[Federal Register Volume 63, Number 155 (Wednesday, August 12, 1998)]
[Notices]
[Pages 43182-43183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21613]


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FEDERAL TRADE COMMISSION

[File No. 971-0065]


Fair Allocation System, Inc.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before October 13, 1998.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:
William Baer, FTC/H-374, Washington, D.C. 20580, (202) 326-2932; or 
Charles Harwood, Federal Trade Commission, Seattle Regional Office, 915 
Second Avenue, Suite 2896, Seattle, WA 98174, (206) 220-4480.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for August 5, 1998), on the World Wide Web, at ``http://www.ftc.gov/
os/actions97.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, N.W., 
Washington, D.C. 20580, either in person or by calling (202) 326-3627. 
Public comment is invited. Such comments or views will be considered

[[Page 43183]]

by the Commission and will be available for inspection and copying at 
its principal office in accordance with Section 4.9(b)(6)(ii) of the 
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted a proposed consent order 
from Fair Allocation System, Incorporated (``FAS''). FAS is an 
organization of twenty-five automobile dealerships from five Northwest 
states that was formed to address dealer concerns over the marketing 
practices of automobile manufacturers. In particular, FAS members were 
concerned about an automobile dealership--Dave Smith Motors of Kellogg, 
Idaho--which was attracting customers from around the Northwest and 
taking substantial sales from FAS members by selling cars for low 
prices and marketing them on the Internet.
    According to the complaint, because of these concerns, the members 
of FAS collectively attempted to force Chrysler to change its vehicle 
allocation system. Chrysler allocates vehicles based on the dealer's 
total sales; FAS members wanted Chrysler to allocate vehicles based on 
the expected number of sales from a dealer's local area, which would 
have substantially reduced the number of cars available to a dealership 
like Dave Smith Motors that drew customers from a wider geographic 
area. According to the complaint, the members of FAS threatened to 
refuse to sell certain Chrysler vehicles and to limit the warranty 
service they would provide to particular customers unless Chrysler 
changed its allocation system so as to disadvantage dealers that sold 
large quantities of vehicles outside of their local geographic areas.
    The compliant charges that FAS's agreements or attempts to agree 
with its dealer members to coerce Chrysler violate Section 5 of the FTC 
Act, as amended, 15 U.S.C. 45. According to the complaint, FAS members 
constitute a substantial percentage of the Chrysler, Plymouth, Dodge, 
Jeep and Eagle dealerships in eastern Washington, Idaho, and western 
Montana, and FAS's threats would have harmed competition and consumers 
in those areas. In particular, FAS's efforts would have deprived 
consumers of local access to certain Chrysler models and to warranty 
service, and would have reduced competition among automobile 
dealerships, including rivalry based on price or via the Internet.
    The goal of the boycott was to limit the sales of a car dealer that 
sells cars at low prices and via a new and innovative channel--the 
Internet. FAS's threatened action against Chrysler is a per se illegal 
group boycott. In United States v. General Motors, 384 U.S. 127 (1966), 
the Supreme Court held per se illegal a comparable dealer cartel in Los 
Angeles that sought to prevent other area dealers from selling 
automobiles through discount brokers. Since General Motors, the Supreme 
Court has twice cited its per se condemnation of dealer cartels with 
approval. See Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 
58 n. 28(1977); Business Electronics v. Sharp Electronics, 485 U.S. 
717, 734 n. 5 (1988). Such dealer cartels are ``characteristically 
likely to result in predominantly anticompetitive effects,'' Northwest 
Wholesale Stationers v. Pacific Stationery & Printing Co., 472 U.S. 
284, 295 (1985), because they aim to limit competition while producing 
no plausible efficiencies.
    Even where an agreement otherwise appears to fall in a category 
traditionally analyzed under a per se rule, a more extensive, rule-of-
reason analysis may be necessary if there are plausible efficiency 
justifications for the conduct. Broadcast Music, Inc. v. Columbia 
Broadcasting System, Inc., 441 U.S. 1 (1979). Here, however, there 
appear to be no plausible efficiencies that would justify the dealers' 
conduct. Even if there were reason to believe that Dave Smith Motors, 
or similarly operated dealerships, were free-riding \1\ on the efforts 
of more traditional dealers, no boycott would be needed to deal with 
the problem. Manufacturers have strong incentives to prevent free-
riding by a few of their dealers at the expense of the rest, and can be 
expected to be responsive to complaints from their dealers acting 
individually if the free-riding concerns are genuine. In the absence of 
an efficiency justification that plausibly explains why concerted 
action is necessary, extensive searches for and investigations of 
justifications for such conduct would be unwarranted, and would only 
add a layer of complication and delay.
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    \1\ ``Free-rider'' concerns may arise where two distributors 
sell the same product, but provide different levels of service in 
connection with the sale of that product. For example, one 
distributor may have a full-service showroom and the other may sell 
out of a warehouse that offers no service. Consumers may visit the 
showroom, learn all they need to know about the product, and then 
purchase the produce from a ``no-service'' discounter. The problem 
is that over time the full-service distributor may lose its 
incentive or financial ability to provide the services, to the 
detriment of both the manufacturer and the consumers who value those 
services. Free-rider concerns generally do not exist if the full-
service distributor is compensated for its services.
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    In this case, the absence of a justification is especially clear. 
Chrysler has previously rejected demands that it change its allocation 
system and publicly lauded Dave Smith Mothers. See ``Chrysler Corp. 
Will Let Dealers Shoot It Out in Cyberspace,'' Automotive News, p. 1, 
January 27, 1997. Indeed, Chrysler's Vice President of Sales and 
Marketing has flatly stated that Chrysler believes the best way to 
increase its sales penetration is to provide dealers as much product as 
they can sell, no matter where the customer comes from. See ``Chrysler 
VP Has Calming Effect,'' Automotive News, p. 28, February 10, 1997. 
Even if Chrysler had acceded to the boycotters' demands, however, that 
would not have justified a horizontal boycott by the dealers.
    The proposed consent order would prohibit FAS from participating 
in, facilitating, or threatening any boycott of or concerted refusal to 
deal with any automobile manufacturer or consumer. There is nothing in 
the proposed order, however, that would prohibit FAS from informing 
automobile manufacturers about the views and opinions of FAS members.
    The proposed consent order has been placed on the public record for 
sixty (60) days for reception of comments from interested persons. 
Comments received during this period will become part of the public 
record. After sixty (60) days, the Commission will again review the 
agreement and the comments received, and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    The purpose of this analysis is to facilitate public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the agreement containing the proposed consent order 
to modify in any way its terms.

    By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 98-21613 Filed 8-11-98; 8:45 am]
BILLING CODE 6750-01-M