In 1984, the demand for this kind of thermostatic control unit was high in relation to the industry’s production capacity. Between 1985 to 1987, several appliance companies, including the General Appliance Corporation, built or expanded their own facilities to produce this unit so that, by the middle of 1987, the production capacity of the independent companies considerably exceeded the demand. One of the results of this situation was a declining price level. Prices of the Monson Controls Corporation had been as follows:
As a result of these price reductions, which the Electric Motor Division had met, the profits of the Electric Motor Division on this product had dropped from a before-tax profit of 15 percent on its investment in 1984 to nearly zero in 1987.
In August 1987, after being told it could no longer supply the Refrigeration Division, the Monson Controls Corporation reduced its price to the Refrigeration Division by 25 cents, retroactive to July 1. The price reduction was not reflected immediately in the intracompany price because the three divisions involved had agreed to use $2.40 for the entire year
In October 1987, the Electric Motor Division and the Refrigeration Division were negotiating 1988 prices. The Refrigeration Division proposed a price of $2.15, the price paid to the Monson Controls Corporation. The Electric Motor Division, however, refused to reduce its prices below $2.40 to either the Refrigeration Division or the Laundry Equipment Division. After several weeks of negotiations, the disagreement was submitted to the finance staff for settlement.