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Market Division

3 types of market division/allocation: geographic, customer, and product

  • Effect: limits both price and non-price competition

Caselaw:​

Timken Roller Bearing v. U.S. (1951)​

  • Holding: dividing markets geographically is per se illegal
    • We expect companies to compete over territory
  • Facts: territorial division of world markets for antifriction bearings, where prices were fixed in each competitor's territory and entry was discouraged
  • Note: this is an easy case

U.S. v. Topco (1972)​

  • Holding: bylaws are a per se illegal horizontal division of territories
    • Not sympathetic with idea that bylaws help small chains compete against big chains
    • Horizontal division of territories is a classic example of a per se violation
  • Facts: small grocery cooperatives (owned by workers) D, bylaws establish territorial licenses to help stores avoid competing in the same geographical market (like Safeway spaces out its stores)
    • The Topco cooperatives procure and distribute products under the Topco brand
    • Topco controls 6% of the grocery market
  • Note: know how to argue both sidebars
    • Topco's best defenses: (1) bylaws help small firms compete against big chains; (2) 6% market share suggests there will be little anti-competitive effect
    • Government response to Topco's defenses: (1) apply Timken, this is collusion; (2) Holmes' bad man argument (if decided the other way, a "bad" actor could buy a little bit of Topco product and justify a division of markets)
    • This is a hard case

Palmer v. BRG of Georgia (1990)​

  • Holding: agreement not to compete in competitor's market was per se illegal
    • Apply Socony: agreement formed with purpose and effect of raising the price of the Georgia bar review course (see large price increase)
    • Apply Topco/Timken: agreements to allocate territory to minimize competition are illegal
  • Facts: agreement to divide market for bar review materials in Georgia between HBJ and BRG. HBJ gives BRG an exclusive license to offer its materials and courses in GA. BRG agrees not to compete outside GA. Price of BRG course increases from $150 to over $400.
  • Note: know how to argue both sides, this case is harder than it seems
    • BRG's best defenses: (1) the same price increase would have occurred if HBJ left GA without an agreement; (2) not competing is ancillary, like agreeing not to open a store next to one you just sold is ancillary; (3) consumers are better off if BRG doesn't enter other markets because HBJ's materials are better
    • Palmer's best response to BRG's defenses is provided by the court's reasoning
    • Think about how the length of the license affects judgment: if noncompete is aligned with the length of the license, then this is more justifiable than a noncompete agreement that extends further