The above case, referenced under Docket Number 87-2048 was argued in December 5th, 1989 and decided on June 14th, 1990. The petitioner for the case was Texaco Inc. and the respondents included Ricky Hasbrouck among others (Texaco Inc. V. Hasbrouck). On the ruling day, June 14th 1990, the Supreme Court in Washington ruled that Texaco Inc. violated the Federal Antitrust law in the 1970’s. According to the ruling, the Texaco Inc. sold gasoline between the years 1972 and 1981 to the respondent at the wagon retail price while granting substantial discounts to other distributors – Dompier and Gull. The ruling of the above case followed a unanimous voting of 9-0.
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Provisions of US Antirust Law
The Antitrust Law refers to a legislation enacted by the various states alongside the federal government with the aim of regulating commerce and trade. It meets the above objectives through prevention of price fixing, unlawful constraints, as well as monopolies thus promoting competition and encouraging quality services and goods production at the most low prices possible (George and Joll 170). The rationale for the above is to safeguard the welfare of the public through ensuring that the manufacturer meets the demands of the consumer by availing products at reasonable prices. All the above falls under the following four major categories: agreements among or between competitors, contracts between sellers and buyers, mergers, and the maintenance of monopolistic business power.
Basis of the Ruling
Apparently, Gull was reselling the gasoline using its own name – the respondent was not aware of the fact that Texaco was the supplier (Supreme Observer 1). On the other hand, Dompier supplied and sold the gasoline under the brand name of Texaco. Under the above structure, Dompier ventured into the retail market directly. Although a distributor in the same level as Gull and the rest, Dompier’s business relationship with Texaco was sort of a ledger. Both Gull and Dompier picked the gasoline from the processing plant of Texaco and delivered it to the consumers without any of them having any storage facilities. From the above observation, both Gull and Dompier were of the same kind as well as level in the market, that is, their concentration ratios were relatively similar (Greenhouse 1). More so, the HHI indices of both distributors was similar and thus price discrimination was no way allowable exemptible from the Antitrust Law. To illustrate how the above rationale is true, both Gull and Dompier had a lot in common. To start with, both operated at the same level, that is, they were distributing retailers. In the supply chain, various stakeholders stand various chances and opportunities differentiated by the various levels they operate within the chain. However, both Gull and Dompier operated at the same retail level. As a result, similar treatment in terms of similar prices was very impossible to overlook or unjustifiable if overlooked. More so, both distributors operated in a similar manner. They collected the gasoline from the manufacturing plant of Texaco Inc. in accordance to the demand and supply forces. Most importantly, they supplied the gasoline products in the same geographical region. As a result, once again the Antitrust Law was not possible to be exemptible. In the case of supply in different geographical regions, instances of price segmentations would be an issue and sufficient reasoning for the exemption of the Antitrust Law, but that was not the case.
The conduct, as stipulated in the case above, refers to price discrimination. In the simplest terms, it refers to the pricing strategy that involves the selling of a given service or product at different prices at the same time. Price discrimination in the above case surfaces as a result of Texaco giving substantially different price discounts to Gull and Dompier, despite the fact that both companies were distributors at the same level, in the same market, and at the same era. In the bid of Texaco to deny the price discrimination charges, the company tried to use non-price strategies. First, Texaco implied that the difference in discounts was as a result of its “ functional discount” policy based on the performance of its distributing partners. Second, Texaco argued that Dompier received more discounts as a result of marketing Texaco by distributing gasoline products at the Texaco’s brand name.
Effect of the Conduct
The conduct of the defendant, that is price discrimination, is a very crucial issue in business (Arnold 498). By imposing discriminative prices on the respondent or on any other firms in the industry, Texaco was in a position to determine the performance of the various distributors of gasoline products. The distributors favored by the discriminative prices thrive as the ones oppressed by the above pricing strategy perform poorly (Mankiw 328). As a result, price discrimination by Texaco was aimed at bringing about monopolistic competition with respect to the gasoline products in the respective geographical location. More so, the above conduct by Texaco was capable of creating a barrier of entry in the gasoline retail market, once again bringing about the aspect of market competition.
In the year 1976, various respondents filed a law suit against Texaco alleging that the company acted in violation of the Robinson-Patman Amendments that were made to the Clayton Act. According to the above amendment, a business entity like Texaco should not do a couple of things that are oppressive to other entities with respect to the pricing of its goods or services. Specifically, the amendment forbids a person or a business firm from discriminating in terms of price among different purchasers of similar commodities where the intention of the discrimination it injuring the competition between the people or firms who receives the discriminative price knowingly and the other players in the market place.
The above case ruled 1990 was a subsequent case to the 1976 case. Once again, the defendant, Texaco Company, was again tried in the Supreme Court and found guilty of price discrimination with reference to the treatment between Gull and Dompier gasoline distributors. In the above case, Texaco tried a lot to convince the jury otherwise by means of applying various non-price strategies but at the end the verdict was that Texaco was guilty of malicious price discrimination practices.
Structure, Conduct and Performance
The structure, conduct, and performance model, commonly referred to as SCP is an analytical framework that is applied to make relationships among various market structures, market performances, as well as market conducts. As a business paradigm, SCP stands out as a pillar of the business theory of business organization. Since its conception in 1959, it has strongly exhibited a good starting point with respect to analyzing industries, markets in both economic and business management perspectives. From the reasoning of the SC, the performance in a given industry depends upon the conduct of the various business entities operating within the jurisdiction of the given industrial sector (Policonomics 1).
The above case applies the SCP in the following ways. First, the structure refers to the variables that affect the behavior of the sellers and buyers in the market. For instance, the case of Texaco underlines how it wants to overlook the aspect of perfect competition and make the gasoline retail and distribution business in the region monopolistic. Second, there is the conduct which means the outstanding behavior supporting the intended structure above. In the case of Texaco, conduct refers to the choice of strategies or activities to achieve the monopolistic structure. In the above case, the conduct is the application of price discrimination strategies. Finally, there is the performance which is a measure of the results of that yield from the structure and the conduct stipulated above. It features aspects such as profitability and performance. In the case of Texaco, it can it surfaces through the ability to substantially increase its profits as well as the consumer base through the price discrimination strategy it used to favor Dompier as well as itself in the process.
Arnold, Roger A. Economics. Australia: South-Western Cengage Learning, 2010. Print.
George, Kenneth, and Caroline Joll. Industrial Organization: Competition, Growth and Structural Change. New York: Routledge, 2005. Print.
Greenhouse, Linda. ‘Texaco Loses In High Court On Discounts’. Nytimes. com. N. p., 2015. Web. 18 June 2015.
Mankiw, N. Gregory. Principles of Economics. Mason, OH: South-Western Cengage Learning, 2009. Print.
Policonomics,. ‘Structure, Conduct, Performance Paradigm | Policonomics’. Policonomics. com. N. p., 2015. Web. 19 June 2015.
Supreme Observer,. ‘Case Document’. N. p., 2012. Web. 19 June 2015.
Texaco Inc. V. Hasbrouck. 496 U. S. 1990. Print.