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Court allows price ceilings, case by case

In a decision that could reduce what consumers pay for such products as cars, gasoline, beer and newspapers, the Supreme Court ruled Tuesday that manufacturers and suppliers can set ceilings on the retail prices charged by their dealers.

By a 9-0 vote, the court said such price ceilings would not necessarily violate federal antitrust law. It was the first time the court had carved an exception to the general ban on price fixing.

The justices overturned a much-criticized 1968 precedent that made such maximum price setting illegal in every instance. From now on, the court said, each case will be judged on whether it restricts competition.

It was a victory for producers and wholesale distributors of various products, who had sought greater control over their retail outlets. They predicted that the Supreme Court decision would benefit consumers.

Some antitrust specialists disagreed, saying price ceilings could easily become floors.

The decision did not disturb longstanding bans on price fixing among competitors or agreements between suppliers and retailers to set minimum retail prices. Those schemes remain illegal.

Oil companies, automakers, beer wholesalers and newspaper publishers, among others, complained to the court that their inability to enforce maximum retail prices allowed dealers to mark up retail prices, thereby decreasing sales and hurting consumers.

General Motors Corp., Ford Motor Co. and Chrysler Corp., joined by major foreign carmakers, said price ceilings "can both hold down consumer prices and intensify interbrand competition among automobile manufacturers."

Publishers said newspapers suffer "losses in circulation and eventually advertising revenue" when their distributors charge excessive prices.

The 1968 precedent struck down Tuesday was a case in which the court rejected a publisher's similar argument that price ceilings were needed to prevent price gouging by dealers who had exclusive territories.

This time, the Supreme Court endorsed that argument and rejected the fears of dealers and 33 state governments that any relaxation of the uniform ban on price fixing would hurt retailers and consumers.

Writing for the court, Justice Sandra Day O'Connor noted that federal antitrust law is intended to protect competition and consumers. Quoting from an earlier case, O'Connor declared: "Low prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition."

Consequently, she said, the justices found it "difficult to maintain that maximum prices could harm consumers or competition to the extent necessary to justify (an absolute ban)."

Some critics of the decision warned that maximum prices could easily be used to disguise unlawful schemes that hurt consumers by keeping prices artificially high.

O'Connor's opinion recognized that danger. But she said it could be punished under a "rule of reason," which replaces the discarded absolute ban on maximum pricing.

Under that rule, lower courts are instructed to examine the history, nature and effect of a questionable pricing arrangement, then decide whether it imposes "an unreasonable restraint on competition."

The case decided by the Supreme Court involved a dispute over a lease agreement between State Oil Co. and Barkat Khan, operator of a Unocal 76 gas station in a Chicago suburb.

The agreement required Khan to set retail prices for gasoline at 3\ cents a gallon above the wholesale price. If Khan charged more, he was obligated to refund the increased revenue to State Oil.

Khan filed suit and won a federal appeals court ruling that held State Oil's price fixing to be illegal. State Oil appealed, arguing that setting maximum prices, unlike fixing minimum prices, encourages competition and prevents price gouging.