Albrecht v. Herald Co.

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Albrecht v. Herald Co.
Seal of the United States Supreme Court.svg
Argued November 9, 1967
Decided March 4, 1968
Full case nameLester J. Albrecht v. Herald Co., DBA Globe-Democrat Publishing Co.
Citations390 U.S. 145 ( more )
88 S. Ct. 869; 19 L. Ed. 2d 998
Case history
PriorCertiorari to the United States Court of Appeals for the Eighth Circuit
Holding
Wholesalers cannot require franchisees and retailers of their products to sell items at a certain price.
Court membership
Chief Justice
Earl Warren
Associate Justices
Hugo Black  · William O. Douglas
John M. Harlan II  · William J. Brennan Jr.
Potter Stewart  · Byron White
Abe Fortas  · Thurgood Marshall
Case opinions
MajorityWhite, joined by Warren, Black, Brennan, Fortas, Marshall
ConcurrenceDouglas
DissentHarlan
DissentStewart, joined by Harlan
Laws applied
Clayton Antitrust Act, 15 U.S.C.   § 15; Sherman Antitrust Act, 15 U.S.C.   § 1
Overruled by
State Oil Co. v. Khan (1997)

Albrecht v. Herald Co., 390 U.S. 145 (1968), was a decision by the United States Supreme Court, which reaffirmed the law (as it then was) that fixing a maximum price was illegal per se. This rule was reversed in 1997 by State Oil Co. v. Khan , which held that maximum price-setting was not inherently anti-competitive and not always a violation of antitrust law, and should therefore be evaluated for legality under the rule of reason rather than a per se rule.

Contents

Albrecht drew heavy criticism by economists who asserted that maximum price fixing actually increases consumer welfare, which they considered to be a primary goal of antitrust. [1] [2]

Background

Lester J. Albrecht, an independent newspaper carrier, bought from Herald Publishing Company at wholesale and sold at retail copies of Herald's morning newspaper, the St. Louis Globe-Democrat , under an exclusive territory arrangement terminable if a carrier exceeded the maximum retail price advertised by Albrecht. When Albrecht exceeded that price, Herald Co. protested to him and then informed Albrecht's subscribers that it would itself deliver the paper at the lower price. Herald Co. engaged an agency (Milne) to solicit petitioner's customers. About 300 of Albrecht's 1200 subscribers switched to direct delivery by Herald.

Herald Co. later turned these customers over, without cost, to another carrier (Kroner), who was aware of Herald's purpose and knew that he might have to return the route if Albrecht discontinued his pricing practice. Herald Co. told Albrecht that he could have his customers back if he adhered to the suggested price. Albrecht filed a treble-damage complaint which, as later amended, charged a combination in restraint of trade in violation of section 1 of the Sherman Antitrust Act, among Herald, Albrecht's customers, Milne, and Kroner. Albrecht's appointment as carrier was terminated and Herald required sale of his route. Albrecht made the sale at a price found to be lower than it would have been but for the conduct of Herald Co.

The jury found for Herald Co. Albrecht moved for a judgment notwithstanding the verdict, asserting that, under United States v. Parke, Davis & Co. , [3] and like cases, the undisputed facts showed a combination to fix resale prices, which was per se illegal under § 1 of the Sherman Act. The district court denied the motion. [4]

Ruling of Eighth Circuit

The court of appeals affirmed. It held that there could be no violation of § 1 of the Sherman Act, which requires concerted action, because Herald's action was unilateral. Herald was entitled to refuse to deal with Albrecht because he violated his contract requiring him to observe Herald's maximum price. Herald was entitled to engage in competition with Albrecht because he was not entitled to exclusivity after violating the contract. [5]

Ruling of Supreme Court

The Supreme Court reversed in an opinion by Justice White wrote for the Court; Justice Douglas concurred. Justices Harlan and Stewart dissented.

Majority opinion

The Court decided two principal points, one of which was later overruled. First, the conduct was not unilateral but rather was concerted. Second, later overruled by Khan, maximum price-fixing was illegal per se.

The combination

Based on the Parke Davis case, there was a combination that Herald put together. In Parke Davis the "combination with retailers arose because their acquiescence in the suggested prices was secured by threats of termination; the combination with wholesalers arose because they cooperated in terminating price-cutting retailers." By the same token, "there can be no doubt that a combination arose between respondent, Milne, and Kroner to force petitioner to conform to the advertised retail price." Herald:

hired Milne to solicit customers away from petitioner in order to get petitioner to reduce his price. It was through the efforts of Milne, as well as because of respondent's letter to petitioner's customers, that about 300 customers were obtained for Kroner. Milne's purpose was undoubtedly to earn its fee, but it was aware that the aim of the solicitation campaign was to force petitioner to lower his price. Kroner knew that respondent was giving him the customer list as part of a program to get petitioner to conform to the advertised price, and he knew that he might have to return the customers if petitioner ultimately complied with respondent's demands. He undertook to deliver papers at the suggested price, and materially aided in the accomplishment of respondent's plan. Given the uncontradicted facts recited by the Court of Appeals, there was a combination within the meaning of § 1 between respondent, Milne, and Kroner, and the Court of Appeals erred in holding to the contrary. [6]

Justice White pointed out other possible combinations that Albrecht might properly have argued existed. First, he could have claimed a combination between Herald and himself, at least "as of the day he unwillingly complied" with Herald's advertised price. Second, "he might successfully have claimed that respondent [Herald] had combined with other carriers because the firmly enforced price policy applied to all carriers, most of whom acquiesced in it." A third possible combination was between Herald and Albrecht's customers. [7]

The price fix

Price-fixing agreements and combinations are illegal per se, including ones to fix maximum prices. In Kiefer-Stewart Co. v. Seagram & Sons, [8] the Court pointed out, liquor distributors combined to set maximum resale prices. The court of appeals perceived no restraint of trade, but the Supreme Court reversed. It held "that agreements to fix maximum prices 'no less than those to fix minimum prices, cripple the freedom of traders, and thereby restrain their ability to sell in accordance with their own judgment.'" The Court said that it agreed with the Kiefer-Stewart decision:

Maximum and minimum price-fixing may have different consequences in many situations. But schemes to fix maximum prices, by substituting the perhaps erroneous judgment of a seller for the forces of the competitive market, may severely intrude upon the ability of buyers to compete and survive in that market. Competition, even in a single product, is not cast in a single mold. Maximum prices may be fixed too low for the dealer to furnish services essential to the value which goods have for the consumer or to furnish services and conveniences which consumers desire and for which they are willing to pay. Maximum price-fixing may channel distribution through a few large or specifically advantaged dealers who otherwise would be subject to significant non-price competition. Moreover, if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, which is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acquire all the attributes of an arrangement fixing minimum prices. It is our view, therefore, that the combination formed by the respondent in this case to force petitioner to maintain a specified price for the resale of the newspapers which he had purchased from respondent constituted, without more, an illegal restraint of trade under § 1 of the Sherman Act. [9]

Concurring opinion

Justice Douglas agreed that the court of appeals erred, but considered that "this is a 'rule of reason' case." [10]

Harlan dissent

Justice Harlan considered maximum price-fixing beneficial to the public:

Other things being equal, a manufacturer would like to restrict those distributing his product to the lowest feasible profit margin, for, in this way, he achieves the lowest overall price to the public and the largest volume. When a manufacturer dictates a minimum resale price, he is responding to the interest of his [retailer] customers, who may treat his product better if they have a secure high margin of profits. When the same manufacturer dictates a price ceiling, however, he is acting directly in his own interest, and there is no room for the inference that he is merely a mechanism for accomplishing anticompetitive purposes of his customers. [11]

Justice Harlan also disagreed that one who merely acquiesces engages in concerted action within the meaning of § 1 of the Sherman Act. [12]

Stewart dissent

Justice Stewart considered that Herald was justified in fixing maximum prices to its ultimate customers, the consuming public, because that was a necessary defensive measure in the face of the territorial monopoly granted the distributors. By not permitting this—" The Court today stands the Sherman Act on its head." [13]

Judgment

The Supreme Court held that Herald Co. acted unlawfully by requiring retailers to sell newspapers at a particular price.

Economic background

A newspaper's profits are determined by its circulation and the number of advertisements it sells. Like in every circulation industry, circulation depends upon the price of a copy, as well as the amount of advertising: . Similarly, the demand for advertising space is determined by . In other words: the higher the circulation, the higher the demand for advertising space. The profit-maxizing newspaper monopolist therefore sets his copy price as:

where is the cost per copy, is the marginal cost of advertisement, is the traditional price elasticity of demand, and captures the feedback effect of lower copy prices inducing more advertising and vice versa. Most important is the term , which captures the marginal advertising profit from selling additional advertising due to increased circulation. [14] The newspaper monopolist's optimal price is therefore lower than for traditional monopolists in non-circulation industries.

See also

Related Research Articles

A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly and duopoly which consists of a few sellers dominating a market. Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices, which is associated with a decrease in social surplus. Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry.

Sherman Antitrust Act of 1890 US Congressional act

The Sherman Antitrust Act of 1890 is a United States antitrust law that prescribes the rule of free competition among those engaged in commerce that was passed by Congress under the presidency of Benjamin Harrison. It is named for Senator John Sherman, its principal author.

United States antitrust law

In the United States, antitrust law is a collection of federal and state government laws that regulate the conduct and organization of business corporations and are generally intended to promote competition for the benefit of consumers. The main statutes are the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914. These Acts serve three major functions. First, Section 1 of the Sherman Act prohibits price-fixing and the operation of cartels, and prohibits other collusive practices that unreasonably restrain trade. Second, Section 7 of the Clayton Act restricts the mergers and acquisitions of organizations that would likely substantially lessen competition. Third, Section 2 of the Sherman Act prohibits the abuse of monopoly power.

Price fixing Agreement over prices between participants on the same side in a market

Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.

In microeconomics, two goods are substitutes if the products could be used for the same purpose by the consumers. That is, a consumer perceives both goods as similar or comparable, so that having more of one good causes the consumer to desire less of the other good. Contrary to complementary goods and independent goods, substitute goods may replace each other in use due to changing economic conditions.

Lookback options, in the terminology of finance, are a type of exotic option with path dependency, among many other kind of options. The payoff depends on the optimal underlying asset's price occurring over the life of the option. The option allows the holder to "look back" over time to determine the payoff. There exist two kinds of lookback options: with floating strike and with fixed strike.

Resale price maintenance (RPM) or, occasionally, retail price maintenance is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices, at or above a price floor or at or below a price ceiling. If a reseller refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with it.

A shadow price is a monetary value assigned to currently unknowable or difficult-to-calculate costs in the absence of correct market prices. It is based on the willingness to pay principle – the most accurate measure of the value of a good or service is what people are willing to give up in order to get it. A shadow price is often calculated based on certain assumptions, and so it is subjective and somewhat inaccurate.

Vertical restraints are competition restrictions in agreements between firms or individuals at different levels of the production and distribution process. Vertical restraints are to be distinguished from so-called "horizontal restraints", which are found in agreements between horizontal competitors. Vertical restraints can take numerous forms, ranging from a requirement that dealers accept returns of a manufacturer's product, to resale price maintenance agreements setting the minimum or maximum price that dealers can charge for the manufacturer's product.

Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), is a US antitrust case in which the United States Supreme Court overruled Dr. Miles Medical Co. v. John D. Park & Sons Co.Dr Miles had ruled that vertical price restraints were illegal per se under Section 1 of the Sherman Antitrust Act. Leegin established that the legality of such restraints are to be judged based on the rule of reason.

Under a unilateral policy a manufacturer, without any agreement with the reseller, announces a minimum resale price and refuses to make further sales to any reseller that sells below the announced price. Unilateral policy is a form of resale price maintenance that enables a manufacturer to influence the price at which its distributors and dealers resell its products without a formal contract regarding the resale price. The policy was first identified in United States v. Colgate & Co., 250 U.S. 300 (1919).

State Oil Co. v. Khan, 522 U.S. 3 (1997), was a decision by the United States Supreme Court, which held that vertical maximum price fixing was not inherently unlawful, thereby overruling a previous Supreme Court decision, Albrecht v. Herald Co., 390 U.S. 145 (1968). However, the Court concluded that "[i]n overruling Albrecht, the Court does not hold that all vertical maximum price fixing is per se lawful, but simply that it should be evaluated under the rule of reason, which can effectively identify those situations in which it amounts to anticompetitive conduct."

Kiefer-Stewart Co. v. Seagram & Sons, Inc., 340 U.S. 211 (1951), was a decision by the United States Supreme Court, which held that an agreement among competitors in interstate commerce to fix maximum resale prices of their products violates the Sherman Antitrust Act.

Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982), was a U.S. Supreme Court case involving antitrust law. A society of doctors in Maricopa County, Arizona, established maximum fees that their members could claim for seeing patients who were covered by certain health insurance plans. Arizona charged them with violations of state antitrust law regarding price fixing. The society tried to rebut the state's charges by claiming that the maximum-fee arrangement was necessary to allow doctors to see these patients, and therefore generated economic benefits.

FTC v. Motion Picture Advertising Service Co., 344 U.S. 392 (1953), was a 1953 decision of the United States Supreme Court in which the Court held that, where exclusive output contracts used by one company "and the three other major companies have foreclosed to competitors 75 percent of all available outlets for this business throughout the United States" the practice is "a device which has sewed up a market so tightly for the benefit of a few [that it] falls within the prohibitions of the Sherman Act, and is therefore an 'unfair method of competition' " under § 5 of the FTC Act. In so ruling, the Court extended the analysis under § 3 of the Clayton Act of requirements contracts that it made in the Standard Stations case to output contracts brought under the Sherman or FTC Acts.

United States v. Parke, Davis & Co., 362 U.S. 29 (1960), was a 1960 decision of the United States Supreme Court limiting the so-called Colgate doctrine, which substantially insulates unilateral refusals to deal with price-cutters from the antitrust laws. The Parke, Davis & Co. case held that, when a company goes beyond "the limited dispensation" of Colgate by taking affirmative steps to induce adherence to its suggested prices, it puts together a combination among competitors to fix prices in violation of § 1 of the Sherman Act. In addition, the Court held that when a company abandons an illegal practice because it knows the US Government is investigating it and contemplating suit, it is an abuse of discretion for the trial court to hold the case that follows moot and dismiss it without granting relief sought against the illegal practice.

United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), is a 1940 United States Supreme Court decision widely cited for the proposition that price-fixing is illegal per se. The Socony case was, at least until recently, the most widely cited case on price fixing.

United States v. United States Gypsum Co. was a patent–antitrust case in which the United States Supreme Court decided, first, in 1948, that a patent licensing program that fixed prices of many licensees and regimented an entire industry violated the antitrust laws, and then, decided in 1950, after a remand, that appropriate relief in such cases did not extend so far as to permit licensees enjoying a compulsory, reasonable–royalty license to challenge the validity of the licensed patents. The Court also ruled, in obiter dicta, that the United States had standing to challenge the validity of patents when a patentee relied on the patents to justify its fixing prices. It held in this case, however, that the defendants violated the antitrust laws irrespective of whether the patents were valid, which made the validity issue irrelevant.

United States v. Masonite Corp., 316 U.S. 265 (1942), is a United States Supreme Court decision that limited the scope of the 1926 Supreme Court decision in the General Electric case that had exempted patent licensing agreements from antitrust law's prohibition of price fixing. The Court did so by applying the doctrine of the Court's recent Interstate Circuit hub-and-spoke conspiracy decision.

Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013), is a United States Supreme Court case decided in 2013.

References

  1. Easterbrook, Frank H. (1981). "Maximum Price Fixing". University of Chicago Law Review . 48 (4): 886–910. doi:10.2307/1599297. JSTOR   1599297.
  2. Blair, Roger; Fesmire, James (1986). "Maximum Price Fixing and the Goals of Antitrust". Syracuse Law Review . 37 (1): 43–77.
  3. 362 U. S. 29 (1960).
  4. 390 U.S. at 148.
  5. 390 U.S. at 149.
  6. 390 U.S. at 150.
  7. 390 U.S. at 150 n.6.
  8. 340 U. S. 211 (1951).
  9. 390 U.S. at 152-53.
  10. 390 U.S. at 154.
  11. 390 U.S. at 157-58.
  12. 390 U.S. at 160-62.
  13. 390 U.S. at 169-70.
  14. Blair, Roger D.; Romano, Richard E. (1993). "Pricing Decisions of the Newspaper Monopolist". Southern Economic Journal . 59 (4): 721–732. JSTOR   1059734.

Further reading