Retailer/wholesaler pressure tactic ... is this illegal?

General Questions
#1

Here’s a hypothetical:

Large Retailer ACME has a business selling various widgets. Small Upstart Retailer BAKER opens a shop in town, and also wishes to sell widgets.

ACME gets its goods wholesale from X-CO, YA-YA inc., and Z-etc. BAKER approaches these same wholesalers.

Now, ACME, long the sole supplier of XYZ goods to the local town, is annoyed at the new competition. ACME calls X,Y, and Z and says, “If you sell your stuff to BAKER, you can kiss my account goodbye.” ACME is a large business, and loss of its outlet for XYZ goods would be hard on X, Y, and Z–much worse than if they refused to do business with BAKER.

Is it legal for ACME to do this?

#2

IANAL etc.

Depending on the specifics of the situaiton, an argument could be made that ACME is engaged in an act of restraint of trade. The FTC regulates trade issues in the United States, but a search of its website doesn’t readily yield a definition beyond something along the lines of illegally interfering with free market participation. ACME certainly seems to be doing that, but most/all of the FTC documents I reviewed were in the context of businesses exercising monopoly power. My WAG would be that ACME would first have to be determined legally to be a monopoly. If that were to happen, ACME could be found guilty of restraint of trade and required to compensate BAKER.

I’m sure one of our resident attorneys will be along momentarily to advise me of how simplistic my expalanation is.

#3

Sounds like WalMart.

#4

How so? Much of what I see at Wal-Mart is readily available elsewhere.

#5

Do you have a cite for that? I provide consultation to a number of suppliers who deal with Wal-Mart. Wal-Mart is a complete PITA because of their ever-changing requirements, but my clients have never been pressured about selling to competitors and, in fact, do a great deal of business with stores that compete directly with Wa-lMart. Wal-Mart will take a very hard line in negotiating discounts for themselves (justified on the basis of quantity) but I’ve never seen them do anything like what you’re accusing them of. The fact that I haven’t seen it doesn’t mean it doesn’t happen, but if you’re going to accuse them of illegal activity, you should back it up with fact.

Oh, and on the OP… IANAL but I think Otto hit it. Nothing says Acme can’t take their business elsewhere, but if they threaten the supplier not to do business with a competitor that should be restraint of trade.

#6

Right, NCB–it could just as easily work the other way:

Mega-retailer Evil Wal-Mart (hypothetical … not to disparage WM) comes to town where quaint Main Street retailer BAKER has operated for years.

Rather than just using its bulk purchasing power and efficiencies of scale to undercut BAKER’s prices, evil Wal-Mart calls up X,Y, and Z and says, “If you don’t agree to an exclusive sales agreement with us and cut out BAKER, then you can kiss your shelf space in our other 4,700 stores goodbye.”

#7

Uhm, isn’t this what got Microsoft in a heap o’ trouble? “If you don’t put our other software on your OEM PC’s, as opposed to our competitor’s, then you can’t have our operating system”.

#8

Dude, not to get all junior mod on you or anything, but this is GQ, the forum that deals in facts and figures. If you want to be one of those retards that believes that Wal-Mart (and other big corporations) are eeeeeevil and need to be stopped, then take yourself over to the pit and rant away.

#9

Wow. 3 little words can sure spark a flame.

What I meant was, sounds like what I’ve heard conjectured about WalMart by other people. Sorry for the unintentional suggestion that WalMart is currently using or ever has used illegal practices.

I just said what first came to mind. Carry on.

#10

If you reverse the wholesaler-retailer identities, you get something that happens all the time. If you’re selling fountain Coca-Cola at your cafe and you decide to add Pepsi, Coke will come out and haul off their stuff. End of relationship. The retailers hate this of course, but no one seems to have gotten a legal ruling against it.

There’s also some standard nastiness that takes place regarding newpapers and ads. In The Old Days when towns had 2+ newspapers, if BigTime Stores started buying ads in the #2 paper, the #1 paper might start giving them a hard time. Nowadays, it’s usually confined to Established Store letting the paper know that it shouldn’t be accepting ads from NewComer Store. (Works in small towns quite a bit.)

#11

I’m not an expert on antitrust laws, but I believe the above conduct would be totally illegal in the United States. It’s a restraint of trade which is a clear abuse of dominant market position.

#12

I’m no antitrust lawyer (tho’ I did get an A in the class and my professor slaughtered Microsoft in oral arguments a year later). I think Otto had it in in one – this behavior does sound like a restraint of trade if it’s done by either 1) a company with monopoly power or 2) a cartel of several companies whove banded together on this issue and who, together, dominate the market in the same way a monopolist would. Since the hypo postulates that it’s the single company ACME engaging in this action, I think the critical question is whether ACME is a monopoly. If yes, this is illegal. If no, it isn’t.

The gist is that we let non-monopolists (or non-cartels) do whatever they want, mostly. That’s because the market will take care of this on its own – if a small fry tries something that would be a restraint of trade, all its trading partners will laugh heartily and tell it to get lost. It’s only when the company has enough power in the market such that their trading partners are afraid to do anything but toe the party line that antitrust regulation is required.

–Cliffy

P.S. Hey, it’s antitrust and I’ve been at work for 15 hours – even more than normal I’m shooting from the hip here. For God’s sake, don’t trust a word I’ve said in this post if this has any relation to a real situation in which you are involved – get a damn lawyer.