Comprehension Case
Read the case below and provide input on each of the suggestions.
You are the legal counsel for Kathy’s Question, a manufacturer of a trendy line of clothing for teen and young adult women. 100% of their sales are in the Northeast market and far West markets with no direct sales to retailers or any other company presence in the South or Midwest. The company has been very successful and its brand recognition is strong. Besides having very trendy styles, they are proud to maintain a 100% U.S. made product including all materials being U.S. in origin.
Lately things have changed marketwise. Unfortunately, sales have been slowed by the economy and the company’s profits have barely stayed in the black. Competition has grown from companies using foreign made materials and less costly foreign labor.
Retailers are cutting back on the lines of Kathy’s Question products being carried and are reducing prices, which is affecting the company brand and public perception of quality.
Jan, an analyst in the finance department has provided the following suggestions and strategies to address the company’s current dilemma.
1. Jan suggests the acquisition of Clothing n’ Stuff, a unisex clothing manufacturer and retailer that operates solely in the Midwest. She opines that such a deal would add to their market and provide direct to consumer retailers from which to build on.
2. Jan recommends that a lobbying effort to persuade Congress to either ban the import of certain products or place a high tariff on the import of foreign cloth would reduce their competitor’s profit margin and harm or eliminate their competitors.
3. Jan proposes that the CEO meet with the executives from their major competitors and try to strike a deal that would limit and define the states that each of the companies would sell and advertise their products in. She argues that such a deal would be beneficial to all resulting in stable profits for all participating companies.
4. Jan advocates the purchase of Women’s Clothes R Us, the largest chain of women’s clothing retailers in the Northeast and far West. She reasons that they already sell products through Women’s Clothes R Us and once the company is controlled by Kathy’s Question, they could hinder the sale of competitor’s retail sales significantly by refusing to deal with them.
5. Jan recognizes that certain retailers are carrying only certain Kathy’s Question product lines. The bras and tops are very popular and remain profitable while the lines of panties and pants are being dropped by most retailers. To this end she proposes that for a retailer to purchase bras for resale, they should be required to purchase an equal number of panties and for each top purchased for resale, a pair of pants must also be purchased.
6. Jan is also concerned with protecting the brand. She suggests that Kathy’s Question set a price for their goods to be sold at and require retailers to maintain that price. Retailers who refuse to resell at the stated price would not be dealt with.
Your job is to respond to each of the proposals.
The action regarding suggestion number 1 in the case, where Kathy’s Question would move forward with the acquisition of Clothing n’ Stuff, would be classified as a(n) _____.
Multiple Choice
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vertical merger
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exclusive dealing merger
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reciprocal dealing merger
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tying contract
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market extension merger
In suggestion number 2 in the case, when Jan recommends that a lobbying effort to persuade the United States Congress to either ban the import of certain products or place a high tariff on the import of foreign cloth would reduce their competitor’s profit margin and harm or eliminate their competitors, she is likely to be found guilty of violating _____.
Multiple Choice
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The Robinson-Patman Act
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The Herfindahl-Hirschman Index
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The Clayton Act
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The Sherman Act, Section 1 –Agreements in Restraint of Trade
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The Sherman Act, Section 2 –Monopolization
In suggestion number 3 in the case, where Jan proposes that the chief executive officer (CEO) meet with the executives from their major competitors and try to strike a deal that would limit and define the states that each of the companies would sell and advertise their products in, she is likely proposing a(n) _____.
Multiple Choice
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exclusive dealing
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vertical merger
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tying contract
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vertical territorial agreement
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horizontal territorial agreement
When Jan advocates in suggestion number 4 the purchase of Women’s Clothes R Us, the largest chain of women’s clothing retailers in the Northeast and far West, she is proposing a(n) _____.
Multiple Choice
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exclusive dealing
-
vertical merger
-
tying contract
-
vertical territorial agreement
-
horizontal territorial agreement
In suggestion number 5, when Jan proposes that for a retailer to purchase bras for resale they should be required to purchase an equal number of panties, and that for each top purchased for resale a pair of pants must also be purchased, she is suggesting a(n) _____.
Multiple Choice
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full line forcing arrangement
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exclusive dealing contract
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requirements contract
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vertical territorial agreement
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horizontal territorial agreement
In proposal number 6, when Jan suggests that Kathy’s Question set a price for their goods to be sold at and require retailers to maintain that price and that retailers who refuse to resell at the stated price would not be dealt with, she is implying _____.
Multiple Choice
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a full line forcing arrangement
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a horizontal merger
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a requirements contract
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resale price maintenance
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a horizontal territorial agreement
