baye kodak case 6e

Topics: Photographic film, Supply and demand, Eastman Kodak Pages: 11 (5717 words) Published: December 30, 2014
Kodak Appeals to Court to Terminate 1921 and
1954 Decrees that Restrict Pricing Policies

Michael Baye and Patrick Scholten prepared this case to serve as the basis for classroom discussion rather than to represent economic or legal fact. The case is a condensed and slightly modified version of the public copy of the DOJ's Brief filed in Appeal to the District Court's decision in November 24, 1994 to terminate prior antitrust decrees which restricted Kodak's pricing policies. No. 94-6190.

Kodak’s History
George Eastman and his Eastman Kodak Co. pioneered amateur photography. In a 1921 consent decree1, the government concluded that Eastman Kodak monopolized the amateur photography market in violation of the Section 2 of the Sherman Act by buying competitors and imposing various forms of exclusive dealing contracts on retailers. The 1921 decree barred Kodak from "preventing dealers ... from freely selling goods produced by competitors," from hindering dealers in freely selling Kodak products, and from selling "socalled fighting brands" or any product without the Kodak name on it.2 Kodak began to market a color slide film called Kodachrome in the late 1930s, and a color print film, Kodacolor, by 1954. At that time, it had over 90% of the color film market. Since Kodak sold its color film only as a package deal with processing included in the price, it also had over 90% of the color photofinishing market. The tying arrangement resulted in a government antitrust suit and a consent decree in 1954. The 1954 decree permanently enjoined Kodak from "[t]ying or otherwise connecting in any manner the sale of its color film to the processing thereof, or the processing of its color film to the sale thereof".3


The district court's opinion finding that Kodak had violated Section 2 of the Sherman Act is reported as United States v. Eastman Kodak Co., 226 Fed. 62 (W.D.N.Y. 1915). The court entered a decree the following year. United States v. Eastman Kodak Co., 230 Fed. 522 (1916). While Kodak's appeal to the Supreme Court was pending, the parties reached a settlement subsequently embodied in the 1921 decree. The appeal was dismissed. 255 U.S. 578 (1921).

The decree also required Kodak to divest--as it did--several acquired firms. 3
The decree also included certain affirmative requirements, which have now expired, for Kodak to license its photofinishing processes and to provide technical assistance to any person seeking to establish a photofinishing business (J.A. 116-21). Managerial Economics and Business Strategy, 6e

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Kodak's Current Market Position
Five firms manufacture all the amateur color negative film sold in the United States: Kodak, Fuji, Konica, Agfa, and 3M. Although "there is little, if any, difference in the quality of film manufactured by Kodak, Fuji, Konica, and Agfa" in the United States, Kodak greatly outsells its rivals and commands a substantially higher price. According to the court, Kodak accounts for about 75% of film sales in dollar terms, and about 67% of unit sales. Worldwide, it accounts for 36% of sales. As would be expected given Kodak's share in the United States, almost all 241,000 major film retailers, such as mass merchandisers (e.g., K Mart), food and drug stores, and camera specialty shops, carry Kodak film. By contrast, only about 71,000 outlets carry its nearest rival, Fuji, although they include the stores that sell a majority of the film in the country. Fuji's prices are about 10% lower than Kodak at the wholesale level.4 The other films are available at even fewer stores,5 and their prices are much lower than Fuji's. Kodak can greatly outsell its rivals despite charging a higher price primarily because 50% of consumers in this country will buy only Kodak film regardless of price, and another 40% prefer Kodak. Another relevant factor is that Kodak provides rebates to dealers who sell extra (or only) Kodak film.6

Kodak not only sells far more film here than its...
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