Dealing with Customers and Suppliers

• Pages: 52-60

52

CHAPTER IV

DEALING WITH CUSTOMERS AND SUPPLIERS

A. “Our distributor’s pricing and advertising are wrecking the

marketplace — what can we do about it?”

Suppliers are often concerned that a reseller’s low price can

adversely affect other resellers and the supplier by discouraging the

provision of services, eroding brand image, or jeopardizing the supplier’s

ability to introduce new products by depressing price points.

Setting Resale Prices.1 Agreements between suppliers and resellers

setting minimum resale prices or price levels are per se illegal under

Section 1 of the Sherman Act. By contrast, vertical agreements that

establish maximum or “ceiling” resale prices are judged under the rule of

reason. 2

However, even with respect to the setting of minimum resale price

targets, a supplier may unilaterally adopt a “Colgate policy,”3 pursuant to

which it may simply announce a price at which its product must be

resold and refuse to sell to any reseller that fails to comply. Minimum

price policies give resellers sufficient margin to provide services and to

enhance other aspects of the selling environment (such as ample

1 At the outset, it is important to understand that there may be regulatory

impediments—apart from general antitrust concerns discussed below—to

taking action against discounting distributors. For example, there may be

state and federal franchisee, distributor, or dealer protection laws that

may limit supplier options. Industry-specific and franchise statutes are

beyond the scope of this discussion.

2 See State Oil Co. v. Khan, 522 U.S. 3, 18 (1997).

3 See United States v. Colgate & Co., 250 U.S. 300, 307 (1919).