In 1983, the U.S. Justice Department agreed to drop a consent decreethat it had
ID: 2441276 • Letter: I
Question
In 1983, the U.S. Justice Department agreed to drop a consent decreethat it had extracted from Safeway (a big grocery store chain) in the 1950s. Please look up the meaning of a “consent decree”.
Background: Years ago, the consent decreeprohibited Safeway from selling its goods at “prices below the cost” of acquiring grocery products or at “unreasonably low prices” that might be below cost. The decree stemmed from a government suit that had accused Safeway of selling below cost in an effort to monopolize the market for retail food in Texas and New Mexico. In other words, the Justice Department, through the consent decree, wanted Safeway to sell at prices that are above costs.
6a. How likely is it that Safeway or anyone else would be able to monopolize the market for retail food in two states when prices are below costs?
6b. The alleged attempt to monopolize led Safeway to reduce prices to customers. Who do you suppose complained to the Justice Department about Safeway’s behavior?
6c. Do you think that years ago Safeway fought the US Department of Justice against the consent decree?
Explanation / Answer
a.) With the drop in the consent decree that prohibited the safeway from selling its goods at the prices below costs
Monopoly Pricing in Retail Food Market:-
The Provision of Selling below Costs in an attempt to monopolize the retail food markets and practice of predatory pricing to eliminate the rival is highly possible on the account of lower costs of production by the retail giant such as Safeway in Texas and Mexico. The Monopoly Competition is characterized by the presence of the larger Economies of Scale in Production, Lower Marginal Costs and setting Price greater than Average Variable Cost .
b) The Domestic Producers in both the Countries Safeway and Texas must have complained the Government or the Justice Department about the monopoly behavior of Safeway in Texas and Mexico who might have suffered on account of increased competition, reduction in selling of their products and elimination of profits .
c) Yes, The Safeway might have fought the case against U.S. department of Justice for dropping of consent decree that prohibited the Safeway for selling the products at price below the average costs .Follwing the strict action against its practice the safeway might have increased the prices in both the markets of Texas and New Mexico which markedly led the justice department to revocate its earlier decision of curbing the competition till followed by the constent decree .On revocation of this consent decree the Safeway resumed its normal selling process in both the countries.