Finely Engineered Parts Corporation (FEPC) and Great Gears & Gauges, Inc. (3G), are competitors selling certain machine parts that are otherwise generally unattainable in their geographic market. This market includes the states of California, Oregon, Washington, and Idaho. FEPC and 3G agree that FEPC will no longer sell in California and that 3G will no longer sell in Oregon, Washington, and Idaho. Have FEPC and 3G violated any antitrust law? If so, which one? Explain. If they had divided their market by type of customer rather than geographic are, would the result be the same? Why or why not?

Question

What will be an ideal response?

Answer 1

FEPC and 3G have violated antitrust law. The major antitrust law they have violated is the Sherman Act, Section 1. FEPC and 3G are engaged in interstate commerce, and the agreement to divide marketing territories between them is a horizontal market division¾a contract in restraint of trade. This sort of concerted action reduces the costs to the competitors and allows each of them to increase the prices of the parts sold in their respective territories. The U.S. Department of Justice (DOJ) could seek criminal penalties against each corporation, including fines and imprisonment. In addition, the DOJ could institute civil proceedings to restrain this conduct. If these competitors had divided their market by type of customers¾retailers and wholesalers, or manufacturers and distributors, for example¾the result would most likely be the same.