Dinosaur Oil Company (Dinosaur) is a major oil company that operates a network o

Question

Dinosaur Oil Company (Dinosaur) is a major oil company that operates a network of franchised service station dealers throughout the U.S. The franchised service station dealers sign a franchise agreement agreeing to lease their service stations from Dinosaur and buy oil and gasoline and other products for their service station from Dinosaur, being one year agreements that can be cancelled at any time by Dinosaur. The franchise agreement also requires that all service station dealers sell gasoline at the retail price fixed by Dinosaur and not charge any less than Dinosaur's fixed price. Doug Dealer (Dealer), a Dinosaur franchise service station dealer, cut the retail price of gasoline he was selling below the retail price fixed by Dinosaur to compete with the retail price of gasoline at other nearby service stations. Dinosaur found out that Dealer was selling gasoline at prices below the fixed price set by Dinosaur and for that reason alone cancelled Dealer's franchise.

(a) Can Dinosaur cancel Dealer's franchise solely because Dealer would not adhere to the retail price of gasoline fixed by Dinosaur without being in violation of ANTITRUST law, yes or no?

(b) If yes, why? If no, why not?

Explanation / Answer

Dinosaur is allowed to cancel Dealer's franchise solely because he did not adhere to the retail price of gasoline fixed by Dinosaur as it is clearly mentioned that these are franchise agreements for one year and these can be cancelled by Dinosaur at any time.

Dinosaur is not going against the Antitrust law as it is not forming a cartel and prohibiting other collusive practices which can be regarded as being a restraint of trade. Secondly, it is not entering in to a merger and acquisition which in turn will substantially lessen competition. Finally, it is not a monopoly and it is not abusing any kind of power.

In fact, Dinosaur is doing whatever was agreed up on and not behaving on its own accord.

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