The effect of this ruling was to severely limit the resale restrictions. Restrictive distribution policies, which had been practiced routinely by many firms for years, were now open to attack as violations of the Sherman Act. Yet some ten years earlier. in 1977, another landmark Supreme Court Case (Continental TV Inc. et al GTE Sylvania Inc.) overturned the Schwinn case "per se" doctrine and essentially restored the rule of reason doctrine to govern the use of resale restrictions. The court ruled that resale restrictions are not necessary anticompetitive if competition is viewed in a broader perspective. The court argued that resale restrictions can have "redeeming virtues" by promoting interbrand competition (competition between distributors in the sale of branded products of competing manufacturers), including fostering new companies and new pro- ducts. Further, by inducing competent and aggressive retailers to undertake new efforts and offer special services and promotions, marketing efficiency can be improved and smaller firms can be aided in competing with larger ones. In sum, the court's position was that while resale restrictions might limit intrabrand competition they could foster interbrand competition.
Even with the ruling in GTE Sylvania however, the legality of resale restrictions is still in the air. The court left the door open for action e restrictions if such resale restrictions have a "demonstrable economic effect. Agreements whereby supplier sells a product to a channel member that the channel member also purchase another product a well. or at least agrees not to purchase that product from any other supplier. are known as tying agreements. Full line forcing, discussed earlier special case of tying agreements Tying agreements.
Tying agreements put the supplier in a very advantageous position with respect to the channel members with whom the arrangement has been made. The supplier has a great deal of pricing leverage over the channel member since the channel member must accept tied products in order to obtain other products. In addition the channel member free to purchase the tied products on the open market. In effect, the suppliers ion to dictate the terms of sale. By far the most high-profile case of a tying arrangement that broke antitrust legislation involved Microsoft's Internet browser software. Microsoft tied or "comingled" its Internet Explorer browser software into its Windows operating system. So, computer manufacturers such as Compaq, Dell. Hewlett-Packard and IBM and virtually all other personal computer makers that used the Windows operating system (with the exception of Apple Macintosh) would have to take Microsoft's Internet Explorer Because Microsoft's Windows operating system was used to run 95 percent of the world's PCs, it clearly had a monopoly in operating systems. By inextricably tying it’s In internet Explorer browser a part of Windows, Microsoft had an unfair advantage over browsers such as Netscape Communicator, which many experts argued was the originator of the point-and-click interface that made surfing the Internet so practical cape argued in a lawsuit against Microsoft (which was later joined by the Federal Trade Commission and the Justice Department), that Microsoft's tie-in of Internet Explorer to Windows severely limited Netscape's ability to include its browser in PC operating systems. Indeed, Netscape argued and the Justice Department concurred that Microsoft did everything in its power to limit competition from Netscape, such as making
it difficult to access Netscape via the Windows operating system even when the PC manufacturers included Netscape in the software bundle built into the PC. After going through the courts for over three years, the Justice Department found that Microsoft was operating as a monopolist by tying its Internet Explorer browser so closely to Windows and was therefore in violation of antitrust laws,
Vertical Integration Firms that own and operates organizations at other levels of the distribution channel (for example, a manufacturer owning and operating its own whole engaged in vertical integration. Vertical integration sailing facilities and retail stores) is practiced by a number of manufacturers in a variety of industries, such as Goodyear and Firestone in tires and Sherwin-Williams in paints Vertical integration can occur as a result of growth and evolution of the firm, whereby the firm decides to expand its organization to include wholesale and retail facilities. The reasons for doing so are often based on the firm's desire to gain scale economies and a high degree of control, which it believes vertical integration can offer. For example, Walt Disney Company bought Capital Cities/ABC Inc. in order to ensure a secure distribution system for the shows it produced however, vertical integration can also occur through acquisitions of and mergers with other firms at different levels of the channel. A manufacturer, for example, may acquire or merge with a wholesale or retailing organization Under the Celler-Kefauver amendment to the Sherman Act, such vertical integration by acquisition and merger is subject to antitrust action if the acquisitions or mergers tend to substantially lessen competition or foster monopoly. This can happen when the vertical integration occurs in a highly concentrated industry, thus eliminating an important source of supply to independent firms or significantly reducing the opportunity for competitive firms to reach the market. For example, a merger between Brown Shoe Company, a major shoe manufacturer, and Kinney Shoe Corporation, a former independent chain of retail shoe stores in e United States, was ruled illegal by the Supreme Court because the margrave prevented other shoe manufacturers from selling through Kinney.