The Antitrust Revolution: Economics, Competition, and Policy

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

CASE 15
Retailer-Instigated Restraints on
Suppliers' Sales: Toys “R” Us (2000)

F. M. Scherer


INTRODUCTION

During the early 1990s Toys “R” Us1 (hereafter, TRU), by a considerable stretch the largest retailer of toys in the United States, persuaded leading toy manufacturers to restrict the range of products they sold to warehouse clubs—a newly-emerging form of consumer goods retailing. The restrictions were challenged under the antitrust laws by the Federal Trade Commission (FTC) in May 1996.2 The extensive litigation that followed clarified in important ways the kinds of “vertical restraints” a retailer could impose upon its suppliers and the role of efficiency defenses, and especially claims of free-riding on services provided by the retailer, in justifying such restraints.


INNOVATION IN RETAILING

The tensions that arose among TRU, warehouse clubs, and toy manufacturers during the 1990s were a natural sequitur from the several revolutions that occurred in retailing during the prior century and one-half (Chandler 1977, chs. 1 and 7; Adelman 1959; and Scherer 1999).

As the United States emerged from its great Civil War, most consumer goods were provided at retail by general stores or “mom and pop” stores.

1The company's logo prints the “R” backward, which is not easily accomplished in type-set publi-
cations. We use quotation marks to note that our usage is not strictly accurate.

2In the matter of Toys “R” Us, Inc., docket no. 9278. The author was testifying expert economist
on behalf of the Federal Trade Commission.

-373-

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