TASK
1. The National Society of Professional Engineers (Society) had an ethics rule that prohibited member engineers from disclosing or discussing price and fee information with customers until after the customer had hired a particular engineer. This rule against competitive bidding was designed to maintain high standards in the field of engineering. The Society felt that competitive pressure to offer engineering services at the lowest possible price would encourage engineers to design and specify inefficient, unsafe, and unnecessarily expensive structures and construction methods. According to the Society, awarding engineering contracts to the lowest bidder, regardless of quality, would be dangerous to the public health, safety, and welfare. The Society emphasizes that the rule is not an agreement to fix prices. Rather, it claims the rule was drafted by experienced, highly trained professional engineers to prevent public harm and is therefore reasonable. Does the rule unreasonably restrain trade and thus violate Section 1 of the Sherman Act? Why or why not?
2. During a period of a few years, intense price competition characterized both the retail and the wholesale oil markets. At times, prices in the wholesale market fell below the manufacturer’s cost. One cause of the volatile situation was the supply of “distress gasoline” placed on the market by seventeen independent refiners. These independent refiners had no retail sales outlets and little storage capacity, so they were forced to sell their product at “distress prices.” In spite of their unprofitable operations, they could not afford to shut down, for if they did so, they would be apt to lose both their oil connections in the field and their regular customers. In an attempt to remedy this problem, the major oil companies entered into an informal agreement whereby each selected as its “dancing partner” one or more independent refiners having distress gasoline. The major oil company would then assume responsibility for purchasing the independent’s distress supply at the “fair going market price.” As a result, the market price of oil rose for two consecutive years, and the spot market became stable. Have the companies engaged in horizontal price fixing in violation of the Sherman Act? Why or why not?
3. As part of a corporate plan to stimulate sagging television sales, GTE Sylvania began to phase out its wholesale distributors and began to sell its television sets directly to a smaller and more select group of franchised retailers. To this end, Sylvania limited the number of franchises granted for any given area and required each franchisee to sell Sylvania products only from the location or locations at which it was franchised. A franchise did not constitute an exclusive territory, and Sylvania retained sole discretion to increase the number of retailers in an area in light of the success or failure of existing retailers. The strategy apparently was successful, as Sylvania’s national market share increased from less than 2 percent to 5 percent.
In the course of carrying out its plan, Sylvania franchised Young Brothers as a television retailer at a San Francisco location one mile from that of Continental T.V., Inc., one of Sylvania’s most successful franchisees. A course of feuding began between Sylvania and Continental that reached a head when Continental requested permission to open a store in Sacramento and Sylvania refused. Continental opened the Sacramento store any-way and began shipping merchandise there from its San Jose warehouse. Shortly thereafter, Sylvania terminated Continental’s franchise. Is the franchise location restriction a per se violation of the Sherman Act? Explain.
4. In 1923, DuPont was granted the exclusive right to make and sell cellophane in North America. In 1927, the company introduced a moisture-proof brand of cellophane that was ideal for various wrapping needs. Although more expensive than most competing wrapping, it offered a desired combination of transparency, strength, and cost. Except for its permeability to gases, however, cellophane had no qualities that a number of competing materials did not possess as well. Cellophane sales increased dramatically, and by 1950, DuPont produced almost 75 percent of the cellophane sold in the United States. Nevertheless, sales of the material constituted less than 20 percent of the sales of “flexible packaging materials.” The United States brought an action, contending that by so dominating cellophane production, DuPont had monopolized a part of trade or commerce in violation of the Sherman Act. DuPont argued that it had not monopolized because it did not have the power to control the price of cellophane or to exclude competitors from the market for flexible wrapping materials. Who is correct? Explain.
