Discussion

Watch this video featuring John Bathke, faculty member at the Forbes School of Business and Technology.
TranscriptDownload Transcript

Prior to beginning work on this discussion,

  • Review Chapter 49 of the course textbook.

Coed Theatres (Coed), a Cleveland area movie theater booking agent, began seeking customers in southern Ohio. Shortly thereafter, Superior Theatre Services (Superior), a Cincinnati booking agent, began to solicit business in the Cleveland area. Later, however, Coed and Superior allegedly entered into an agreement not to solicit each other’s customers. The Justice Department prosecuted them for agreeing to restrain trade in violation of § 1 of the Sherman Act. Under a government grant of immunity, Superior’s vice president testified that Coed’s vice president had approached him at a trade convention and threatened to start taking Superior’s accounts if Superior did not stop calling on Coed’s accounts. He also testified that at a luncheon meeting he attended with officials from both firms, the presidents of both firms said that it would be in the interests of both firms to stop calling on each other’s accounts. Several Coed customers testified that Superior had refused to accept their business because of the agreement with Coed. The trial court found both firms guilty of a per se violation of the Sherman Act, rejecting their argument that the rule of reason should have been applied and refusing to allow them to introduce evidence that the agreement did not have a significant anticompetitive effect.

  • What is the rule of reason and how does it differ from the per se rules?
  • Should the rule of reason have been applied in this case? Explain why or why not.

Your initial response should be a minimum of 200 words.

Answer:

The rule of reason and the per se rules are two different approaches used by the courts to determine whether a particular agreement or practice violates antitrust laws. The rule of reason is a more flexible and comprehensive approach that balances the anticompetitive effects of an agreement or practice with its procompetitive benefits. On the other hand, the per se rules treat certain types of agreements or practices as illegal regardless of any procompetitive benefits they may have. The per se approach is used when an agreement or practice is deemed to be inherently anti-competitive, such as price fixing or market division.

In the case of Coed Theatres and Superior Theatre Services, the trial court found both firms guilty of a per se violation of the Sherman Act, rejecting their argument that the rule of reason should have been applied. This means that the court considered the agreement between the two firms to be inherently anti-competitive and illegal, without considering any procompetitive benefits it may have had.

In my opinion, the rule of reason should have been applied in this case. The fact that Superior’s vice president testified that the agreement was made under duress and that several Coed customers testified that Superior had refused to accept their business because of the agreement, suggests that the agreement may not have had a significant anticompetitive effect. The rule of reason would have allowed the firms to present evidence to demonstrate that the agreement did not have a significant impact on competition and that it had procompetitive benefits, such as increased efficiency and reduced costs. By not applying the rule of reason, the court may have missed an opportunity to balance the interests of both firms and the competitive impact of the agreement.

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