The Antitrust Revolution: Economics, Competition, and Policy

By John E. Kwoka Jr.; Lawrence J. White | Go to book overview

CASE 13
Revisiting Maximum Resale Price
Maintenance: State Oilv. Khan(1997)

Gustavo E. Bamberger


INTRODUCTION

State Oil, a distributor of gasoline, entered into a three-year gasoline supply agreement with Barkat Khan in January 1992. By the terms of the supply agreement, Khan was required to purchase all of his gasoline from State Oil. The supply agreement also effectively established the maximum retail price that Khan could charge for gasoline. After Khan's business failed, he sued State Oil, claiming that the supply contract constituted an illegal maximum vertical price-fixing agreement.

The dispute between Khan and State Oil eventually reached the Seventh Circuit Court of Appeals and the Supreme Court. The court of appeals ruled that State Oil's contract with Khan was illegal under the appropriate Supreme Court precedent from 1968, Albrecht v. Herald Co., 390 U.S. 145. But the court of appeals strongly criticized the 1968 decision, and encouraged the Supreme Court to overturn it. The Supreme Court took the opportunity presented to it by the State Oil–Khan dispute to reexamine Albrecht, and agreed with the court of appeals that the earlier case had been decided incorrectly. As a result, Albrecht was overturned, and contracts between a distributor and a retailer that specify a maximum retail price are no longer always illegal.

Antitrust claims in the United States are decided under one of two standards, typically referred to as “per se” or “rule-of-reason.” Although in practice the distinction between per se and rule-of-reason offenses often is

Bamberger submitted an expert report on behalf of Khan. The author thanks John Kwoka and
Lawrence White for their helpful comments.

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