GTE, in an attempt to regain its competitiveness selling televisions, radically redesigned its sales structure and switched to a franchising scheme. GTE restricted the amount of franchises and the areas to which each franchise could sell in an effort to curtail intrabrand competition. When Continental (a franchisee) conflicted with these restrictions and its franchise was terminated, it alleged a Sherman § 1 violation.
The Court refused to distinguish Schwinn and overruled it, abandoning a distinction between sale and non-sale vertical restrictions that it declared meaningless. Using modern economic analysis, it determined that restrictions on intrabrand competition would be analyzed under the rule of reason, following White Motor.
- This is the one decision where the beginning of the Chicago school influence can be spotted. The Court abandoned non-economic goals and began a movement away from categorical per se rules and towards the rule of reason.
- Restrictions on intrabrand competition can increase interbrand competition by forcing franchises and other distributors to incorporate promotional activities, provide service and repair facilities, or engage in other activities necessary to the efficient marketing of the manufacturer’s products. These restrictions prevent some retailers from free-riding off the promotional activities of others (prevents discounters).
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