Case Study: KODAK APPEALS TO COURT TO TERMINATE 1921 AND 1954 DECREES THAT RESTRICT PRICING POLICIES

1A. What are the decrees affecting Kodak’s actions?

The decrees affecting Eastman Kodak are the 1921 and 1954 consent decrees. A consent decree is a court order to which all parties have agreed. It is often done after a settlement between the parties that is subject to approval by the court (Legal Information Institute, n.d.). Consent decrees are mutually binding agreements between two parties, and are sometimes referred to as consent orders (“What Are Consent Decrees?”, 2017).

1B.    Why were they put into place?

The Eastman Kodak Co.was said to have been in violation of the Sherman Act (Section 2).

According to U.S. Department of Justice, section 2 of the Sherman Act, makes it unlawful for any person to "monopolize, or attempt to monopolize, or combine or conspire with any other person(s) to monopolize any part of the trade or commerce among the several States, or with foreign nation. Core offense focus being “monopolization," "attempted monopolization" and "conspiracy to monopolize." (“Competition and Monopoly”, n.d.).

Government initiated antitrust enforcement proceedings at the beginning of 20th century,these proceedings led to district court finding in 1915, finding that stated that Kodak had monopolized the amateur camera, film, and photofinishing industries through acquisitions and a variety of exclusionary practices. In 1921 while the appeal against this ruling was pending, Kodak entered into The 1921 consent decree with the US government simultaneously withdrawing the pending Supreme court appeal (“Case Law: US v Eastman Kodak”, 2013).

Then in 1954, the consent decree requires Kodak to share it’s photofinishing technology with other players in the industry and it was to stop Kodak from offering bundle good and service, specifically that of photofilm sales and photofinishing services together for consumers. As this act further perpetuated their monopoly of both industries at 90% market share as at time of decree.

Reference

Case Law: US v Eastman Kodak, (2013). Retrieved from https://caselaw.findlaw.com/us-2nd-circuit/1300513.html

Competition And Monopoly: Single Firm Conduct Under Section 2 of Sherman Act (n.d.). Retrieved from https://www.justice.gov/atr/competition-and-monopoly-single-firm-conduct-under-section-2-sherman-act-chapter-1

Legal Information Institute: Consent Decree (n.d.). Cornell Law School. Retrieved from https://www.law.cornell.edu/wex/consent_decree

What Are Consent Decrees? (2017). Retrieved from https://www.criminaljusticeprograms.com/articles/what-are-consent-decrees/

2 A.  Who are the competitors for Kodak?

Kodak’s competitors are:

3M

Agfa-Gevaert

Konica

Fuji

2B.  What market share does Kodak have compared to its rivals?

In 1915 Kodak had 75-80%

In 1954 Kodak had 90% of the color film market and because photo film was sold in a bundle package deal with photo finishing, it also had 90% of photo finish industry. In the mid 90s, all five competitors in the amateur color negative film manufacture are “well-financed, billion-dollar, multinational corporations selling film all over the world.” World Market:

Kodak - 36%

3M - 4%

Agfa-Gevaert - 10%

Konica - 16%

Fuji - 34%

(“Case Law: US v Eastman Kodak”, 2013).

US Market:

Kodak - 67% (units) 75% (revenue)

Fuji - 10% (units) 11-12% (revenue)

(Baye & Scholten, 2006).

2C.  What competitive advantages does Kodak have?

Consumer taste accounts for one advantage, 50% of consumers only purchased items from Kodak and another 40% had a preference for Kodak.

Distribution chanels and sources, 241,000 stores had Kodak products, its closest competitor had way less than 80,000 stores selling its brand in the US, though Fuji had the Japanese market locked with Kodak having only 10% in the country, but US has the numbers.

Technological advantages the fact that George Eastman who started the Eastman Dry Plate company invented through himself and his company invented: machines that coated photographic plates (patent), paper roll film, perforated celluloid film, color film, instamatic camera, digital camera, easy share one digital etcetera (Asif-Al-Nor et al 2012).

They had a high design to market cycle times and high quality.

Please note Fuji had similar but was unable to make as much sales despite 10% lower price offer, due to the other advantages.

Reference

Asif-Al-Nor, M., Masharan, M. & Richard, M. (2012). Case Presentation: Kodak Strategy. Retrieved from https://www.slideshare.net/mobile/marshalrichard/kodak-strategy

Baye, M. & Scholten, P. (2006). Managerial Economics and Business Strategy. The McGraw-Hill Companies, Inc. Retrieved from https://online.calmu.edu/pluginfile.php/136760/mod_resource/content/4/Baye_kodak_case_5e.pdf

Case Law: US v Eastman Kodak, (2013). Retrieved from https://caselaw.findlaw.com/us-2nd-circuit/1300513.html

3.  What is the relevant geographic product market for film?

A relevant geographic market is the area in which it would be possible to exercise power (power in this instance is the ability of a firm to exercise market power) (Baye & Scholten, 2006).

According to the district court, Geographic product market for film include not only the United States, but also Japan and Western Europe (collectively “the world-wide market” (“Crase Law: US v Eastman Kodak”, 2013). And the district court saw Kodak’s thirty-percent world share to be too small to give rise to an inference of market power, particularly in light of the low barriers to entry But Government states that since Kodak can exercise market power in the United States, then the United States is the relevant market for purposes of this case. Especially because of the court’s findings of Kodak’s own demand elasticity of 2, which indicates that it is pricing at twice its marginal cost, with same quality as some in the US market. Also these actions are inconsistent with the world market.

Reference

Baye, M. & Scholten, P. (2006). Managerial Economics and Business Strategy. The McGraw-Hill Companies, Inc. Retrieved from https://online.calmu.edu/pluginfile.php/136760/mod_resource/content/4/Baye_kodak_case_5e.pdf

Case Law: US v Eastman Kodak, (2013). Retrieved from https://caselaw.findlaw.com/us-2nd-circuit/1300513.html

4.  What evidence does the government provide that Kodak still maintains significant market power in the United States?

Kodak’s premium pricing despite competitors “same quality” product reflects continued market manipulation.

Even with the consent decrees in effect for decades, Kodak's still has 67%-75% share of U.S. film sales which is only a little lower than 1915’s findings of 75%-80% share when Kodak had been found in acts of film industry monopolization  (Baye & Scholten, 2006).

In a competitive market, Fuji’s 10% lower price should have increased demand, instead the company only had 10% of US market sales.

Price was t 100% of marginal cost and even a 5%increase in price would only provoke a 10% reduction of sales.

These, the government stated was enough reason to not revoke the decrees as Kodak still maintained market power.

Reference

Baye, M. & Scholten, P. (2006). Managerial Economics and Business Strategy. The McGraw-Hill Companies, Inc. Retrieved from https://online.calmu.edu/pluginfile.php/136760/mod_resource/content/4/Baye_kodak_case_5e.pdf

Case Law: US v Eastman Kodak, (2013). Retrieved from https://caselaw.findlaw.com/us-2nd-circuit/1300513.html

5A.  What risks are associated with terminating the decrees?

The termination of the consent decrees especially as regards to the fact that the purpose of the consent decrees had not been achieved which endangers the enforcement of antitrust laws.

Continued monopolization of the film industry by Kodak through “image pricing” and premium.

Unencumbered wielding of market power in the US market which will in turn affect consumers, giving them less and eventually no-choice.

Kodak no longer needs to license or share and teach technology to competitors, assures continued market dominance, creation of market entry barriers. 

There will be less drive if any, to minimize production cost whenever possible, so as to offer consumers better selling price to increase demand..

5B.  More specifically, what actions might Kodak take that would hurt competition or unfairly hurt competitors?

Return to bundling packages, which they tried to promote with Ofoto, Kodak purchased Ofoto to try to get more people to print digital images. It eventually sold the site to Shutterfly as part of its bankruptcy plan for less than $25 million in April 2012 (Anthony, 2016).

With film industry , at a certain point the entry barriers were high. Only two competitors Fujifilm and Agfa-Gevaert had enough expertise and production scale to challenge Kodak seriously (Shih, 2016).

Kodak will again practice anticompetitive sales and distribution tactics, that is, return to restraining dealers from showcasing or selling other brands that is not Kodak, start offering incentives for higher sale of Kodak products to the dealers (Section 6 & 7).

Kodak will again start selling private-label films and not show ping clearly that Kodak is the manufacturer. (Section X, 1921 decree)

The 1921 consent decree’s short term requirement of Kodak to divest itself of alot of its acquisitions so as to “effectually dissolve the combination found to exist in violation of the [antitrust] statute.” (“Crase Law: US v Eastman Kodak”, 2013). will be reversed by Kodak, hence Kodak will continue on an oligopoly-making spree.

Conclusively,

Despite the victory in 1994 case, the world was in the midst of a disruptive innovation and transition, according to Shih, “the transition from analog to digital imaging brought several challenges. 1st, digital imaging was based on a general-purpose semiconductor technology platform that had nothing to do with film manufacturing it had its own scale and learning curves” (2016), 2nd technological innovations were not enough to remain relevant some level of continuous reinvention was needed, 3rd, leadership Minoru Ohinishi -Fuji CEO 1980, his response to being held to ransom by the Hunt brothers’ play on Silver, (a required raw material for production) set the company on a course that was less reliant (at least on silver). This reconfiguration was continued by Shigetaka Komori even though it led to loss of thousands of jobs, it was a stitch in time for Fuji, which Kodak tried to do several years later but it was too little too late (Gunther, 2013).

Hence Kodak continued to struggle. “In 2012, after experiencing a 98% drop in its core film business over the last decade, it declared bankruptcy, and sold pieces of its business to Shutterfly, Google, Apple, Facebook, and others. Kodak even sold its crown jewel; the film and photo paper business. Now back from bankruptcy, Kodak is a much smaller company focused on commercial imaging” (Beckett, 2014).

Reference

Anthony S. (2016, July 15th). Kodak’s Downfall Wasn’t About Technology. Retrieved from https://hbr.org/2016/07/kodaks-downfall-wasnt-about-technology

Beckett S (2014). On Remaand: Kodak Moments In The Courtroom Retrieved from https://abovethelaw.com/2014/06/on-remand-kodak-moments-in-the-courtroom/?rf=1

Gunther, R. G. (2013). The End of Competitive Advantage: How To Keep Your Strategy Moving As Fast As Your Buisness. Harvard Business Review Press. Retrieved from https://books.google.com/books/about/The_End_of_Competitive_Advantage.html?id=LtWU3OxrIgQC&printsec=frontcover&source=kp_read_button

Shih, W. 2016 The Real Lessons From Kodak’s Decline. MIT Sloan Management Review. Retrieved from https://sloanreview.mit.edu/article/the-real-lessons-from-kodaks-decline/