FEDERAL TRADE COMMISSION



FEDERAL TRADE COMMISSION  

Frequently Asked Questions

Q: The gasoline stations in my area have increased their prices the same amount and at the same time. Is that price-fixing?

A: A uniform simultaneous price increase could be the result of price fixing, but it also could be the result of independent business responses to market conditions. For example, if conditions in the international oil markets result in an increase in the price of crude oil, there could be a ripple effect. Local gasoline stations may respond to the wholesale price of gasoline by increasing their prices to cover their higher costs. However, if there is evidence that the operators of the gasoline stations talked to each other about increasing prices, it may be an antitrust violation.

Q: Shopping for a stereo loudspeaker made by Sound Corporation, I couldn’t find a dealer who would sell it for less than the manufacturer’s suggested retail price. Isn’t that price-fixing?

A: The key is evidence of an agreement. If the manufacturer and a dealer entered into an agreement on a resale price or minimum price, that would be a price-fixing violation. The agreement could be formal, through a contract, or informal, when the dealer’s compliance is coerced. However, if the manufacturer has established a policy that its dealers should not sell below a minimum price level, and the dealers have independently decided to follow that policy, there is no violation.

Q: The medication my doctor prescribed for my heart condition is available from only one manufacturer, and the price is very high. Is that a monopoly?

A: If the manufacturer achieved a monopoly by acquiring a competitor or obtaining a patent by fraud, its monopoly may be illegal. If the only reason for the lack of competition is that no one else has developed a suitable alternative medication, the monopoly probably is legal. Many pharmaceutical products are protected by patents, which give the manufacturer the right to be the only producer of the product until the patent expires. That gives the manufacturer a legally acquired monopoly during the life of the patent. The antitrust laws accommodate the goal of the patent laws to encourage innovation: They prevent other firms from reaping the benefits of the invention before the inventor is rewarded for the risk and cost of the innovation.

Often, an alternative drug, made by another company, can be prescribed for a particular condition. If those companies decided to merge, or if one tried to buy the other’s patent, that would be illegal, especially if the situation resulted in a substantial lessening of competition.

Q: My town has given an exclusive franchise to one firm to provide all trash-collection services. I think I could get a better price from another hauler. Isn’t the franchise restraining competition?

A: Although the town’s decision to grant an exclusive franchise prevents competition in trash collection, it probably is within the municipal powers granted by the state. If so, the town is immune from the antitrust laws under the state action doctrine, which says that the antitrust laws are not meant to apply to the actions of a state.

Q: I own a small jewelry store and the manufacturer of TimeCo brand watches recently dropped me as a dealer. I’m sure it’s because my competitors complained that I sell below the suggested retail price. The explanation was the manufacturer’s policy: its products should not be sold below the suggested retail price, and dealers who do not comply are subject to termination. Is it legal for the manufacturer to dictate my prices?

A: The law allows a manufacturer to have a policy that its dealers should sell a product above a certain minimum price, and to terminate dealers that do not honor that policy. Manufacturers may choose to adopt this kind of policy because it encourages dealers to provide full customer service and prevents other dealers, who may not provide full service, from taking away customers and "free riding" on the services provided by other dealers. If TimeCo got you to agree to maintain the suggested retail price, it would be illegal. It also would be illegal if TimeCo agreed with your competitors to drop you as a dealer to help maintain a price to which they had agreed. However, a complaint from a competing retailer is not sufficient to prove such an agreement, because the manufacturer may have decided independently that its interests were better served by sticking with its policy.

Q: I own a retail clothing store and the Brand Company refuses to sell me any of its line of clothes. These clothes are very popular in my area, so this policy is hurting my business. Isn’t it illegal for Brand to refuse to sell to me?

A: It could be illegal if the refusal to sell is based on an agreement between Brand and your competitors. Without an agreement, the antitrust laws allow manufacturers substantial leeway in selecting the dealers with whom they deal. Indeed, manufacturers select dealers for a variety of reasons, including a preference for those who carry a full line of their products, the desire to maintain a certain "image" for the product line, or the ability to maintain a minimum volume of business to minimize distribution costs. The antitrust laws do not interfere with business decisions like these as long as the manufacturer acts unilaterally and not as part of a scheme to monopolize a market.

Q: I operate two stores that sell recorded music. My business is being ruined by giant discount store chains that sell their products for less than my wholesale cost. I thought there were laws against price discrimination, but I can’t afford the legal fees to fight the big corporations. Can you help?

A: Although it appears that the discount chains are receiving their recorded music products at a lower wholesale price, it may be because it costs a manufacturer less, on a per-unit basis, to deal with large volume customers. If so, the manufacturer may have a "cost justification" defense to the differential pricing and the policy would not violate the Robinson-Patman Act. However, if the wholesale price differences are not justified on the basis of cost or other differences, and retail competition is being harmed to the detriment of consumers, antitrust authorities would want to know about the situation.

Q: I bought a Total Motors car a few years ago, and now, when I need parts replaced, I have to get them from the TM dealer. They’re very expensive. Isn’t this illegal monopolization?

A: Distribution arrangements like this usually are permitted. TM has the exclusive right to produce TM brand parts, so it is not illegal for the company to have a monopoly for its own parts. In addition, TM’s decision to make the parts available only through its dealers wouldn’t constitute monopolization of the service market unless the dealerships were owned by TM and it appeared that the company was trying to monopolize the service market through unreasonable means. Most automobile dealerships are independently owned, but even if that were not the case, a manufacturer may have legitimate reasons for making the parts available only through its dealers. For example, it may want to ensure quality of performance by requiring the parts to be dealer installed.

Q: When I read about mergers, price-fixing, or other competition issues in the newspaper, sometimes it’s the FTC that’s in charge and sometimes it’s the Justice Department. Who decides which agency has responsibility and why?

A: With certain exceptions, the two agencies have antitrust jurisdiction in most industries. To avoid duplicating efforts, they consult before opening an investigation. Over the years, the agencies have developed expertise in particular industries or markets. For example, the FTC devotes most of its antitrust resources to segments of the economy where consumer spending is high: health care, pharmaceuticals, other professional services, food, energy, and certain high-tech industries like computer technology, video programming and cable television. The FTC also is involved in preserving competition in defense industries, to save taxpayer dollars on acquisitions costs.

Some anticompetitive practices -- such as hard-core price fixing -- are prosecuted as criminal violations under the Sherman Act. That’s handled by the Justice Department because it is a function of the Executive Branch of the government. The Justice Department also has sole antitrust jurisdiction over certain matters that are subject to special industry regulation by other agencies, such as the telephone industry and other telecommunications matters, railroads and airlines.

Finally, only the FTC can challenge certain practices that are beyond the reach of the other antitrust laws -- practices that "violate the spirit" but not the exact letter of the other laws.

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