Solved: 1 a Who are the alleged conspirators in this price

fixing

1. a. Who are the alleged conspirators in this price-fixing dispute, and how did they allegedly fix
prices?

b. Who won this case at the New Mexico Court of Appeals, and why did that court rule as it did?

c. In general, is parallel pricing a lawful behavior? Explain.

2. a. Why did the New Mexico Supreme Court require a showing of “plus factors” to
demonstrate that the cigarette companies had engaged in price fixing?

b. Why did the Court reject the plus factors offered by the plaintiffs as evidence of a price-fixing
conspiracy?

3. Why did the tobacco companies win this case?

4. Assume two drugstores, located across the street from each other and each involved in
interstate commerce, agree to exchange a monthly list of prices charged for all nonprescription
medications. Is that arrangement lawful in the absence of any further cooperation? Explain.

5. The “Three Tenors,” Luciano Pavarotti, Placido Domingo, and Jose Carreras, recorded a
1990 World Cup concert, distributed by Polygram, and a 1994 World Cup concert, distributed by
Warner. Polygram and Warner subsequently agreed to jointly distribute and share profits from
the 1998 World Cup Three Tenors concert. The 1998 recording apparently was less “new and
exciting” than had been hoped. Concerned that sales of the earlier recordings would drain
interest from the 1998 recording, Polygram and Warner agreed to cease all discounting and
advertising of the two earlier recordings for several weeks surrounding the release of the 1998
album. In 2001, the Federal Trade Commission issued complaints against Polygram and
Warner. Those complaints eventually reached the District of Columbia Federal Circuit Court of
Appeals where Polygram and Warner defended themselves by arguing that the agreement was
good for competition in that it increased the joint venture’s profitability from new recordings, and
it eliminated free riding by each company (for the 1990 and 1994 recordings) on the joint
venture’s 1998 marketing.

a. What antitrust violation was alleged by the Federal Trade Commission?

b. What is free riding, and why is it a problem?

c. Decide the case. Explain.

6. Assume that 10 real estate firms operate in the city of Gotham. Further assume that each
charges a 7 percent commission on all residential sales.

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 a. Does that uniformity of prices in and of itself constitute price fixing? Explain.

b. Assume we have evidence that the firms agreed to set the 7 percent level. What defense
would be raised against a price-fixing charge?

c. Would that defense succeed? Explain.

The following facts are undisputed. Plaintiffs are “persons in the State of New Mexico . . . who
purchased cigarettes indirectly from Defendants, or any parent, subsidiary or affiliate thereof, at
any time from November 1, 1993 to the date of the filing of this action [April 10, 2000].” The
original Defendants were Philip Morris, R.J. Reynolds (“RJR”), Brown & Williamson (“B&W”),
Lorillard, and Liggett. The events leading up to this lawsuit were set in motion in response to a
Philip Morris strategy beginning with an event known as “Marlboro Friday.” Prior to Marlboro
Friday, Philip Morris, the market leader, had been steadily losing market share to discount and
deep discount cigarettes since 1980, when Liggett pioneered the development of generic
cigarettes.

ANSWER
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