Since the dawning of antitrust regulation in America at the beginning

Question

Since the dawning of antitrust regulation in America at the beginning of the twentieth century, agreements establishing resale price maintenance have been considered expressly illegal. Unlike horizontal price fixing between competitors, however, where there are no exceptions to a blanket ban on such activity, certain types of vertically integrated price maintenance schemes have been held not to violate the law.

The current rule, the so-called Colgate doctrine named after one of the first major corporate litigants, provides that a manufacturer may state a pricing policy and refuse to deal with those who do not abide by it so long as no actual agreement is made. For example, a manufacturer is allowed to unilaterally establish a specific price at which it would like the retailers to resell its product. It may also state that it will terminate any retailer who fails to abide by its pricing policy. The manufacturer is even allowed to follow through by terminating any noncomplying retailers. The manufacturer is not, however, allowed to do anything beyond the flat statement of its pricing policy and a possible, but undiscussed, termination of the retailer. Any attempt by the manufacturer to obtain the retailer's agreement or its promise of acquiescence to the pricing policy goes beyond the approved unilateral action and will therefore be considered illegal.

This emphasis on unilateral action stems from the fact that the antitrust laws prohibit only contracts, combinations and conspiracies in restraint of trade. The law does not extend to unilateral action. So long as the manufacturer's policies and behaviors do not go beyond these accepted unilateral actions, there is no illegal activity. However, this result has left the field in virtually total disarray. The focus on unilateral action versus combined action puts otherwise sane sales people in the peculiar position of trying to state a policy to an existing or potential retailer but being required to avoid receiving so much as an ok in response. Without substantial reform of these rules, the continuing uncertainty and counterintuitive results will inevitably lead to completely unintended illegal behavior on the part of confused corporate entities.   1 
 E 
 1). With which of the following choices would the author be most likely to agree?

A)Price maintenance policies are a rational approach by manufacturers seeking to maximize their profitability and control over their products in the retail market.
B) The Colgate doctrine is an ill advised attempt to meddle in internal corporate matters that should be left to the competence of the corporate managers.
C) The law should be revised to allow vertical and horizontal price maintenance.
D) Extending the law to cover unilateral action would be a positive step in improving the current state of regulation.
E) Eliminating the ban on combinations and conspiracies would be a positive step in improving the current state of regulation.

2 
 A 
 2) Which of the following can be inferred about retail price maintenance?

A) Antitrust law has a long history in America. 
B) If the restraints on combined actions are not modified, consumer prices will increase as beleaguered manufacturers pass on the costs of compliance to consumers. 
C) Manufacturers need to form a more efficient lobby to affect policy and reverse irrational restrictions. 
D) Notwithstanding differing legal treatments, there are no substantial differences between horizontal and vertical pricing arrangements. 
E) Irrational regulation is a significant cause of unintended illegal behavior on the part of many corporations.

3 
 C 
 3) Which of the following is not a result of the Colgate doctrine?

A) Manufacturers are limited in what they may discuss with potential retailers. 
B) Manufacturers are allowed to unilaterally establish a specific price at which retailers should to resell certain products. 
C) Because manufacturers are reduced to unreasonable practices to comply with an arbitrary rule, consumers ultimately bear the cost of this poorly crafted policy. 
D) A manufacturer's ability to craft detailed agreements with its retailers is compromised and constrained. 
E) Manufacturers are not allowed to warn non-complying retailers of possible termination and cannot negotiate the retailers' future compliance.

4 
 D 
 4) Which of the following best describes the structure of the passage?

A) The author suggests two competing methods for accomplishing control over corporate pricing schemes and analyzes their efficacy. 
B) The author presents a unique hypothesis supported by both general and specific examples in order to bring change to an established and unquestioned status quo. 
C) The author provides detailed advice for managers seeking to maximize their profits in spite of irrational regulation by the courts. 
D) The author identifies a problematic aspect of the regulation of certain corporate planning schemes. 
E) The author identifies significant problems with price maintenance plans and provides alternative methods of accomplishing the goals and solving the irrational aspects of current regulation.

Basshead · Accepted Answer

My thoughts:

First paragraph: Agreements establishing price maintenance are considered illegal. However, there are exceptions -- some activities don't actually break the law.

Second paragraph: Colgate doctrine allows manufacturers to establish a specific price unilaterally, which means to a whole group. However, the manufacturer can't go further than establishing a pricing policy (and perhaps a termination of their agreement). This means the manufacturer can set a pricing policy but can't take further actions, such as frequently calling the retailer, etc.

Third paragraph: This situation puts manufacturers/salespeople in a difficult spot. If they can't take any further actions, manufacturers can't openly communicate with retailers, even regarding things that aren't regarding price, because the discussion may lead to unintended illegal behavior.

___________________

1). With which of the following choices would the author be most likely to agree?

A)Price maintenance policies are a rational approach by manufacturers seeking to maximize their profitability and control over their products in the retail market.
B) The Colgate doctrine is an ill advised attempt to meddle in internal corporate matters that should be left to the competence of the corporate managers.
C) The law should be revised to allow vertical and horizontal price maintenance.
D) Extending the law to cover unilateral action would be a positive step in improving the current state of regulation.
 E) Eliminating the ban on combinations and conspiracies would be a positive step in improving the current state of regulation.

The author is looking for reform of these laws. D wants to add regulation, which is not what the author is looking to achieve. E fits the bill -- the author wants to remove the ban and completely reform these rules.

2) Which of the following can be inferred about retail price maintenance?

A) Antitrust law has a long history in America. 
B) If the restraints on combined actions are not modified, consumer prices will increase as beleaguered manufacturers pass on the costs of compliance to consumers.
C) Manufacturers need to form a more efficient lobby to affect policy and reverse irrational restrictions.
D) Notwithstanding differing legal treatments, there are no substantial differences between horizontal and vertical pricing arrangements.
E) Irrational regulation is a significant cause of unintended illegal behavior on the part of many corporations.

The first paragraph speaks to the long history of antitrust regulation. We can't infer answer E -- the wording is too strong. We don't know if irrational regulation is a  significant  cause of unintended illegal behavior on the part of many corporations. Best answer is A.

tastysweets2003 · Answer

C seems to be the answer.

A not because nothing has been said about price maintainence policy
B is not because nothing has been discussed about the internal corporate matters
D is not as it has not clearly said whether the extension would lead to appropraite rule 
E is not as elimination of rule is not discussed

khushboochhabra · Answer

To me D seems to be the answer as - C talks both about Horizontal and vertical price management. But the author focuses on vertical prize management and has been describing that with unilateral action not being covered the manaufcator can not expect any response from retailor for price management and this leaves the manafactur/sales person with stating a policy for which they can not expect a "OK" - response. Thus authro would agree to cover unilateral action

akbism · Answer

The law 
does not extend to unilateral action. So long 
as the manufacturer’s policies and behaviors 
40 do not go beyond these accepted unilateral 
actions, there is no illegal activity. 
However, this result has left the field in 
virtually total disarray.  The focus on 
unilateral action versus combined action 
45 puts otherwise sane sales people in the 
peculiar position of trying to state a policy to

Explanation- the law is not extended to unilateral action, which has caused disarray....

rampuria · Answer

This emphasis on unilateral action stems 
35 from  the fact that the antitrust laws prohibit 
only contracts, combinations and 
conspiracies  in restraint of trade. The law 
does not extend to unilateral action. So long 
as the manufacturer’s policies and behaviors 
40 do not go beyond these accepted unilateral 
actions, there is no illegal activity. 
However, this result has left the field in 
virtually total disarray.  The focus on 
unilateral action versus combined action  .....

The author is trying to mean that law applies to contracts and conspiracies but not to unilateral action. Only unilateral action is permitted while conspiracies and contracts are deemed illegal. This situation demands revision, preferably removal of ban on contracts and conspiracies so that manufacturers can get "OK" ( written consent) from retailers. This will prevent unitended illegalitie sin the trade.

E is the winner.

Its not C because author does not talk about horizontal parts.

miliya23 · Answer

The Answer should "D". 
This emphasis on unilateral action stems from the fact that the antitrust laws prohibit only contracts, combinations and conspiracies in restraint of trade. The law does not extend to unilateral action

3rd paragraph is saying that rules are only applied on conspiracies, contracts, and combinations and not to unilateral action . It has never mentioned that these rules should be removed from conspiracies also. "E" is saying the same.

D) Extending the law to cover unilateral action would be a positive step in improving the current state of regulation

D clearly implies that author is not happy with the fact that there is no rule applied to unilateral facts. Hence, it will be considered as a positive move by Author

Nightmare007 · Answer

Hi  abhimahna ,  GMATNinja ,  daagh 
 I chose C for the below mentioned reasons>

This emphasis on unilateral action stems
35 from the fact that the antitrust laws prohibit
only contracts, combinations and
conspiracies in restraint of trade. The law
does not extend to unilateral action. So long
as the manufacturer’s policies and behaviors
40 do not go beyond these accepted unilateral
actions, there is no illegal activity.
However, this result has left the field in
virtually total disarray. The focus on
unilateral action versus combined action .....

The author is trying to mean that law applies to contracts and conspiracies but not to unilateral action. Only unilateral action is permitted while conspiracies and contracts are deemed illegal. This situation demands revision, preferably removal of ban on contracts and conspiracies so that manufacturers can get "OK" ( written consent) from retailers. This will prevent unitended illegalitie sin the trade.

E is the winner.

Its not C because author does not talk about horizontal parts.

So, I thought answer should be D.

Can you please spare some time to explain why the answer is E?
And where my reasoning is wrong.

Thank you

sayan640 · Answer

VeritasKarishma   GMATNinja   mikemcgarry   egmat 
 daagh 
Can you please discuss this passage especially the last paragraph as to what it intends to convey ?
Also please throw some light on this question .

altairahmad · Answer

Both D and E have the same result, one covers the unilateral regulation while the other removes combinations and conspiracies altogether.I don't think it is clear in the passage that the author prefers which one.

aalphabet · Answer

I don't get it.. why is it E and not D

ballest127 · Answer

Hi Expert,

Could you please post OE for Q1-Q2?

Thank you.

ayushgmatclub1 · Answer

my 2 cents on Q1

Q1-
We need to cover combinations (not just unilateral, we are already covering unilateral)
Option D - cover unilateral (we are already covering unilateral, hence incorrect)
Option E - remove ban from combination (or cover combination, hence correct)

still need help with Q2- (i got this wrong)
I think the passage is talking about recent antitrust "regulation", which is a modification of an old antitrust "law"? Experts please help. 
It is as difficult to reject E as to accept A

prawin96 · Answer

Explanations for the questions

Nups1324 · Answer

Good one basshead . I answered these two incorrectly and selected the same 2 wrong options with most responses. I was wondering where will I find the explanation and there your explanation was. You saved my day. Thank you

Keep posting. Posted from my mobile device

StarTrooper · Answer

It is good. Good tough passage. Just curious to know the level of the first two questions. 750+ or like 800

Sajjad1994 · Answer

I am afraid if the OA there for question 1 and 2 are given correct, haven't attempted the passage though. In my opinion the difficulty of the passage should be as follow:

Question #1: 750-800
Question #2: 750-800
Question #3: 700
Question #4: 650

Overall: 700-750

Muqeet · Answer

TBH Questions 1 and 2 seems busted to me, the line of reasoning used to justify the correct answers is very poor and if you try to implement this for other official passages you may get many questions wrong.

Since the dawning of antitrust regulation in America at the beginning

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

Since the dawning of antitrust regulation in America at the beginning

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards