Concern that cutting would hurt reputation Sued distributor that was cutting prices Reasoning Dr. Miles can’t do any better than if the retailers had agreed amongst – themselves Colgate Doctrine Refusal to deal with retailers that would not sell at MSRP In the absence of any purpose to create or maintain a monopoly, the act doesn’t restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. And of course, he may announce in advance the terms (See United States v. Arnold, Schwinn & Co., rev’d, Continental Television Schwinn plan Wholesalers assigned territories, can only sell within territory – No selling to unauthorized retailers illegal non-price vertical restraint Per se Reasoning Once manufacturer has parted with title, no right to impose territorial – restraints Lack of economic rationale for the refusal after exhaustion of rights Rule of reason would be applied for goods on consignment MODERN VERTICAL RESTRAINTS STANDARDS (Non-Price Vertical Restraints) Continental Television v. GTE Sylvania Sylvania is 1-2% of market, engages in plan and rises to 5% Plan was geographic distribution restraint franchisee only allowed to sell products – from location that they got franchise at Sylvania cuts off Continental when they violate the franchise agreement Step 0 Distinguish as horizontal territorial restraint This is vertical Topco – Distinguish as price restraint This is non-price territory restriction Dr. – Analysis Vertical restraints Reduced intra-brand competition by limiting # of sellers of a product competing for business of a group of customers Increased competition by allowing manufacturer to achieve efficient product distribution Free Rider Problem Some outlets might invest in advertising/customer education Discount vendors disincentivize this by stealing customers with prices Trade-Off Educates some customers that would otherwise not buy the product Raises prices for customers that didn’t need the information/prefer lower price
Concern that cutting would hurt reputation Sued distributor that was cutting prices Reasoning – Dr. Miles can’t do any better than if the retailers had agreed amongst themselves Colgate Doctrine Refusal to deal with retailers that would not sell at MSRP In the absence of any purpose to create or maintain a monopoly, the act doesn’t restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. And of course, he may announce in advance the terms United States v. Arnold, Schwinn & Co., rev’d, Continental Television (See Schwinn plan – Wholesalers assigned territories, can only sell within territory No selling to unauthorized retailers Per se illegal non-price vertical restraint Reasoning – Once manufacturer has parted with title, no right to impose territorial restraints Lack of economic rationale for the refusal after exhaustion of rights Rule of reason would be applied for goods on consignment MODERN VERTICAL RESTRAINTS STANDARDS Continental Television v. GTE Sylvania (Non-Price Vertical Restraints) Sylvania is 1-2% of market, engages in plan and rises to 5% Plan was geographic distribution restraint – franchisee only allowed to sell products from location that they got franchise at Sylvania cuts off Continental when they violate the franchise agreement Step 0 Distinguish Topco as horizontal territorial restraint – This is vertical Distinguish Dr. as price restraint – This is non-price territory restriction Analysis Vertical restraints Reduced intra-brand competition by limiting # of sellers of a product competing for business of a group of customers Increased competition by allowing manufacturer to achieve efficient product distribution Free Rider Problem Some outlets might invest in advertising/customer education Discount vendors disincentivize this by stealing customers with prices Trade-Off Educates some customers that would otherwise not buy the product Raises prices for customers that didn’t need the information/prefer lower price
Antitrust%20First%20Fall%202012.docx