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LEGAL CONSTRAINTS ON CHANNEL CHOICES

LEGAL CONSTRAINTS ON CHANNEL CHOICES. Market coverage Customer coverage Pricing policies Product policies Termination policies Ownership policies. Antitrust Law: The Big Picture. Purpose: To enforce fair competition among firms Issues: Collusion Predation Price discrimination

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LEGAL CONSTRAINTS ON CHANNEL CHOICES

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  1. LEGAL CONSTRAINTS ON CHANNEL CHOICES • Market coverage • Customer coverage • Pricing policies • Product policies • Termination policies • Ownership policies

  2. Antitrust Law: The Big Picture • Purpose: To enforce fair competition among firms • Issues: • Collusion • Predation • Price discrimination • Price maintenance • Market share

  3. Competition • Interbrand: Between various brands made by different manufacturers • Interbrand: Between retailers or other channel members selling the same brand

  4. Collusion--explicit agreement among manufacturers, channels members, or a combination to limit competition Other Anti-competitive practices Territorial restrictions Customer coverage restrictions Discriminatory pricing Some Threats to Competition

  5. For: Improved service--channel members can invest Improved interbrand competition Against Higher prices paid by consumers Dominance by selected sellers or channels Territorial and Coverage Restrictions--Arguments

  6. Determining What is Legal and What is Not • Per se illegality (e.g., collusion to fix prices horizontally) • Modified rule of reason (assumed to be illegal unless evidence is rebutted by defendant--e.g., droppage of one distributor after complaint by another) • Rule of reason--broad inquiry into policy and facts--impact and purpose (e.g., tying) • Per se legality (explicitly legal--e.g., different airline ticket prices to different end consumers)

  7. Price maintenance: Maximum Minimum Manufacturer may announce that it will not sell to retailers selling below price; retailer cannot explicitly agree (collusion) Price discrimination May not charge competing firms different prices unless justified by actual cost savings needed to meet competition End consumers are not competing firms May charge non-competing firms differently (e.g., regional sellers) Pricing Issues

  8. Tying: May not exploit market dominance to get resellers or consumers to buy less desired product e.g., car and radio e.g., motherboard and CPU Full line forcing: Distributor required to carry complete or large assortment to carry desirable parts Product Line Policies

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