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IO PROJECT -- TOYS R US

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by

charles hahn

on 21 July 2014

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Transcript of IO PROJECT -- TOYS R US

"R"
US
TOYS
Post Trial
Horizontal Boycott
"R"
Toys
Thank you for
your attention!

"LOCK"
OUT
COMPETITION
Anshika Verma
Bipul Ekka
Dan Allen
Kevin Patel
Charlie Hahn
FTC


CHallengeS

TOYS

"R"

US

The FTC
Us
Evolution in Retailing
"mom and pop" stores
department stores &
mail-order houses


Ex: Sears, Roebuck
chain stores
Ex: Walgreens

hypermarkets
Ex: Walmart
category chains
Ex: Home Depot
led to:
percentage retail margin
(PRM)
reduced prices for consumers
1st category killer discount chain
Warehouse Clubs
rise of
Broad line of toys
TOYS "R" US
felt threatened
low PRM
set prices inversely with popularity
NY TOY FAIR 1992
policy towards manufacturer sales to warehouse clubs
penalty for violation
ANTITRUST CHALLENGE
Problems with Defense
Trial OUtcome
informed FTC.... formal complaint 1996
FTC found Toys "R" Us
violated
antitrust laws
warehouse clubs threatened legal action
restriction
Vertical Restraints
Market Power
claimed unilateral (actually bilateral)
violated sherman act, section 1
Toys "R" Us as "hub and spoke"

inference of illegality
3 methods show market power existence
structure oriented
relationship b/t prices and market share
effect of restrictive actions on market outcomes
FTC concluded "there is little question the boycott of warehouse clubs
could
and
did
lower output....."
(TRU)
Free Riding Defense
Free Rider Problem:

i.e.
consumers visit Toys "R" Us and "use" its demonstration services...
but purchase items at different firm for discounted price
to get toys earlier than other toy sellers
Toys "R" Us called the free rider problem as defense
smaller sellers complained it was unjust
Toys "R" Us Deal
most products were not demonstrative at store
90% of TRU's advertising outlays reimbursed by manufacturer
prices were competitive with other discount retailers
The Facts
FTC research shows TRU made profits from advertisements
rejected free-rider defense
TRU sought individual ruling
outcome still same
found violation in vertical restraints and horizontal collusion
settlement: TRU and other manufacturers pay $56 million
nowadays, Walmart leads toy sales
not allowing consumers to compare prices
hang in there,
presentation is
almost over!
last slide!
yay!
reduction in
Full transcript