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In a business setting, what alternative actions could have been taken to avoid...

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yacel0762 | Valedictorian

Posted May 16, 2013 at 4:27 PM via web

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In a business setting, what alternative actions could have been taken to avoid collusion between parties (Ben and Gui stores) considering that an investigation by six independent stores determined there had been collusion between Ben's and Gui's stores and that now was the time for action against them?

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Gui Knitwear is a very successful manufacturer of medium to better knit garments. They feature knit jacquard design motifs that are produced on Italian knitting machines in Mexico. The firm's merchandise is well known in its field as a result of years of regular advertising in a variety of fashion magazines as well as in repeated store (cooperative) ads. The company has also received “good press” from the excellent work of its public relations agency. Gui is sold in many large department and specialty stores and in hundreds of better independent stores throughout the country. They have over 2,000 accounts and an annual sales volume approaching $20 million.

Mary Alex is the misses sportswear buyer for Ben's, a prestigious retailer in Spokane, Washington with years of industry experience. On one of her early buying trips to New York, Mary went to the Gui showroom, met with Bill Sam, and went over the line with Bill.

Ben's, in addition to its main store, has nine branches in the surrounding suburban areas. Many of the branch stores were in upper-middle class sections of the metropolitan area.

Gui had never sold to Ben's before, but Mary, an old customer, knew the firm well and had done an excellent job with its merchandise in the past. Her first thoughts were possibilities of exclusivity of the Gui knits. Large retailers frequently seek to control the distribution policies of manufacturers in an effort to eliminate as much competition as possible. This is in exchange for the opportunity granted by the large store to permit the manufacturer to use the order to influence other stores in purchasing the line. When a store is not sure about carrying a line, the success of a well-regarded retailer with the line helps reinforce to the unsure store that “what is good enough for so and so is good enough for me.”

There are six independent stores in the area that are currently carrying the Gui line. Mary indicated that her opening order for Ben's and its branches would be much greater than those six stores’ total annual purchases combined. After doing some rapid mental arithmetic, Bill came to an understanding that Ben's with its branches probably would buy about 2,000 pieces for the season, whereas the six smaller stores would each wind up with an average of 60 to 100 pieces for the same period. 

Although Bill would like to continue to sell to the six independent stores as well, he and Mary agreed that he could not cancel the independent stores’ orders because this would be a direct violation of federal anti-trust statutes, and it was still fresh in his memory that three of the most prestigious fashion stores in the country had recently been found guilty of just such a violation. Accordingly, he agreed to kick their orders around until they “got lost” for the current season. In the future, he promised, he would dream up further measures designed to discourage the local stores from ordering the Gui line.

Soon after, the merchandise began to arrive at Ben's, and, as expected, it did very well. However, the six independent stores never received their orders and began to suspect collusion between Ben's and Gui's and decided to begin simultaneous but independent action to rescue their Gui merchandise orders. They agreed to call Bill at separate intervals and, if they received no satisfaction, to have their attorney’s threaten him with civil, as well as criminal, action. 

After further investigation the six independent stores agreed that there must be collusion between Ben's and Gui's and now was the time for action.

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Karen P.L. Hardison | College Teacher | eNotes Employee

Posted May 31, 2013 at 5:23 PM (Answer #1)

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In this legal question of business ethics, there are no alternative actions but one: Gui must fulfill his existing orders, offer what is thereafter available to Ben's and step up manufacturing production for the next season to fulfill the total order Ben's will want.

The U.S. Antitrust laws are quite clear about the illegality of collusion in market tampering. The six independent stores have all the rights in the case as laid out. Antitrust provisions allow for proof of collusion through the "parallel conduct doctrine." By this doctrine, the independent stores need only provide evidence to demonstrate similar pricing or other behaviors "leading directly to restraint of trade through noncompetitive actions by companies in the same industry" (Encyclopedia of Business Ethics and Society, V. 1).

External collusion is defined by the EBES (cited above) as when "colluding parties agree to circumvent rules to defraud a third party." In this case, Mary and Bill agree to circumvent the rules of ethical and contractual order fulfillment in order to defraud the six independent stores who have previously been carrying the Gui line. There is but one alternative to collusion and that is to act within the law, according to ethics and according to well established business practices.

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