Opinion ID: 3016862
Heading Depth: 3
Heading Rank: 1

Heading: Benefits of Dealers

Text: Dentsply has always sold its teeth through dealers. Vita sells through Vident, its exclusive distributor and domestic affiliate, but has a mere 3% of the market. Ivoclar had some relationship with dealers in the past, but its direct relationship with laboratories yields only a 5% share. A number of factors are at work here. For a great number of dental laboratories, the dealer is the preferred source for artificial teeth. Although the District Court observed that “labs prefer to buy direct because of potential cost savings attributable to the elimination of the dealer middleman[,]” FF81, in fact, laboratories are driven by the realities of the marketplace to buy far more heavily from dealers than manufacturers. This may be largely attributed to the beneficial services, credit function, economies of scale and convenience that dealers provide to 21 laboratories, benefits which are otherwise unavailable to them when they buy direct. FF71, 81, 84. The record is replete with evidence of benefits provided by dealers. For example, they provide laboratories the benefit of “one stop-shopping” and extensive credit services. Because dealers typically carry the products of multiple manufacturers, a laboratory can order, with a single phone call to a dealer, products from multiple sources. Without dealers, in most instances laboratories would have to place individual calls to each manufacturer, expend the time, and pay multiple shipping charges to fill the same orders. The dealer-provided reduction in transaction costs and time represents a substantial benefit, one that the District Court minimized when it characterized “one stop shopping” as merely the ability to order from a single manufacturer all the materials necessary for crown, bridge and denture construction. FF84. Although a laboratory can call a manufacturer directly and purchase any product made by it, FF84, the laboratory is unable to procure from that source products made by its competitors. Thus, purchasing through dealers, which as a class traditionally carries the products of multiple vendors, surmounts this shortcoming, as well as offers other advantages. Buying through dealers also enables laboratories to take advantage of obtaining discounts. Because they engage in price competition to gain laboratories’ business, dealers often discount manufacturers’ suggested laboratory price for artificial teeth. FF69, 70. There is no finding on this record that manufacturers offer similar discounts. 22 Another service dealers perform is taking back tooth returns. Artificial teeth and denture returns are quite common in dentistry. Approximately 30% of all laboratory tooth purchases are returned for exchange or credit. FF97. The District Court disregarded this benefit on the ground that all manufacturers except Vita accept tooth returns. FF97. However, in equating dealer and manufacturer returns, the District Court overlooked the fact that using dealers, rather than manufacturers, enables laboratories to consolidate their returns. In a single shipment to a dealer, a laboratory can return the products of a number of manufacturers, and so economize on shipping, time, and transaction costs. Conversely, when returning products directly to manufacturers, a laboratory must ship each vendor’s product separately and must track each exchange individually. Consolidating returns yields savings of time, effort, and costs. Dealers also provide benefits to manufacturers, perhaps the most obvious of which is efficiency of scale. Using select high-volume dealers, as opposed to directly selling to hundreds if not thousands of laboratories, greatly reduces the manufacturer’s distribution costs and credit risks. Dentsply, for example, currently sells to twenty three dealers. If it were instead to sell directly to individual laboratories, Dentsply would incur significantly higher transaction costs, extension of credit burdens, and credit risks. Although a laboratory that buys directly from a manufacturer may be able to avoid the marginal costs associated 23 with “middleman” dealers, any savings must be weighed against the benefits, savings, and convenience offered by dealers. In addition, dealers provide manufacturers more marketplace exposure and sales representative coverage than manufacturers are able to generate on their own. Increased exposure and sales coverage traditionally lead to greater sales.