Do anti-competitive suppliers blunt your competitive edge?

You may be aware of a number of recent "price fixing" incidents in the steel and steel-related industries. The U.S. Dept. of Justice's Antitrust Div. and the FBI are conducting ongoing investigations into these matters. What does this mean to you in the foundry business? Plenty.

Let's put anti-competitive behavior into perspective. The "marketplace" philosophy of U.S. economics, embodied and ensured by the antitrust laws, means that every business should have the opportunity to compete freely and flourish in a free market. Business com*petition brings consumers the best possible products at the best possible prices.

Knowing the Law

There are two major antitrust statutes: the Sherman Antitrust Act and the Robinson-Patman Act. These acts regulate the marketing and distribution of goods. While you, the foundry, are subject to and regulated by these acts, they also regulate your competitors, suppliers and customers. The result is a competitive climate in which the small business can exist and thrive. You can grow deliberately and rapidly, but must always be sensitive to the rights of your competitors and of the public.

In a 1958 ruling, the U.S. Supreme court said the Sherman Antitrust Act "rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and greatest material progress... the policy unequivocally laid down by the Act is competition."

Fundamentally, the 100-year-old Sherman Act prohibits unreasonable restraints that would threaten open competition and tend to foster monopolies. Businesses are specifically prohibited from engaging in activities that unduly restrain others from competing freely - boycotts, tying agreements and price fixing, for example. Section 1 is concerned exclusively with anti-competitive agreements between two or more persons ("agreements in restraint of trade"). Section 2 outlaws the unilateral acquisition and maintenance of monopoly power - the power to control price and exclude competitors.

The Robinson-Patman Act, on the other hand, guarantees the right of small businesses to compete by prohibiting price discrimination because of size or economic power. This highly technical act generally means that competing buyers of commodities from a single seller must be able to get the same price and terms for the same product. Thus the act prohibits a supplier from offering discriminatory prices, and a buyer from inducing or knowingly receiving them.

What does all this mean in actual practice? You need to know how to recognize illegal, anti-competitive behavior, and what to do about it. There are at least four business situations that may indicate you're being "held hostage" by illegal behavior.

Recognizing a Violation

The first scenario looks like this: a supplier of products you need has an agreement with other suppliers. When you call one of those other companies, they refuse to quote you a price, quote a price significantly higher than that of your regular manufacturer, or even suggest that you instead deal with your regular supply source. When this happens, you may be the victim of price fixing. A variation on this theme is the "territorial deal," which forces you to deal with the supplier that a larger group of suppliers wants you to deal with - a supplier who can then fix prices at a level that suits them. This kind of market, or territorial, allocation is clearly illegal.

In the second scenario - discriminatory pricing - you become aware that a competitor of yours is getting a much better price or better terms when buying the same product from the same supplier in the same quantities as you do. This activity may be in violation of the Robinson-Patman Act because your supplier is selling the same goods to the same class of customer at different prices.

Scenario three - a boycott - is when a supplier refuses to deal with you, but deals instead with your competitor.

The fourth scenario is the "tying arrangement," in which a supplier will only sell you a product you need if you agree to buy another product that you don't need or want.

Finally, if you become aware that suppliers cooperate with each other to limit price or production choices, to divide markets or initiate boycotts or blacklists, you may be the victim of antitrust violations.

Taking Action

The Sherman and Robinson-Patman Acts are, for the most part, enforced by the Federal Trade Commission (FTC), and the Dept. of Justice's Antitrust Div. Both provide for private actions for the recovery of damages brought by those who have been harmed through anti-competitive conduct. If you suspect or experience any of the above anti-competitive activities, you have the right to complain to the Antitrust Div. or the FTC. Neither agency will seek to recover any of your losses, but they will investigate. If they believe a violation occurred, they'll take steps to stop the anti-competitive conduct.

You may also want to seek advice from your own counsel, who can also investigate and initiate action to stop the illegal activity and recover damages. You may carry out both courses of action: seek agency and private enforcement of the antitrust laws.

As a participant in a free market economy, you are entitled to aggressively pursue a remedy for conduct that victimizes you with anti-competitive behavior that limits your ability to compete effectively in the marketplace.