*BUSINESS LAW QUESTION* Acme, Bravo and Crown are tire manufacturers (“A,” “B” a
ID: 431913 • Letter: #
Question
*BUSINESS LAW QUESTION*
Acme, Bravo and Crown are tire manufacturers (“A,” “B” and “C”). The manufacturers have the following percentage shares of the tire market:
Acme 27%
Bravo 28%
Crown 30%
Other manufacturers 15%
Acme, Bravo and Crown decide that consumers are now paying too little for tires. During the past year, consumers paid an average of $89 per tire, which was $11 less than consumers paid in prior years. As a result, profits for the past year have declined significantly for each of the three manufacturers. In an effort to boost profits, the companies decide that they must mandate that their tires be sold for no less than $100 each. The companies agree that this is the best way in which to guarantee that their profits will rise and their businesses will prosper. While tires are available from other manufacturers, it is a known fact that the tires manufactured by Acme, Bravo and Crown consistently earn the highest performance and durability ratings.
Lawyers are trained to spot and analyze issues. You are an attorney asked to consider the facts presented above. Based upon your reading of chapter five in your textbook, what are your thoughts on the following issues?
What are the issues raised by the manufacturers’ agreement?
Is the manufacturers’ agreement legal? Why or why not?
The other tire manufacturers file suit against Acme, Bravo and Crown, alleging antitrust violations. Would you prefer to represent the defendants (tire manufacturers A, B and C) or plaintiffs (the “other” manufacturers who were not involved in the pact)? Why would you prefer to represent the clients you chose?
Explanation / Answer
1) Since the three manufacturer together constitute a majority of the market (around 85% in total), so any form of price fixation in collusion with each other is a monopolistic practice and the three manufacturers can be held guilty for antitrust issues. In this case, when the three manufacturer’s agree to hold prices at a minimum level of $100, this is a clear case of collusion and the agreement clearly proves the monopolistic practice of the three major manufacturers.
2) The agreement of the three manufacturers (who constitute 85% of the market) is not legal as it violates the free market principles and the antitrust regulations which prevents collusion and monopolistic practices.
3) I would prefer to represent the other manufacturers as the three manufacturers, through colluding on price fixation, has violated legal rules as well ethical principles and they want to defraud consumers by charging high prices. And as a result as an ethical attorney, I would chose to represent the other tire manufacturers.
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