BSAD 113 LEGAL ISSUES Lars Perner, Instructor 1

LEGAL CONSTRAINTS ON CHANNEL CHOICES

Market coverageCustomer

coveragePricing policiesProduct policiesTermination

policiesOwnership policies

BSAD 113 LEGAL ISSUES Lars Perner, Instructor 2

Antitrust Law: The Big Picture

Purpose: To enforce fair competition among firms

Issues: Collusion Predation Price discrimination Price maintenance Market share

BSAD 113 LEGAL ISSUES Lars Perner, Instructor 3

Competition

Interbrand: Between various brands made by different manufacturers

Interbrand: Between retailers or other channel members selling the same brand

BSAD 113 LEGAL ISSUES Lars Perner, Instructor 4

Some Threats to Competition

Collusion--explicit agreement among manufacturers, channels members, or a combination to limit competition

Other Anti-competitive practices Territorial

restrictions Customer coverage

restrictions Discriminatory

pricing

BSAD 113 LEGAL ISSUES Lars Perner, Instructor 5

Territorial and Coverage Restrictions--Arguments

For: Improved service--

channel members can invest

Improved interbrand competition

Against Higher prices paid

by consumers Dominance by

selected sellers or channels

BSAD 113 LEGAL ISSUES Lars Perner, Instructor 6

Determining What is Legal and What is Not

Per se illegality (e.g., collusion to fix prices horizontally)

Modified rule of reason (assumed to be illegal unless evidence is rebutted by defendant--e.g., droppage of one distributor after complaint by another)

Rule of reason--broad inquiry into policy and facts--impact and purpose (e.g., tying)

Per se legality (explicitly legal--e.g., different airline ticket prices to different end consumers)

BSAD 113 LEGAL ISSUES Lars Perner, Instructor 7

Pricing Issues

Price maintenance: Maximum Minimum

Manufacturer may announce that it will not sell to retailers selling below price; retailer cannot explicitly agree (collusion)

Price discrimination May not charge competing

firms different prices unlessjustified by actual cost

savingsneeded to meet

competition End consumers are not

competing firms May charge non-competing

firms differently (e.g., regional sellers)

BSAD 113 LEGAL ISSUES Lars Perner, Instructor 8

Product Line Policies

Tying: May not exploit market dominance to get resellers or consumers to buy less desired product e.g., car and radio e.g., motherboard

and CPU

Full line forcing: Distributor required to carry complete or large assortment to carry desirable parts