An Evaluation of Wholesaler Accuracy in Judging the Legality of Selected Activities

By Peterson, Robin T. | Journal of Business Strategies, Fall 2000 | Go to article overview

An Evaluation of Wholesaler Accuracy in Judging the Legality of Selected Activities


Peterson, Robin T., Journal of Business Strategies


Abstract

Wholesalers are subject to a wide variety of edicts at the federal, state, and local levels. This paper sets forth the results of an inquiry into the degree of knowledge held by a sample of wholesalers with regard to various major federal laws. A mail survey requested respondents to indicate their degrees of belief in the legality of a number of commercial practices. An analysis of the results, in total and by size of firm, resulted in various conclusions on perceptions of legality in this sector.

Background

The inquiry pursued in this paper assesses the degree to which wholesale managers are familiar with important federal laws. The paper addresses the importance of this topic and highlights some wholesale activities that are especially vulnerable to regulation. In addition, it discusses changes in the regulations and the status of small wholesalers as regards the law. In addition, it looks at the importance of the topic to manufacturers. Finally, it presents an empirical analysis of managerial cognizance of the federal laws.

Wholesaler knowledge of federal law is a topic that deserves study. Are these managers aware of the constraints which legislators place upon them? It is possible that many are not aware of the depth of their knowledge regarding this subject and mistakenly believe that they can judge which practices are compatible with the law and which are not. If this were the case, these managers are rendering themselves vulnerable to possible prosecution and a number of corollary consequences. It follows that wholesale managers could benefit by becoming aware of the state of their legal knowledge; in relation to federal regulation.

Wholesalers are an essential component of many marketing channels. Manufacturers, retailers, and industrial buyers have found that these entities are required because they perform a variety of necessary functions both effectively and efficiently. Manufacturers who utilize wholesalers in the channel should be aware of legal problems that can materialize in the process of employing these intermediaries for distribution and related functions. If wholesale managers are violating the law, they may involve their suppliers in lawsuits and find that these activities must be altered, due to unexpected legal edicts. Hence, it is in the interest of manufacturers that wholesale managers be familiar with the law.

Wholesalers are confronted with a robust and expanding volume of federal regulations which affect their activities. The regulations have an impact on an extensive number of the strategies and tactics which the enterprise might undertake. There are restrictions on advertising, personal selling, sales promotion, hiring and promoting employees, dealing with suppliers, collusion with rivals, pricing, and numerous other activities (Wiesendanger, 1993; Apaiwongse, 1993). An especially consequential area of the law relates to price fixing. A multi-state plumbing wholesale firm, for instance, was charged with engaging in a conspiracy to suppress and restrain competition by raising, fixing, and maintaining prices for the sale of wholesale plumbing supplies ("Price Fix in Texas," 1995). Legal expenses for the firm were almost a million dollars and the court ruled against the defendant company.

Alterations over time in the laws and in the ways they are implemented obfuscates the regulatory climate (Department of Justice, 1992; Hunter, 1993). These changes require wholesalers to continuously moniter new regulations which federal authorities might adopt or have already brought into play (Hollander & Popper, 1994; Siebert, 1992). Some recent court rulings, for example, have illustrated that interpretations of what constitutes damages to a wholesaler under the Robinson-Patman Act have been amended with the passage of time ("Failure to Show," 1995).

Managers who work for smaller wholesalers are confronted with an especially severe burden (Heide, 1994). …

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