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Problem 2: Review these articles and do additional research on Price fixing
read chapter 10 page 437 ( sherman act)
Chapter 10: Problem # 2
Issue: Some of the restaurant owners in California are violating the Sherman Antitrust Act by
going against the rules that forbids the restraints of trade and forbids the attempts to monopolize
and conspiracies to monopolize.
Rule: The Sherman Antitrust Act of 1890 has two sections. Section 1 of the Act forbids restraints
of trade and Section 2 of the Act forbids monopolization, attempts to monopolize and
conspiracies to monopolize (p. 437). The federal government has two enforcement options:
1. Violation of the Sherman Act Opens Participants to Criminal Penalties: The corporate
fine that can be charged is up to $ 100 million per violation and individuals may have to pay a
fine up to $ 1 million and/or imprisonment for up to 10 years (p.437).
2. Injunctive Relief is provided under Civil Law: Any private body or the government may
get a court order that prevents the continuing violations of the act and afford appropriate relief.
The people who are harmed by the violation of the act can also bring a civil action and can seek
three times the actual damages that have been sustained (p.437).
Analysis: The Sherman Antitrust Act is meant for the protection of consumers and it promotes
fair competition. It also forbids acquisition of monopoly power and cooperative or joint restraints
of trade, for example it forbids “the business practices undertaken by two or more restaurants to
improperly stifle or suppress “competition on the merits” in a given market” (Parker, 2015).
Some restaurants in Los Angeles have been accused of price-fixing and monopolizing and are
facing a lawsuit. Restaurants like Melisse and Trois Mec, which are in the Los Angeles Area, are
facing a class-action lawsuit because of price-fixing with regards to a health care surcharge of 3
% that has been tacked onto the final bills (Trinh, 2015).
A few other restaurants are also named in the lawsuit because they got together with the owners
of the other restaurants and agreed to add a surcharge of 3 percent, which would go towards
paying for the health care of the employees. This is a violation of the Antitrust Law because it is
a conspiracy to raise prices.
The restaurants have argued that they are not involved in price –fixing and the surcharges are
being utilized for a good purpose- for the benefit of their employees, and therefore they are not
violating the Antitrust Act. They also claim that the patrons were clearly informed about the
surcharge and the way it would be used. They also informed the patrons that they could reduce
the tipping as they were paying the three percent surcharge.
Most of the patrons did not like the idea of paying the surcharge because they felt that it is the
duty of the restaurant owners to take care of the health care of their employees. The lawsuit that
has been filed against the restaurant owners clearly indicate that the owners of the restaurants
conspired together to monopolize the imposition of three percent surcharge on the patrons. This
practice is not meant to destroy the rivals, but it is definitely affecting the patrons and therefore it
is an act of monopolizing that can harm the patrons.
The lawsuit also claims that the restaurant owners conspired to restrain trade. The Sherman
Antitrust Act states clearly that it is unlawful for any businesses to conspire to restrain trade and
they can be punished severely if the claims are justified. Price fixing, market allocation, bid-
rigging and other kind of group boycotts are considered as offence and the per se violation of
Section 1 of the Sherman Antitrust Act (Parker, 2015).