Exclusive dealing intensifies competition for distribution

Antitrust Law Journal

Volumn 75, Issue 2, 2008, Pages 433-466

  Klein, Benjamin ^a   Murphy, Kevin M ^b  

^a UNIVERSITY OF CALIFORNIA   (United States)

^b UNIVERSITY OF CHICAGO   (United States)

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EID: 57049175970     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (69)

1. Paddock Publ'ns, Inc. v. Chicago Tribune Co., 103 F.3d 42, 45 (7th Cir. 1996).
2. We use the term "contractual arrangement" in this article in a purely economic, not necessarily legal, sense. Retail distribution contracts often are unwritten understandings and, even when written, may not be enforceable legal obligations. Instead, the manufacturer and retailer self-enforce their understanding, with either party terminating the relationship if they believe their transacting partner is not performing as expected. See Benjamin Klein & Keith Leffler, The Role of Market Forces in Assuring Contractual Performance, 89 J. Pol. Econ. 615, 616 (1981).
3. These agreements were challenged by the Federal Trade Commission in McCormick & Co., FTC File No. 961-0050 (2000).
4. These contracts were challenged by rival tortilla manufacturers in El Aguila Food Prods, v. Gruma Corp., 301 F. Supp. 2d 612 (S.D. Tex. 2003), affd, 131 Fed. Appx. 450 (5th Cir. 2005).
5. Five Royal Crown Cola franchisee bottlers brought a complaint against Coca-Cola and Pepsi-Cola with regard to such calendar marketing contracts in the Arkansas, Louisiana, Texas, and Oklahoma areas, in Coca-Cola Co. v. Harmar Bottling Co., 218 S.W. 3d 671 (Tex. 2006), rev'g 111 S.W. 3d 287 (Tex. App. 2003). Pepsi-Cola settled the litigation before trial.
6. The Philip Morris Retail Leaders Program was challenged by R.J. Reynolds in R.J. Reynolds Tobacco Co. v. Philip Morris, Inc., 199 F. Supp. 2d 362 (M.D.N.C. 2002), aff'd per curiam, 67 Fed. Appx. 810 (4th Cir. 2003). The Philip Morris contractual arrangement was analytically similar to a loyalty discount or volume rebate contract, where price discounts are provided as a function of the retailer's incremental sales of the manufacturer's products, thereby creating a financial incentive for the retailer to devote increased shelf space and other promotional investments to the sale of the manufacturer's products.
7. See, e.g., Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1045 (8th Cir. 2000). Such market share discounts are described as partial exclusive dealing contracts in Willard K. Tom, David A. Balto & Neil W. Averitt, Anticompetitive Aspects of Market-Share Discounts and Other Incentives to Exclusive Dealing, 67 Antitrust L.J. 615 (2000). We accept this terminology without suggesting that the preferential distribution arrangements we analyze in this article should be judged by the standards of exclusive dealing antitrust law.
8. See Howard P. Marvel, Exclusive Dealing, 25 J.L. & Econ. 1 (1982); Benjamin Klein & Andres V. Lerner, The Expanded Economics of Free-Riding: How Exclusive Dealing Prevents Free-Riding and Creates Undivided Loyalty, 74 ANTITRUST L.J. 473 (2007).
9. The economics underlying the other accepted justifications for exclusive dealing similarly implicitly involve the use of exclusive dealing to efficiently facilitate manufacturer contracting for otherwise not direcdy contractible desired services.
10. See Jonathan M.Jacob-son, Exclusive Dealing, "Foreclosure," and Consumer Harm, 70 ANTITRUST L.J. 311, 357-60 (2002) (listing of commonly accepted economic justifications for exclusive dealing).
11. Benjamin Klein & Joshua D. Wright, The Economics of Slotting Contracts, 50 J.L. & ECON. 421 (2007) (describing this analysis in detail and examining why these shelf space arrangements have become increasingly important in the supermarket industry, as well as other retail sectors, such as drug stores, bookstores, and record stores).
12. The only recent shelf space antitrust cases we are aware of that do not include stocking restrictions on rival products are the secondary-line price discrimination bookseller cases, which involved publisher wholesale price discounts as payment for retailer shelf (and table) space.
13. See Am. Booksellers Ass'n, Inc. v. Barnes & Noble, Inc., 135 F. Supp. 2d 1031 (N.D. Cal. 2001);
14. Intimate Bookshop, Inc. v. Barnes & Noble, Inc., 88 F. Supp. 2d 133 (S.D.N.Y. 2000).
15. "Competition on the merits" was the term used by the D.C. Circuit in describing the absence of a procompetitive justification for Microsoft's exclusive browser distribution contracts, where "competition on the merits" was defined in terms of, "for example, greater efficiency or enhanced consumer appeal." United States v. Microsoft Corp., 253 F.3d 34, 59 (D.C. Cir. 2001) (en banc).
16. Many marketing studies demonstrate that shelf-space positioning increases sales of the featured product. See Adam Rennhoff, Paying for Shelf Space: An Investigation of Merchandising Allowances in the Grocery Industry (July 2004), available at http://www.pages.drexel. edu/~adr24/ rennhoffshelf.pdf; Xavier Dreze, Stephen P. Hoch & Mary E. Purk, Shelf Management and Space Elasticity, 70 J. RETAILING 301 (1994);
17. Charles Areni, Dale Duhan & Pamela Kiecker, Point-of-Purchase Displays, Product Organization, and Brand Purchase Likelihoods, 27 J. ACAD. MKTG. SCI. 428 (1999).
18. Coca-Cola Co. v. Harmar Bottling Co., 218 S.W. 3d 671 (Tex. 2006), rev'g 111 S.W. 3d 287 (Tex. App. 2003).
19. In contrast, retailer incentives to engage in price competition or to provide non-price services (including stocking of highly demanded products) will generally not be less than manufacturer incentives. This is because these competitive dimensions have significant offsetting inter-retailer demand shifting effects that do not exist with regard to retailer supply of promotional shelf space. A fuller economic analysis is presented in Klein & Wright, supra note 9, where the increasing prevalence of supermarket shelf space slotting contracts since the early 1980s is explained by the increasing gap between manufacturer and retailer incentives caused by the increase in incremental manufacturer profit margins and the increased number of new product introductions. Both of these trends have increased manufacturer demand for, and the market value of, supermarket promotional shelf space, which manufacturers have increasingly found in their interests to pav for with per-unit-time slotting fees.
20. The competitive dissipation of slotting fees in lower retail prices and greater service is fully consistent with the lack of any increase in supermarket profitability over the last two decades as supermarket slotting fees have grown substantially. See Klein & Wright, supra note 9, fig. 2. In contrast, some economists have claimed that supermarkets demand a per-unit-time slotting fee payment for shelf space rather than a lower wholesale price because, while a variable lower wholesale price can be expected to be competed away in lower retail prices, non-variable slotting fees will not lead to lower retail prices and therefore can be expected to generate excess retailer profits. This competitive concern, which ignores the fact that supermarkets compete for consumers on the basis of overall average prices and the empirical evidence of stable supermarket profitability in the face of increasing slotting fees, was expressed at an FTC Workshop. See Federal Trade Commission, Report on the Commission Workshop on Slotting Allowances and Other Marketing Practices in the Grocery Industry 27 (Feb. 2001) (quoting Greg Schaffer at Tr. 181 and Robert Steiner at Tr. 142).
21. The fundamental economics of this anticompetitive theory is presented in Thomas G. Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power over Price, 96 YALE L.J. 209 (1986).
22. Jacobson, supra note 8 (citing cases at n.85).
23. R.J. Reynolds Tobacco Co. v. Philip Morris, Inc., 199 F. Supp. 2d 362, 370 (M.D.N.C. 2002), affd per curiam, 67 Fed. Appx. 810 (4th Cir. 2003).
24. See also Bayou Botding, Inc. v. Dr Pepper Co., 725 F.2d 300, 304-05 (5th Cir. 1984).
25. Several courts have established a safe harbor for exclusive dealing agreements that are of short duration or may be terminated on short notice.
26. See, e.g., Roland Mach. Co. v. Dresser Indus., 749 F.2d 380, 395 (7th Cir. 1984) ("Exclusive dealing contracts terminable in less than one year are presumptively lawful under Section 3" of the Clayton Act ); Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162-63 (9th Cir. 1997) (citing Roland Machinery and stating that the "short duration and easy terminability of these agreements negates substantially their potential to foreclose competition"). However, some courts have held that the fact that an exclusive dealing contract is short term may not be determinative if the manufacturer is supplying what is considered an essential product that distributors cannot do without. In such circumstances, bidding for distribution at the expiration of the manufacturer's exclusive distribution contract may not be "open" because distributors may not find it economically practical to drop the manufacturer's products and switch to rival products.
27. See United States v. Dentsply Int'l Inc., 277 F. Supp. 2d 387 (D. Del. 2003), rev'd, 399 F.3d 181, 193-94 (3d Cir. 2005).
28. Coca-Cola Co. v. Harmar Bottling Co., 218 S.W. 3d 671, 676 (Tex. 2006).
29. RJR, 199 F. Supp. 2d at 391. In fact, the court noted that the plaintiff, R.J. Reynolds, entered similar favorable display and shelf space contracts with a large number of retailers. Id. at 375.
30. El Aguila Food Prods. v. Gruma Corp., 301 F. Supp. 2d 612 (S.D. Tex. 2003), aff'd, 131 Fed. Appx. 450 (5th Cir. 2005). The longest agreement referred to by plaintiffs was a two-year commitment granting Gruma exclusivity in the branded tortilla space in a single chain.
31. See Appellants' Brief, EI Aguila Food Prods., Inc. v. Gruma Corp., 131 Fed. Appx. 450 (2004) (No. 04-20125). In emphasizing that supermarket contracts with regard to the shelving of tortillas were continually open for competitive bidding, the court noted that the plaintiffs' loss of shelf space was due to "the plaintiffs' own failure to compete for shelf space on the terms sought by retailers." 131 Fed. Appx. at 453. Consequently, the appellate court concluded that the plaintiffs' loss of shelf space was "a self-inflicted wound." 301 F. Supp. 2d at 621. The court also inferred an absence of foreclosure of rivals from retail distribution from the fact that many small tortilla manufacturers continued to sell products in the face of Gruma's contracts, with some manufacturers continuing to sell their products on shelves next to Gruma's brands, id. at 630, and also that Gruma continued to compete against retailer private label in-store tortilla machines, id. at 624.
32. A majority of the Commissioners, however, clearly were concerned about the potential anticompetitive foreclosure effects of the McCormick contracts on rival manufacturers. The Majority Statement defended the Commission by emphasizing McCormick's market power and the fact that the agreements required retailers to grant McCormick a very large portion of the shelf space devoted to spices. See Statement of Chairman Robert Pitofsky " Commissioners Sheila F. Anthony & Mozelle W. Thompson, McCormick & Co., FTC File No. 961-0050 (Mar. 8, 2000), available at http://www.ftc.gov/os/2000/03/ mccormickrpslamwtstatement.htm. The two dissenting Commissioners, Orson Swindle and Thomas B. Leary, noted that actual secondary-line competitive injury was unlikely because the complaint cited only five instances out of McCormick's more than 2000 contracts where McCormick had charged higher prices to a grocery store than to its competitor stores. See Dissenting Statement of Commissioners Orson Swindle and Thomas B. Leary in McCormick & Co., FTC File No. 962-0050 (Mar. 8, 2000), available at http://www.ftc.gov/os/2000/05/ mccormickswindlelearystmt.htm.
33. Jonathan Jacobson notes that recent exclusive dealing decisions "have looked beyond foreclosure to focus instead on the effect of exclusive dealing in creating, enhancing, or preserving the defendants' market power." Jacobson, supra note 8, at 311.
34. The court concluded that the plaintiffs presented "no evidence quantifying the effect of Coke's CMAs [calendar marketing arrangements] in any relevant market." Harmar, 218 S.W. 3d at 689. The court noted that the economist testifying for the Royal Crown Cola franchisees merely claimed that the calendar marketing arrangements negatively impacted RC Cola sales. "But he offered no opinion on how the CMAs affected price and output in any relevant market as a whole and made no attempt to quantify to what extent, if at all, Coke had foreclosed competition in the relevant markets." Id. at 677.
35. Id. at 700.
36. Id. at 699-703. The dissent notes that the only justification offered by Coca-Cola for its ban on rival advertising, for example, was that "it did not want a competitor's ads covering up its own," a claim the dissent finds incredible given that the advertising ban included newspaper ads as well as in-store signs and circulars. Id. at 703.
37. The fact that each individual supermarket faces a somewhat negatively sloped demand with respect to the package of price, product variety, service, and other characteristics it supplies in competition with other supermarkets does not mean that individual supermarkets possess any antitrust market power in the sense of the ability to affect overall market prices. This distinction between a firm's own elasticity of demand and antitrust market power is described in Benjamin Klein, Market Power in Antitrust: Economic Analysis After Kodak, 3 S. CT. ECON. REV. 43 (1993) (showing that defining antitrust market power in terms of the ability to affect market prices, and not in terms of own elasticity of demand, is consistent with the definition of market power in antitrust law).
38. The following analysis can be generalized to more than two manufacturers.
39. More generally, all of the following statements and analysis can be restated assuming a positive supermarket marginal cost of retailing, with the gap between retail and wholesale prices equal to this marginal cost. Furthermore, the analysis also continues to hold in the more realistic case where retailers face somewhat negatively sloped demands, so that the gap between retail and wholesale prices will be greater than marginal cost. This extra retailer margin, which will remain constant if retailers face a constant elasticity of demand, must then also be added to the wholesale price to obtain the retail price.
40. For a description of the differentiated products Bertrand model, see, for example, ROBERT S. PINDYCK & DAN RUBINFELD, MICROECONOMICS 449-50 (6th ed. 2005).
41. Richard M. Steuer, Customer-Instigated Exclusive Dealing, 68 ANTITRUST L.J. 239 (2000). A recent case of buyer-instigated exclusive dealing is NicSand, Inc. v. 3M Co., dismissed for lack of antitrust standing, 2005 U.S. Dist. LEXIS 43453 (N.D. Ohio Mar. 1, 2005), rev'd, 457 F.3d 534 (6th Cir. 2006), dismissal aff'd, 507 F.3d 442 (6th Cir. 2007). NicSand, a rival supplier of automotive sand paper, claimed that 3M's up-front and price discounts to large retailers, such as Autozone, Kmart, and Wal-Mart, in return for exclusive dealing amounted to anticompetitive monopolization. However, "[a]ccording to Nic-Sand's own complaint, all but one of the large retailers made exclusivity a condition for doing business with a new supplier.... If retailers have made supplier exclusivity a barrier to entry, one cannot bring an antitrust claim against a supplier for acquiescing to that requirement." 507 F.3d at 454.
42. Steuer, supra note 32, at 239.
43. Id. at 239-40.
44. Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346 (1922). The case is analyzed in Klein & Lerner, supra note 7.
45. This explains the price differences across purchasers present in In re Brand Name Prescription Drugs Antitrust Litigation, 867 F. Supp. 1338 (N.D. 111. 1994), rev'd, 123 F.3d 599 (7th Cir. 1997), and the competition for the preferred formulary position in J.B.D.L. Corp. v. Wyeth-Ayerst Laboratories, 485 F.3d 880 (6th Cir. 2007). Kenneth G. Elzinga & David E. Mills, The Distribution and Pricing of Prescription Drugs, 4 INT'L J. ECON. BUS. 287 (1997), similarly analyzes these economic forces with a model of drug pricing that assumes exclusivity increases the degree of substitutability between two branded drugs within a therapeutic category and lowers price. But the model does not elucidate how exclusive dealing accomplishes this in terms of the ex ante versus ex post competitive forces we have described. Because the drug benefit is commonly part of a consumer's health insurance associated with the consumer's employment, and most consumers are unlikely to switch jobs when their preferred drug in a therapeutic category is not the preferred drug in the pharmacy benefit manager's formulary, a significant degree of consumer loyalty is likely to exist that permits these competitive forces to operate. In addition, the Elzinga & Mills model solely considers price changes in determining welfare effects, implicitly assuming that no consumers are made worse off by not obtaining their preferred drug. In contrast, in Part IV infra we consider the more realistic case where some consumers may be made worse off by exclusivity because of the inability to obtain their preferred brand. We explain how partial exclusivity contractual arrangements, analogous to the use of increased co-pays for drugs not included on the preferred drug formulary, are commonly adopted in competitive markets as a way to mitigate these effects by permitting consumers who have a strong preference for alternative brands the option to purchase such brands. Employers adopting drug insurance plans, similar to retailers choosing products to stock, trade off lower drug prices with potential lost consumer surplus from reduced drug choice.
46. Similarly, few consumers will choose a theme park or a particular school to attend (or to a somewhat lesser extent a particular fast food restaurant to frequent) because the exclusive line of soft drinks served does not include their preferred brand. In general, as consumer loyalty to a particular retailer increases, the retailer's ability to shift sales to a chosen manufacturer without any significant loss of sales increases, and hence the prevalence of exclusive dealing contracts, can be expected to increase.
47. If the seller faces a constant elasticity demand, retail prices will decrease by more than any negotiated wholesale price decrease; if the seller faces a linear demand, retail prices will decrease by half of any negotiated wholesale price decrease.
48. Supermarkets may prefer shelf space payments in the form of a per-unit-time slotting payment because it provides increased pricing flexibility across products. In particular, a per-unit-time payment may more easily be used to reduce the prices of products that have greater inter-retailer competitive demand effects.
49. See Klein & Wright, supra note 9.
50. On the other hand, if there is a significant group of consumers who are indifferent between the brands, say, if relative preferences were essentially flat within the broad middle of the Figure 1 distribution so that demand was highly elastic within this range, ex post competition would lead to a relatively low price and ex ante competition for exclusive shelf space may not be necessary to obtain low wholesale prices.
51. In return for exclusivity, McCormick compensated supermarkets with discounted "deal rates" off list prices and other retailer promotional payments, including up-front cash payments, free goods, off-invoice discounts, cash rebates, performance funds, and other financial benefits. McCormick & Co., FTC File No. 961-0050, Complaint ¶12 and Setdement Agreement (Feb. 3, 2000). McCormick's spice products were sold under a variety of brand names, including McCormick, Schilling, Fifth Seasons, Spice Classics, Select Seasons, Mojave, Spice Trend, Royal Trading, Crescent, McCormick Schilling, La Cochina de McCormick, McCormick Collection, and Old Bay. Id. Complaint ¶ 3.
52. The calendar marketing contracts that were the subject of Harmar have been utilized widely throughout the soft drink industry by Coke, Pepsi, and other competitors over time. In fact, a Coca-Cola bottler unsuccessfully challenged Pepsi-Cola's use of such agreements in Louisa Coca-Cola Bottling Co. v. Pepsi-Cola Metropolitan Bottling Co., 94 F. Supp. 2d 804 (E.D. Ky. 1999).
53. A complication present in Harmar is that Coca-Cola generally purchased shelf space with a single wholesale price discount and a single lump-sum payment that applied across all its soft drink brands. The Coca-Cola bottler then allocated the purchased shelf space among its brands. Although Coke did not receive more shelf space for its products than its overall share of the carbonated soft drink market, the plaintiffs argued that when the botder allocated shelf space to Coke's slower-selling soft drink products, such as Barq's Root Beer and Minute Maid grape drink, these products received more shelf space than their corresponding share of sales (and sometimes left little space available for competing soft drinks in these categories). Coca-Cola Co. v. Harmar Botding Co., 218 S.W. 3d 671, 677 (Tex. 2006). A similar concern was the focus of an EU investigation of Coca-Cola's shelf space payment practices. Coca-Cola's 2004 Undertaking with the European Commission limited the share of a retailer's shelf space dedicated to carbonated soft drinks that Coca-Cola could contract for to five percentage points less than Coca-Cola's market share of the carbonated soft drink market (a level not exceeded historically by Coca-Cola). But the Undertaking also limited the ability of Coca-Cola to offer rebates on its Coke products as a way to purchase shelf space for its other, weaker selling products. Undertaking at Case Comp/A39.116/B2-Coca-Cola (Oct. 19, 2004), available at http://europa.eu.int/comm./competition/antitrust/ cases/decisions/39116/tccc-final-undertaking041019. pdf. Requiring separate price discounts on each product is likely to be inefficient because it results in prices of the slower-selling products relative to marginal cost that are substantially below the price of Coke relative to marginal cost. Consequently, Coca-Cola could earn more profit and consumers also would be better off if Coca-Cola shifted price discount shelf space payments and incremental sales from its slower-selling products to Coke. The procompetitive efficiencies of bundled pricing as a way to pay for shelf space in these circumstances are analytically related to the analysis in Barry Nalebuff, Bundling as anEntry Barrier, 119 Q.J. ECON. 159 (2004), and are analyzed in Benjamin Klein & Andres V. Lerner, The Law and Economics of Bundled Pricing: LePages, PeaceHealth and the Evolving Antitrust Standard, ANTITRUST BULL, (forthcoming).
54. Refrigerated soft drinks were handled separately in some of Coca-Cola's contracts by explicidy requiring retailers to display Coca-Cola's products in refrigeration units solely at "thigh-to-eye level" and not to include rival products in refrigeration units located near a store checkout area. Id. at 677. A significant fraction of refrigerated soft drinks can be expected to consist of promotion-induced "impulse sales" by thirsty consumers who see the product and decide to make a purchase. Such exclusive promotional refrigerated shelf space contractual arrangements therefore have the same ability to share-shift sales across brands, producing the same competitive advantage of lower wholesale prices, and ultimately lower retail prices.
55. The RC Cola bottler plaintiffs in Harmar claimed that this pricing requirement amounted to a per se price fix of rival product prices because the requirement sometimes led to higher RC Cola prices. But, more commonly, the requirement led to lower Coke prices and Coca-Cola offered evidence that overall carbonated soft-drink prices were generally lower as a result of calendar marketing agreements. Id. at 676-77.
56. This is why many end-cap promotional arrangements contractually require the retailer to pass on a particular percentage of the wholesale price discount in a lower retail price and also may require a particular retailer volume commitment and cooperative advertising of the special price. See U.S. Department of Justice interview with a supermarket purchasing agent, available at http://www.usdoj.gov/atr/foia/frito-lay/5-19-96.pdf at 6, 7;
57. see also RUSSELL S. WINER, MARKETING MANAGEMENT 314 (3d ed. 2007).
58. R.J. Reynolds Tobacco Co. v. Philip Morris, Inc., 199 F. Supp. 2d 362 (M.D.N.C. 2002).
59. Retail Leaders involved four different retailer "participation levels" corresponding to both the magnitude of Philip Morris payments and the amount of advantageous display space provided to Philip Morris. Id. at 370. The arrangement, therefore, was similar to the market-share discount contracts analyzed in Tom et al., supra note 6.
60. RJR, 199 F. Supp. 2d at 369.
61. Id. at 370. In terms of signage, however, the court found early in the litigation that Philip Morris controlled signage on the plaintiffs' portion of the industry fixture and issued a preliminary injunction that limited Philip Morris signage to its market share. Id. at 371.
62. Id. at 369.
63. Id. at 370.
64. Peter Bronsteen, Kenneth G. Elzinga & David E. Mills, Price Competition and Slotting Allowances, 50 ANTITRUST BULL. 267 (2005), show that after Philip Morris instituted its promotional shelf space program, the retail prices of Philip Morris brands fell relative to the price of rival brands. In addition to buying promotional display space with its wholesale price discounts, Philip Morris's profit-maximizing price may have decreased because it was focusing on increasing sales to more elastic consumers who could be influenced to switch cigarette brands in response to this promotion. This would be expected if pricing and promotion were complementary. See discussion supra note 46, where manufacturers for this reason may contractually require retailers to use promotional payments to lower retail prices. 5
65. El Aguila Food Prods, v. Gruma Corp., 301 F. Supp. 2d 612, 615 (S.D. Tex. 2003). Although product shelf space allocation was determined in the first instance by Gruma's recommendations, the supermarkets had ultimate authority regarding shelf placements. Therefore, while the plaintiff rival tortilla manufacturers complained that they had little or no input in the category design and were placed in unfavorable shelf positions, they admitted that the retailers, not Gruma, approved the shelf placements. Id. at 615 n. 5.
66. The economics of category management contracts presented here is adopted by Joshua Wright in analyzing the competitive effects and antitrust significance of the United States Tobacco Company's behavior in implementing its category manager contracts that was the subject of Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768 (6th Cir. 2002). Joshua Wright, An Antitrust Analysis of Category Management: Conwood Co. v. United States Tobacco Co., 17 SUP. CT. ECON. REV. (forthcoming 2009).
67. For example, "the manufacturer may know things like the times of year when a product will sell best, the kind of promotions that are most effective in moving the product, or the kinds of complementary goods that might be advantageously displayed in adjacent space." FTC Report, supra note 15, at 48. This is the primary rationale for category management contracts presented in the marketing literature.
68. See, e.g., Debra M. Desrochers, Gregory T. Gundlach & Albert A. Foer, Analysis of Antitrust Challenges to Category Captain Arrangements, 22 J. PUB. POL'Y & MKTG. 201, 207 (2003). This may be a particularly important consideration when the product involves a hit-driven business, such as CDs or video games, and it is uncertain at the time of contracting what the particular desirable shelf space share for any manufacturer should be. Such a rationale, however, does not appear to apply to the sale of tortillas.
69. In either case the implicit promise underlying the shelf space contract is self-enforced, with transactors relying on termination of the relationship when non-performance is perceived to be occurring. See Klein & Leffler, supra note 2.