For the following questions please identify the restraint, the appropriate legal

Question

For the following questions please identify the restraint, the appropriate legal analysis and apply that analysis to the facts.

Primary Care Physicians (PCP) is a group of medical doctors located in Wilkes-Barre, Pennsylvania who accept traditional health care insurance from Blue Cross. This insurance pays them based on hourly billings that PCP submits. Two other medical practices in the area also accept this insurance. All of the doctors from all three practices meet regularly to plan medical training and to discuss issues in their practice. Cheap insurance is a new company that is seeking to offer insurance to patients that is much less expensive than Blue Cross, since it is based on paying doctors a flat rate, instead of hourly. After hearing this news, PCP and the other doctors get together at their regular meeting and agree that none of them will accept this insurance.

Flaymour and Hannigan operates a chain of very large furniture “superstores” in the Eastern United States. A group of small independently owned regional furniture stores are alarmed by this competition. After discussion, they all realize that they can better compete against Flaymour if they each agree on a geographic territory and not compete against each other. Thus, after a series of sales of business locations to each other, Regional Store 1 acquires the stores of the other 2 Regional Stores in Maine, New Hampshire and Vermont, Regional Store 2 acquires all of the Regional Stores in New York and Connecticut and Regional Store 3 acquires all of the stores in Pennsylvania and New Jersey.           

Rachel Floren is a dress designer who target college aged women for her sales. Based on market research she is aware that they are very cost conscious and much less likely to purchase any brand that they view as “luxury”. In order to maintain her image, she requires that all retailers selling her clothes agree that they will never sell one of her dresses for more than $99.

Explanation / Answer

1. In case 1, it is an anti-competitive agreement between medical practices and this agreement is against the law. The three medical practices are competitors in the market and are paid by insurance companies on the basis of services they provide (hourly billings). They are competing in the same geography and space. However, a new entrant (insurance company) is trying to enter the market and planning to offer cheap insurance by negotiating a flat rate with doctors instead of hourly billing. The medical practices have colluded and entered into "Horizontal agreement" to restrict the entry of the new insurance company and hamper the business model of the insurance company. This practice would be detrimental to end customers who can be insured at low cost.

2. Case 2 is also an example of anti-competitive practices by using horizontal agreements. The small independent regional furniture stores compete against each other and are threatened by the presence of Flaymour stores. Instead of competing for market head-on between themselves and with Flaymour , they have restricted competition by dividing customers/market share/ geographies among each other. This is against the competitive practice and leads to an adverse effect on overall market competition. Under Section 3(3) of Competition Act of 2002, such agreements are prohibited.

3. Rachel is getting into a vertical agreement which is prohibited by the Competition Act. As per Section , 3(4), Rachel is doing a resale price maintenance by asking retailers to not sell her dresses for more than $99.

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