Vertical Restraint: S Act : 1

Vertical Restraint: S Act § 1

Vertical Restraint

Price Fixing
1. BLR #5: Per Se Illegal 2 Set Min. Resale Price 4 Next Level
  1. Even if not part w/title, can't set min. resale price
  2. Rule of rsn 4 max resale price
  3. Rsns 2 want min. resale price
    1. Create high quality image
    2. Elim. free riders of discount retailers
    3. Avoid dealer concentration
    4. Extensive avail.
    5. Eff. terr. size
    6. Mkt penetration
    7. Promote entry
    8. Promote interbrand competition
    9. Coord. among mfgr is facilitated
    10. Really actual hz'al restraint among dealer
2. BLR #6: Per Se Lawful Sole Outlet Arr.
  1. Mfgr prom's dealer that that dealer would B the only dealer +
  2. No attempt 2 monopolize +
  3. Lots of interbrand competition @ both mfgr. & retail levels
3. BLR #7: Rule of Rsn
  1. Vertically imposed terr., customer, / location restrictions
  2. Gen'ly ok if mfgr shows benefit of interbrand competition outweighs loss of intrabrand competition
Agmt / Jt. Axn
1. BLR #8: Unilateral Terms By Mfgr / Seller Lawful
  1. Seller may dec. 2 whom & what terms it will sell in advance
  2. Must have no purpose 2 create / maintain monopoly
  3. Seller can unilaterally refuse 2 deal in future 4 not following terms even if those terms illegal if accomplished by jt. axn of seller & buyer
  4. Gen'ly used 2 avoid per se illegality 2 fix vertical price min.
Tying Agmt
1. Def.
  1. Seller agrees 2 sell prod. Z only if buyer also takes prod. Y
  2. Prod. Z is tying prod.
  3. Prod. Y is tied prod.
2. BLR #9: Tying is Almost Always Illegal if All 4 Conditions Met
  1. Two sep. prod's involved
  2. Prod's R tied so can't get prod. Z w/o prod. Y
  3. Mkt pwr in mkt 4 tying prod.
    1. Patent / copyright of prod. but disfavor /
    2. Inference from forecl. /
    3. Suff. pwr 2 restrain appreciably /
    4. Ability 2 incr. price & has competitive adv. than other competitors/
    5. Suff. pwr 2 make forcing buyer 2 take unwanted prod. probable /
    6. Appreciable econ. pwr is most recent test
  4. Forecl. of seller's competitors in mkt 4 tied prod.
    1. Not insubst'l amt
    2. Subst'l vol. of commerce is most recent test
3. O'Connor's Rule of Rsn 4 Tying Formula (not maj. yet)
  1. Two sep. prod's tied
  2. Pwr in tying mkt
    1. Suff. pwr 2 forecl. / create subst'l threat of mkt pwr in tied mkt
  3. Forecl. in tied mkt
    1. Subst'l threat of mkt pwr in mkt 4 tied prod.
    2. Calls 4 mkt analysis
4. Can't Incr. Mkt Pwr by Tying in Sit's
  1. If competitive mkt 4 both tied & tying prod., then can't incr. value beyond fair mkt value
  2. If tying & tied prod. used in fixed proportions, then can't incr. value even if monopoly pwr in tying prod.
5. Patent & Tying
  1. Holder has monopoly of invention by prohibiting others from using, making, / selling it
  2. Can't use patent in 1 prod. 2 gain monopoly of another prod.
  3. Can't enforce patent 2 all if viol. antitrust laws, even if never had dealing w/infringer
6. Tying Ok 4 Quality Control If
  1. Specifications won't work
  2. Specifications will b less eff. than tying
7. Motives 4 Tying
  1. Quality control
  2. Selling own prod.
  3. Price discrim.
Excl. Dealing
1. Def.
  1. Sells prod. Q but restrains buyer
    1. From buying prod. Q from anybody else besides me +
    2. To buying only prod. Q
  2. Similarities 2
    1. Tying agmt by forcing more of unwanted prod.
    2. Total reqt K by forecl'ing competitors
2. BLR #10: Rule of Rsn If
  1. Amt of mkt sh. forecl'ed 2 seller's competitors is rsbl +
  2. Length of K is rsbl +
    1. Longer the K, more illegal
  3. Benefits 2 competition outweighs the disadv.
    1. Could have eff. in dist.
3. Adv's
  1. Quality control
  2. Can sched.
  3. Steady stream of reliable source
4. Disadv's
  1. Stuck w/price during K term
Vertical Integ.
1. Combine Complementary Items Needed 2 Prod. End Prod.
  1. Complementary item if makes something complete / make up whole
2. Adv's
  1. Assured source of supply
  2. Run dist. more eff'ly
  3. More longterm K's
3. Disadv's
  1. Hard 2 manage
  2. Barrier 2 entry if entire ind. is vertically integ'ed
  3. Polit. disadv. b/c workers get big block of polit. pwr
4. Methods of Vertical Integ.
  1. De novo where enter sep. mkt
  2. Merger / acq. existing co.
  3. Excl. dealing K's of long term total reqt K
5. Charact's of Methods
  1. De novo & merger is perm. but excl. dealing is less perm.
  2. Law pref's de novo over merger b/c more competition
  3. Law pref's excl. dealing over merger b/c less perm.
  4. Law gen'ly law pref.'s de novo > excl. dealing > merger

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Ms. Haeji Hong

May 12, 1998

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