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

Yes Dinosaur could cancel the license of the dealer just because he has not adhered to the franchise contract. The antitrust law has no role to play here. It is as per the terms and conditions of the contract with the Dinosaur. The franchise contract clearly states that the dealer cannot sell gasoline at a price lesser than the price of the dinosaur. Since the dealer violated the contract, Dinosaur has every reason to cancel the contract of the dealer.

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