1- Frank markets throughout Wisconsin and Iowa. His primary competitor is Carol,
ID: 372322 • Letter: 1
Question
1- Frank markets throughout Wisconsin and Iowa. His primary competitor is Carol, who sells throughout Wisconsin, Illinois, Iowa, and Minnesota. At a trade meeting in New York, Frank and Carol had lunch together. They acknowledged their competition in Wisconsin and Iowa was expensive. They both were losing money in these two states. They agreed that it made no sense to beat up on each other in price competition. Instead, Carol agreed to sell only in Iowa and Frank would sell only in Wisconsin, where his plant is located. They agreed that this arrangement would permit them to offer consumers the cheapest prices and still make a reasonable profit. Please discuss the legality of this arrangement under the Sherman Act.
Explanation / Answer
The objective with which Sherman act was established was to prevent the contracts or conspiracy in restraint of trade , monopolization,conspiracy or combination to monopolize in a market by the businesses operating feely. This act was to prevent the businesses from taking advantage of the customers and their helplessness.
In this case however that is not the case, the two traders to agreed to operate in two seperate markets because they were cutting each others business and were not able to operate at profit. They decided a territory to operate and that to operate at a reasonalbe price so that they make profits as well as serve the customers. Had it been the conpiracy to monopolise and charge extorbitantly from the customers then the scenario would have been completely different and Sherman Act would have applied . But this is different scene altogether therefore it can be said that it is a fair trade practise.
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