Reciprocal Business Dealings-A New Area of Antitrust Hazards
- Robert F. Morten (Donovan Leisure Newton And Irvine)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- August 1965
- Document Type
- Journal Paper
- 907 - 910
- 1965. Society of Petroleum Engineers
- 0 in the last 30 days
- 112 since 2007
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Reciprocal business dealings-you buy from me, I will buy from you- is a time-honored and prevalent practice in the business community. After a flurry of attention from the Federal Trade Commission in the 1930's, reciprocity cases disappeared from the enforcement scene until 1962. Since then, both the FTC and the Dept. of Justice have instituted various proceedings striking at reciprocity as anti-competitive and, hence, unlawful. Recently, the Supreme Court, in Consolidated Foods Corp. vs FTC, came very close to embracing the doctrine that reciprocity-creating mergers are, per se, invalid. Reciprocity also seems to be a practice through which the government hopes to go after conglomerate mergers which would otherwise go unchallenged under the more traditional antitrust lines of attack. There is no doubt that reciprocity, more than ever, presents antitrust problems to business men.
What is reciprocity? In Us mot elementary form you may have seen it at work in your home town when the local dentist buys his gasoline from t-he filling station operator who is his patient-excluding the other station operator who is not. Or, take the case of the druggist's wife who patronizes the beautician who is her husband's customer. But this is not really what we are talking about. This is simply an understandable human reaction to do business with someone you know who does business with you.
In the business community you will rarely hear the word "reciprocity" used, because, although the practice has had relatively little judicial attention so far, the term awakens a sense of something wrong. Rather, you hear the practice, when mentioned at all, in terms of "trade relations", "sales relations", "national accounts" and so forth. Basically, all expressions mean "you buy from me and I will buy from you". In the field of trade regulation, reciprocity is a matter of concern when it becomes a marketing policy of large companies and is designed to induce suppliers to purchase a company's products to the exclusion of those of a competitor. This type of reciprocity is quite prevalent. In fact, it is much more important today than most companies like to admit. A survey' a few years ago of hundreds of purchasing agents in the chemical, petroleum, iron and steel, and other basic industries, showed that 100 per cent of these agents considered reciprocity a major factor in buyer-seller relations. In addition, the majority of these buyers in these industries reported that reciprocity is on the increase. More than three-quarters of these buyers said they divide their purchases from suppliers in relation to the suppliers' purchases from their companies.
The prevalence and importance of reciprocity may or may not be surprising to you. But, it has certainly attracted the attention of government antitrust lawyers. This is not to say that governmental action against reciprocity is an entirely new phenomenon. It is not. Three cases involving reciprocity were decided by the Federal Trade Commission in the 1930's. The first two cases involved large meat-packing companies which owned large blocks of stock in railroad equipment manufacturing companies. Because of the meat packers' vast powers as major railroad shippers, they were able to coerce railroad companies to buy railroad equipment from their affiliated companies by threats of withdrawing meat shipments. In both cases the FTC held this exercise of coercive reciprocity to be an "unfair method of competition" under Sec. 5 of the Federal Trade Commission Act. The third case involved a large food packer, which also controlled a railroad terminal, a wharf facility and warehouses in San Francisco. The food packer's suppliers were coerced to use the packer's shipping facilities under threats of withdrawal of purchases from the suppliers. Again the Commission found this to be an " unfair method of competition".
Consolidated Foods Case
From the time of these decisions until recently, nothing further was heard about reciprocity from either the courts or the FTC. However, in Nov., 1962, the Commission handed down its decision in the case of Consolidated Foods Corporation,* which has been the springboard for other actions in this area. The Consolidated Foods case is the basis of the recent concern over reciprocity as a possible area of antitrust hazards. Consolidated Foods is a large processor of a variety of canned foods and, in addition. sells food products at wholesale and retail.
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