Facts: Big Widget Company (BWC) is a company engaged in the manufacturing and sale of widgets to retail hardware stores. After several decades in the market, BWC has a 75 percent market share in the widget industry. BWC was approached by Little Widget Company (LWC), a competitor of BWC with only a 5 percent market share. LWC proposed that the two companies cease undercutting each other on the retail price of widgets. Instead, LWC proposed that each company sell only 100,000 widgets per month at a set price of no lower than $20 per widget. LWC reasoned that the sale of widgets had such a low profit margin that the only way either BWC or LWC could make a profit on the product would be through this plan. An executive at BWC agreed to consider the plan.
Questions:
1. Have the parties committed a violation of any anti-trust laws? What laws may apply in this situation, and is the fact that BWC agreed to consider the plan significant? In answering this question, make sure that you fully explain your answers. Make sure you explain what must be proven to establish a particular violation of anti-trust law and why the facts of this case do or do not establish those required elements.
2. How is the plan that LWC is proposing best characterized in the context of anti-trust law? Make sure you explain why that is the best characterization.
More Facts:
Assume that BWC has rejected LWC's proposal, but instead proposes that they agree that BWC will sell its products only to customers in the states of California, Oregon, and Washington, and that LWC will sell only in Arizona, New Mexico, and Texas.
Questions:
3. Which, if any, anti-trust laws does BWC's proposal violate? In answering this question, make sure that you fully explain your answers. Make sure you explain what must be proven to establish a particular violation of anti-trust law and why the facts of this case do or do not establish those required elements.
4. If BWC and LWC are sued by a competitor, should the court use the per se standard or the rule of reasonableness? Why?