An agreement between ford motors and its retail car

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An agreement between Ford Motors and its retail car dealers, forexample, could be called a vertical agreement—a set of vertical contractsamong cooperators, not competitors. But when Ford Motors establishesagreements with each of its franchised retail dealers, the competing dealershave agreed with each other (horizontal agreement via all agreeing withFord Motors) in addition to each agreeing—vertically—with the supplier,Ford Motors. It’s apparent that a vertical/horizontal distinction can beambiguous.Severalverticalagreements (resale price maintenance agreementsbetween producers and dealers), tying agreements, restrictions on aretailer’s territory, and exclusive dealing agreements, have been declaredto be per se illegal.A horizontal agreement is more likely to be challenged in court, thoughin some cases they have been declared legal. Horizontal agreementsamong otherwise competing computer firms and competing auto firms, toshare in research and agree on standards of performance—whichultimately will reduce costs and innovate better products to consumers—have been declared legal.CONCENTRATION RATIOSFederal law, as stated earlier (pages 402–4), declares that actions whichmay substantially lessen competition or tend to create a monopoly areillegal. This pertains especially for mergers of two firms ortake oversofone by another. The presumption was that the merger would result inhigher prices or reduced quality.As a potential predictor of the likelihood that a merger of two firms, oreven the growth of one firm, would tend to monopolize or restrictcompetition, a measure called theconcentration ratiohas become popular.It’s the ratio of the total sales of the largest four (or sometimes three) firmsin the industry to either sales of all the firms in the industry or to totalassets, or sales of a specific product of the leading firms to the industrytotal. This approach raises a number of questions.[print edition page 409]475
1)Many firms produce a variety of products, so the industry to whichthey belong is ambiguous. And because some products are used fora variety of purposes, they could be included in more than oneindustry. The question then becomes what is the relevant product?What does a garment manufacturer produce? What is a hospital?What is a drug research firm?2)Which firms are in the industry? There are only two tailors in theUnited States regularly making plus fours (the knee pants golfersonce wore). If those two tailors merged and raised their prices,would that attract new entrants?3)What number of firms must make agreements with each other for itto be illegal joint action? One solution asserted that if the group offirms, consciously acting together, could profitably sustain a pricerise of 5 percent for at least one year, the group action would bechallenged. When evaluating a proposed merger, regardless of thecurrent degree of concentration, there must also be the presumptionthat new firms and resources (or existing firms in other industries)

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Term
Spring
Professor
Dr angela hayslett

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