Antitrust Analysis of Category Management Practices

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CHAPTER III

ANTITRUST ANALYSIS OF CATEGORY

MANAGEMENT PRACTICES

As discussed in chapter II, category management has the potential to

promote competition, but abuses of the process also may restrain

competition by either facilitating collusion among competitors or

excluding rivals. This chapter examines the antitrust analysis of category

management practices given those two potential effects.

The chapter first addresses the various theories as to how category

management might reduce competition among firms competing either at

the supplier level or the retailer level. Section 1 of the Sherman Act

prohibits any “contract, combination or conspiracy” “in restraint of

trade.”1 Section 1 thus prohibits agreements that lead to or facilitate

concerted action among competitors that “unreasonably” restrains trade.2

Category management practices that facilitate collusion may thus violate

Section 1.

Category management also has the potential to limit competition by

excluding rivals, particularly those of the category captain. Agreements

that exclude rivals may unreasonably restrain competition and therefore

violate Section 1 of the Sherman Act.3 In addition, unilateral but

exclusionary conduct by a firm with monopoly power may violate

Section 2 of the Sherman Act.4 A determination of liability under either

statute in the context of category management practices will generally

require an examination of the nature of the agreement or conduct, market

power, and any procompetitive justifications for the agreement or

conduct.5

1. 15 U.S.C. § 1.

2. See, e.g., Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 768

(1984). For a comprehensive discussion of Section 1, see ABA SECTION

OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 1-224 (6th ed.

2007) [“ALD VI”].

3. See generally ALD VI 1-224.

4. See generally id. at 225-323.

5. See generally id. at 46-77, 225-244.

30 Category Management Antitrust Handbook

The chapter begins with a discussion of the FTC’s examination of

related retail practices.

A. The FTC’s View of Related Retail Practices

Historically, the FTC has shown interest in preventing

anticompetitive or exclusionary retail practices. In response to

Congressional inquiries and a petition for action with regard to slotting

allowances,6 the FTC looked at various category management practices,

but declined in reports issued in 2002 and 2003 to condemn the main

target of its focus, slotting allowances.7 The ambivalent findings

outlined in the FTC reports are instructive as to why it is difficult to

counsel clients on the risk profile of various practices.

None of the practices the FTC examined (slotting allowances, pay-

to-stay fees, payments to limit the shelf-space available to a rival,

discriminatory payment of access fees) were considered anticompetitive

by themselves. The FTC Report questioned whether these practices

actually could exclude rivals, and whether any anticompetitive effects

outweighed the efficiencies the practices stimulated.8 The totality of the

facts surrounding the suppliers, customers, and markets would determine

whether, in a given situation, a specific practice was unreasonable.

Commission staff was not really concerned about slotting allowances

when they were used to advance the fundamentally procompetitive goal

of introducing new products.9 The report found that in that role slotting

allowances served to mitigate some of the risks undertaken by the retailer

6. The FTC announced on June 21, 2002, that it would not issue guidelines

on the payment of slotting allowances, denying a petition, filed on April

14, 2000, by the Independent Bakers Association, the Tortilla Industry

Association, and the National Association of Chewing Gum

Manufacturers. Acknowledging the complexity of the situation, the FTC

said it would research the matter further. See Letter from Donald S.

Clark, FTC Secretary, to Robert A. Skitol and Kathleen S. O’Neill (June

19, 2002), available at http://www.ftc.gov/os/2002/06/slottingletter.pdf

(denying request for guidelines).

7. FED. TRADE COMM’N, REPORT ON THE FEDERAL TRADE COMMISSION

WORKSHOP ON SLOTTING ALLOWANCES AND OTHER MARKETING

PRACTICES IN THE GROCERY INDUSTRY 48 (2001) [hereinafter SLOTTING

ALLOWANCES WORKSHOP], available at http://www.ftc.gov/os/2001/02/

slottingallowancesreportfinal.pdf.

8. See id. at 35-44.

9. See id. at 1.