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Vertical Maximum Price Fixing Not Per Se Illegal; Albrecht Overruled
Description Gasoline retailer sued gasoline distributor for controlling maximum retail price. Court overruled Albrecht decision that had held such practice to be per se illegal price fixing, noting that in most cases consumers benefit from such price restrictions, so long as the practices are not predatory.
Topic Antitrust
Key Words Vertical Maximum Price Fixing, Per Se, Rule of Reason
C A S E   S U M M A R Y
Facts Khan leased a gas station from State Oil. The agreement required Khan to buy gas at a retail price set by State Oil. Khan would keep a margin of 3.25 cents per gallon. If he charged more than the suggested retail price, the excess would be paid to State Oil. If Khan charged less than the suggested retail price, the difference came out of his 3.25 cent margin. When Khan's lease was terminated for failure to make payments, he sued State Oil for price fixing in violation of 1 of the Sherman Act by preventing Khan from raising or lowering retail gas prices. The Seventh Circuit held that under the Albrecht decision of 1968, which was "unsound," it was required to find State Oil's practice to be a per se antitrust violation. State appealed.
Court Decision Reversed. "Albrecht should be overruled." Vertical maximum price fixing is no longer a per se violation of the Sherman Act. Low prices benefit consumers regardless of how those prices are set; so long as they are above predatory levels, they do not threaten competition. The rule of reason will now be used in such cases.
Citation State Oil Co. v. Khan, 118 S.Ct. 275 (1997)

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