Supreme Court Weighes in on Joint Ventures and Price Fixing

by Lee Gesmer on May 3, 2006

Antitrust. While most people don’t know a lot about antitrust law, they do know that price fixing is illegal. And, if you asked them whether two large oil companies, such as Texaco and Shell, could form a joint company to sell oil throughout the western U.S. at a single price, they’d probably say that the “joint venture” was a technicality, and that it was no different than if Texaco and Shell got together and decided to sell gas at the same price individually.

Well, the Supreme Court would not agree. In Texaco v. Dagher [link] a case decided earlier this year, the operators of 23,000 service stations selling under the Texas or Shell brands of gasoline challenged the western states joint venture of the two giant oil companies for marketing gasoline, with the product still sold under both the Texaco and Shell brands but at the same price.

The Court held that such a joint venture is not “per se” illegal (illegal on its face and indefensible), because Texaco and Shell did not compete directly in the market, but participated jointly through their investment in the joint venture corporation. “As such, though [the joint venture’s] pricing policy may be price fixing in the literal sense, it is not price fixing in the antitrust sense,” wrote Justice Thomas.

This case is important law for joint ventures — it gives parties the confidence they need to price their products in the same manner as a single firm. However, the case leaves open the extent to which the Sherman Act’s ban on restraints of trade applies to joint ventures under the “rule of reason,” which looks at the competitive impact of the challenged practice.

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