same price.
(b) Yes, because any difference in price is a per se violation of the RPA.
(c) Yes, because these price variations harmed competition.
(d) No, because a manufacturer is not liable under the RPA if it charges lower prices to meet competition.
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In Boston, 50 restaurants threatened to stop accepting the American Express card if the company refused to reduce the commission it charged on each purchase. Visa International, one of American Express's rivals, offered to pay the group's legal expenses. American Express then lowered its commission for all restaurants except for those with a volume lower than $1 million a year. Have either the restaurants, Visa or American Express, potentially violated the antitrust laws?
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