OCTOBER TERM, 1992
Syllabus
BROOKE GROUP LTD.
v. BROWN & WILLIAMSON TOBACCO
CORP.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH
CIRCUIT
No. 92-466. Argued March 29, 1993-Decided June 21,1993
Cigarette manufacturing is a concentrated industry dominated by
only six firms, including the two parties here. In 1980, petitioner
(hereinafter Liggett) pioneered the economy segment of the market
by developing a line of generic cigarettes offered at a list price
roughly 30% lower than that of branded cigarettes. By 1984,
generics had captured 4% of the market, at the expense of branded
cigarettes, and respondent Brown & Williamson entered the
economy segment, beating Liggett's net price. Liggett responded in
kind, precipitating a price war, which ended, according to Liggett,
with Brown & Williamson selling its generics at a loss. Liggett
filed this suit, alleging,
inter alia, that volume rebates
by Brown & Williamson to wholesalers amounted to price
discrimination that had a reasonable possibility of injuring
competition in violation of § 2(a) of the Clayton Act, as amended
by the Robinson-Patman Act. Liggett claimed that the rebates were
integral to a predatory pricing scheme, in which Brown &
Williamson set below-cost prices to pressure Liggett to raise list
prices on its generics, thus restraining the economy segment's
growth and preserving Brown & Williamson's supracompetitive
profits on branded cigarettes. After a jury returned a verdict in
favor of Liggett, the District Court held that Brown &
Williamson was entitled to judgment as a matter of law. Among other
things, it found a lack of injury to competition because there had
been no slowing of the generics' growth rate and no tacit
coordination of prices in the economy segment by the various
manufacturers. In affirming, the Court of Appeals held that the
dynamic of conscious parallelism among oligopolists could not
produce competitive injury in a predatory pricing setting.
Held: Brown & Williamson is entitled to judgment as a
matter of law.
Pp. 219-243.
(a) The Robinson-Patman Act, by its terms, condemns price
discrimination only to the extent that it threatens to injure
competition. A claim of primary-line competitive injury under the
Act, the type alleged here, is of the same general character as a
predatory pricing claim under § 2 of the Sherman Act: A business
rival has priced its products in an unfair manner with an object to
eliminate or retard competition and thereby gain and exercise
control over prices in the relevant market.
210
Syllabus
Utah Pie Co. v.
Continental Baking Co., 386 U. S. 685,
distinguished. Accordingly, two prerequisites to recovery are also
the same. A plaintiff must prove (1) that the prices complained of
are below an appropriate measure of its rival's costs and (2) that
the competitor had a reasonable prospect of recouping its
investment in below-cost prices. Without recoupment, even if
predatory pricing causes the target painful losses, it produces
lower aggregate prices in the market, and consumer welfare is
enhanced. For recoupment to occur, the pricing must be capable, as
a threshold matter, of producing the intended effects on the firm's
rivals. This requires an understanding of the extent and duration
of the alleged predation, the relative financial strength of the
predator and its intended victim, and their respective incentives
and will. The inquiry is whether, given the aggregate losses caused
by the belowcost pricing, the intended target would likely succumb.
If so, then there is the further question whether the below-cost
pricing would likely injure competition in the relevant market. The
plaintiff must demonstrate that there is a likelihood that the
scheme alleged would cause a rise in prices above a competitive
level sufficient to compensate for the amounts expended on the
predation, including the time value of the money invested in it.
Evidence of below-cost pricing is not alone sufficient to permit an
inference of probable recoupment and injury to competition. The
determination requires an estimate of the alleged predation's cost
and a close analysis of both the scheme alleged and the relevant
market's structure and conditions. Although not easy to establish,
these prerequisites are essential components of real market injury.
Pp. 219-227.
(b) An oligopoly's interdependent pricing may provide a means
for achieving recoupment and thus may form the basis of a
primary-line injury claim. Predatory pricing schemes, in general,
are implausible, see
Matsushita Electric Industrial Co. v.
Zenith Radio Corp., 475 U. S. 574,588-590,
and are even more improbable when they require coordinated action
among several firms,
id., at 590. They are least likely to
occur where, as alleged here, the cooperation among firms is tacit,
since effective tacit coordination is difficult to achieve; since
there is a high likelihood that any attempt by one oligopolist to
discipline a rival by cutting prices will produce an outbreak of
competition; and since a predator's present losses fall on it
alone, while the later supracompetitive profits must be shared with
every other oligopolist in proportion to its market share,
including the intended victim. Nonetheless, the Robinson-Patman Act
suggests no exclusion from coverage when primary-line injury occurs
in an oligopoly setting, and this Court declines to create a
per
se rule of nonliability. In order for all of the Act's words to
carry adequate meaning, competitive injury under the Act must
extend beyond the monopoly setting. Pp. 227-230.
211
(c) The record in this case demonstrates that the scheme Liggett
alleged, when judged against the market's realities, does not
provide an adequate basis for a finding of liability. While a
reasonable jury could conclude that Brown & Williamson
envisioned or intended an anticompetitive course of events and that
the price of its generics was below its costs for 18 months, the
evidence is inadequate to show that in pursuing this scheme, it had
a reasonable prospect of recovering its losses from below-cost
pricing through slowing the growth of generics. No inference of
recoupment is sustainable on this record, because no evidence
suggests that Brown & Williamson was likely to obtain the power
to raise the prices for generic cigarettes above a competitive
level, which is an indispensable aspect of Liggett's own proffered
theory. The output and price information does not indicate that
oligopolistic price coordination in fact produced supracompetitive
prices in the generic segment. Nor does the evidence about the
market and Brown & Williamson's conduct indicate that the
alleged scheme was likely to have brought about tacit coordination
and oligopoly pricing in that segment. Pp. 230-243.
964 F.2d
335, affirmed.
KENNEDY, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and O'CONNOR, SCALIA, SOUTER, and THOMAS, JJ.,
joined. STEVENS, J., filed a dissenting opinion, in which WHITE and
BLACKMUN, JJ., joined,
post, p. 243.
Phillip Areeda argued the cause for petitioner. With him on the
briefs were Charles Fried, Jean E. Sharpe, Josiah S. Murray III,
James W Dobbins, Garret G. Rasmussen, and C. Allen Foster.
Robert H. Bork argued the cause for respondent. With him on the
brief were Griffin B. Bell, Frederick M. Rowe, Michael L. Robinson,
Abbott B. Lipsky, Jr., and Veronica G. Kayne.*
*Briefs of amici curiae urging affirmance were filed for
Atlantic Richfield Co. by Ronald C. Redcay, Matthew T. Heartney,
Otis Pratt Pearsall, Philip H. Curtis, Francis X. McCormack, Donald
A. Bright, and Edward E. Clark; and for ITT Corp. by John H.
Schafer and Edwin A. Kilburn.
Briefs of
amici curiae were filed for the Business
Roundtable by
Thomas B. Leary; and for the Grocery
Manufacturers of America, Inc., by
Terry Calvani, W Todd
Miller, and C.
Douglas Floyd.
212
JUSTICE KENNEDY delivered the opinion of the Court. This case
stems from a market struggle that erupted in the domestic cigarette
industry in the mid-1980's. Petitioner Brooke Group Ltd., whom we,
like the parties to the case, refer to as Liggett because of its
former corporate name, charges that to counter its innovative
development of generic cigarettes, respondent Brown &
Williamson Tobacco Corporation introduced its own line of generic
cigarettes in an unlawful effort to stifle price competition in the
economy segment of the national cigarette market. Liggett contends
that Brown & Williamson cut prices on generic cigarettes below
cost and offered discriminatory volume rebates to wholesalers to
force Liggett to raise its own generic cigarette prices and
introduce oligopoly pricing in the economy segment. We hold that
Brown & Williamson is entitled to judgment as a matter of
law.
I
In 1980, Liggett pioneered the development of the economy
segment of the national cigarette market by introducing a line of
"black and white" generic cigarettes. The economy segment of the
market, sometimes called the generic segment, is characterized by
its bargain prices and comprises a variety of different products:
black and whites, which are true generics sold in plain white
packages with simple black lettering describing their contents;
private label generics, which carry the trade dress of a specific
purchaser, usually a retail chain; branded generics, which carry a
brand name but which, like black and whites and private label
generics, are sold at a deep discount and with little or no
advertising; and "Value-25s," packages of 25 cigarettes that are
sold to the consumer some 12.5% below the cost of a normal
20-cigarette pack. By 1984, when Brown & Williamson entered the
generic segment and set in motion the series of events giving rise
to this suit, Liggett's black and whites represented 97% of the
generic segment, which in turn accounted for a little
213
more than 4% of domestic cigarette sales. Prior to Liggett's
introduction of black and whites in 1980, sales of generic
cigarettes amounted to less than 1 % of the domestic cigarette
market.
Because of the procedural posture of this case, we view the
evidence in the light most favorable to Liggett. The parties are in
basic agreement, however, regarding the central, historical facts.
Cigarette manufacturing has long been one of America's most
concentrated industries, see F. Scherer & D. Ross, Industrial
Market Structure and Economic Performance 250 (3d ed. 1990)
(hereinafter Scherer & Ross); App. 495-498, and for decades,
production has been dominated by six firms: R. J. Reynolds, Philip
Morris, American Brands, Lorillard, and the two litigants involved
here, Liggett and Brown & Williamson. R. J. Reynolds and Philip
Morris, the two industry leaders, enjoyed respective market shares
of about 28% and 40% at the time of trial. Brown & Williamson
ran a distant third, its market share never exceeding 12% at any
time relevant to this dispute. Liggett's share of the market was
even less, from a low of just over 2% in 1980 to a high of just
over 5% in 1984.
The cigarette industry also has long been one of America's most
profitable, in part because for many years there was no significant
price competition among the rival firms. See Scherer & Ross
250-251; R. Tennant, American Cigarette Industry 86-87 (1950); App.
128, 500-509, 531. List prices for cigarettes increased in
lockstep, twice a year, for a number of years, irrespective of the
rate of inflation, changes in the costs of production, or shifts in
consumer demand. Substantial evidence suggests that in recent
decades, the industry reaped the benefits of prices above a
competitive level, though not through unlawful conduct of the type
that once characterized the industry. See Tennant,
supra, at
275, 342; App. 389-392, 514-519, 658-659; cf.
American Tobacco
Co. v.
United States, 328 U. S. 781 (1946);
United States
214
v.
American Tobacco Co., 221 U. S. 106 (1911);
Scherer & Ross 451.
By 1980, however, broad market trends were working against the
industry. Overall demand for cigarettes in the United States was
declining, and no immediate prospect of recovery existed. As
industry volume shrank, all firms developed substantial excess
capacity. This decline in demand, coupled with the effects of
nonprice competition, had a severe negative impact on Liggett. Once
a major force in the industry, with market shares in excess of 20%,
Liggett's market share had declined by 1980 to a little over 2%.
With this meager share of the market, Liggett was on the verge of
going out of business.
At the urging of a distributor, Liggett took an unusual step to
revive its prospects: It developed a line of black and white
generic cigarettes. When introduced in 1980, black and whites were
offered to consumers at a list price roughly 30% lower than the
list price of full-priced, branded cigarettes. They were also
promoted at the wholesale level by means of rebates that increased
with the volume of cigarettes ordered. Black and white cigarettes
thus represented a new marketing category. The category's principal
competitive characteristic was low price. Liggett's black and
whites were an immediate and considerable success, growing from a
fraction of a percent of the market at their introduction to over
4% of the total cigarette market by early 1984.
As the market for Liggett's generic cigarettes expanded, the
other cigarette companies found themselves unable to ignore the
economy segment. In general, the growth of generics came at the
expense of the other firms' profitable sales of branded cigarettes.
Brown & Williamson was hardest hit, because many of Brown &
Williamson's brands were favored by consumers who were sensitive to
changes in cigarette prices. Although Brown & Williamson sold
only 11.4% of the market's branded cigarettes, 20% of the converts
to
215
Liggett's black and whites had switched from a Brown &
Williamson brand. Losing volume and profits in its branded
products, Brown & Williamson determined to enter the generic
segment of the cigarette market. In July 1983, Brown &
Williamson had begun selling Value-25s, and in the spring of 1984,
it introduced its own black and white cigarette.
Brown & Williamson was neither the first nor the only
cigarette company to recognize the threat posed by Liggett's black
and whites and to respond in the economy segment. R. J. Reynolds
had also introduced a Value-25 in 1983. And before Brown &
Williamson introduced its own black and whites, R. J. Reynolds had
repriced its "Doral" branded cigarette at generic levels. To
compete with Liggett's black and whites, R. J. Reynolds dropped its
list price on Doral about 30% and used volume rebates to
wholesalers as an incentive to spur orders. Doral was the first
competition at Liggett's price level.
Brown & Williamson's entry was an even graver threat to
Liggett's dominance of the generic category. Unlike R. J. Reynolds'
Doral, Brown & Williamson's product was also a black and white
and so would be in direct competition with Liggett's product at the
wholesale level and on the retail shelf. Because Liggett's and
Brown & Williamson's black and whites were more or less
fungible, wholesalers had little incentive to carry more than one
line. And unlike R. J. Reynolds, Brown & Williamson not only
matched Liggett's prices but beat them. At the retail level, the
suggested list price of Brown & Williamson's black and whites
was the same as Liggett's, but Brown & Williamson's volume
discounts to wholesalers were larger. Brown & Williamson's
rebate structure also encompassed a greater number of volume
categories than Liggett's, with the highest categories carrying
special rebates for orders of very substantial size. Brown &
Williamson marketed its black and whites to Liggett's existing
distributors as well as to its own full list of
216
buyers, which included a thousand wholesalers who had not yet
carried any generic products.
Liggett responded to Brown & Williamson's introduction of
black and whites in two ways. First, Liggett increased its own
wholesale rebates. This precipitated a price war at the wholesale
level, in which Liggett five times attempted to beat the rebates
offered by Brown & Williamson. At the end of each round, Brown
& Williamson maintained a real advantage over Liggett's prices.
Although it is undisputed that Brown & Williamson's original
net price for its black and whites was above its costs, Liggett
contends that by the end of the rebate war, Brown & Williamson
was selling its black and whites at a loss. This rebate war
occurred before Brown & Williamson had sold a single black and
white cigarette.
Liggett's second response was to file a lawsuit. Two weeks after
Brown & Williamson announced its entry into the generic
segment, again before Brown & Williamson had sold any generic
cigarettes, Liggett filed a complaint in the United States District
Court for the Middle District of North Carolina alleging trademark
infringement and unfair competition. Liggett later amended its
complaint to add an antitrust claim under § 2(a) of the Clayton
Act, as amended by the Robinson-Patman Act, 49 Stat. 1526, 15 U. S.
C. § 13(a), which alleged illegal price discrimination between
Brown & Williamson's full-priced branded cigarettes and its
lowpriced generics. See
Liggett Group, Inc. v.
Brown
&
Williamson Tobacco Corp., 1989-1 Trade Cas. (CCH) ,
68,583, p. 61,099 (MDNC 1988). These claims were either dismissed
on summary judgment, see
ibid., or rejected by the jury.
They were not appealed.
Liggett also amended its complaint to add a second
Robinson-Patman Act claim, which is the subject of the present
controversy. Liggett alleged that Brown & Williamson's volume
rebates to wholesalers amounted to price discrimination that had a
reasonable possibility of injuring competition,
217
in violation of § 2(a). Liggett claimed that Brown &
Williamson's discriminatory volume rebates were integral to a
scheme of predatory pricing, in which Brown & Williamson
reduced its net prices for generic cigarettes below average
variable costs. According to Liggett, these below-cost prices were
not promotional but were intended to pressure it to raise its list
prices on generic cigarettes, so that the percentage price
difference between generic and branded cigarettes would narrow.
Liggett explained that it would have been unable to reduce its
wholesale rebates without losing substantial market share to Brown
& Williamson; its only choice, if it wished to avoid prolonged
losses on its principal product line, was to raise retail prices.
The resulting reduction in the list price gap, it was said, would
restrain the growth of the economy segment and preserve Brown &
Williamson's supracompetitive profits on its branded
cigarettes.
The trial began in the fall of 1989. By that time, all six
cigarette companies had entered the economy segment. The economy
segment was the fastest growing segment of the cigarette market,
having increased from about 4% of the market in 1984, when the
rebate war in generics began, to about 15% in 1989. Black and white
generics had declined as a force in the economy segment as consumer
interest shifted toward branded generics, but Liggett's overall
volume had increased steadily to 9 billion generic cigarettes sold.
Overall, the 2.8 billion generic cigarettes sold in 1981 had become
80 billion by 1989.
The consumer price of generics had increased along with output.
For a year, the list prices for generic cigarettes established at
the end of the rebate war remained stable. But in June 1985,
Liggett raised its list price, and the other firms followed several
months later. The precise effect of the list price increase is
difficult to assess, because all of the cigarette firms offered a
variety of discounts, coupons, and other promotions directly to
consumers on both generic and
218
branded cigarettes. Nonetheless, at least some portion of the
list price increase was reflected in a higher net price to the
consumer.
In December 1985, Brown & Williamson attempted to increase
its list prices, but retracted the announced increase when the
other firms adhered to their existing prices. Thus, after Liggett's
June 1985 increase, list prices on generics did not change again
until the summer of 1986, when a pattern of twice yearly increases
in tandem with the full-priced branded cigarettes was established.
The dollar amount of these increases was the same for generic and
full-priced cigarettes, which resulted in a greater percentage
price increase in the less expensive generic cigarettes and a
narrowing of the percentage gap between the list price of branded
and black and white cigarettes, from approximately 38% at the time
Brown & Williamson entered the segment to approximately 27% at
the time of trial. Also by the time of trial, five of the six
manufacturers, including Liggett, had introduced so-called
"subgenerics," a category of branded generic cigarettes that sold
at a discount of 50% or more off the list price of full-priced
branded cigarettes.
After a 115-day trial involving almost 3,000 exhibits and over a
score of witnesses, the jury returned a verdict in favor of
Liggett, finding on the special verdict form that Brown &
Williamson had engaged in price discrimination that had a
reasonable possibility of injuring competition in the domestic
cigarette market as a whole. The jury awarded Liggett $49.6 million
in damages, which the District Court trebled to $148.8 million.
After reviewing the record, however, the District Court held that
Brown & Williamson was entitled to judgment as a matter of law
on three separate grounds: lack of injury to competition, lack of
antitrust injury to Liggett, and lack of a causal link between the
discriminatory rebates and Liggett's alleged injury.
Liggett
Group, Inc. v.
Brown &
Williamson Tobacco
Corp., 748 F. Supp. 344 (MDNC 1990). With respect to the first
issue, which is the
219
only one before us, the District Court found that no slowing of
the growth rate of generics, and thus no injury to competition, was
possible unless there had been tacit coordination of prices in the
economy segment of the cigarette market by the various
manufacturers.
Id., at 354-355. The District Court held that
a reasonable jury could come to but one conclusion about the
existence of such coordination among the firms contending for
shares of the economy segment: it did not exist, and Brown &
Williamson therefore had no reasonable possibility of limiting the
growth of the segment.
Id., at 356-358.
The United States Court of Appeals for the Fourth Circuit
affirmed.
Liggett Group, Inc. v.
Brown &
Williamson Tobacco Corp., 964 F.2d
335 (1992). The Court of Appeals held that the dynamic of
conscious parallelism among oligopolists could not produce
competitive injury in a predatory pricing setting, which
necessarily involves a price cut by one of the oligopolists.
Id., at 342. In the Court of Appeals' view, "[t]o rely on
the characteristics of an oligopoly to assure recoupment of losses
from a predatory pricing scheme after one oligopolist has made a
competitive move is ... economically irrational."
Ibid.
We granted certiorari, 506 U. S. 984 (1992), and now affirm.
II A
Price discrimination is made unlawful by § 2(a) of the Clayton
Act, 38 Stat. 730, as amended by the Robinson-Patman Act, which
provides:
"It shall be unlawful for any person engaged in commerce, in the
course of such commerce, either directly or indirectly, to
discriminate in price between different purchasers of commodities
of like grade and quality ... where the effect of such
discrimination may be substantially to lessen competition or tend
to create a monopoly in any line of commerce, or to injure,
destroy, or prevent
220
competition with any person who either grants or knowingly
receives the benefit of such discrimination, or with customers of
either of them." 15 U. S. C. § 13(a).
Although we have reiterated that "'a price discrimination within
the meaning of [this] provision is merely a price difference,'"
Texaco Inc. v.
Hasbrouck, 496 U. S. 543, 558 (1990)
(quoting
FTC v.
Anheuser-Busch, Inc., 363 U. S. 536, 549
(1960)), the statute as a practical matter could not, and does not,
ban all price differences charged to "different purchasers of
commodities of like grade and quality." Instead, the statute
contains a number of important limitations, one of which is central
to evaluating Liggett's claim: By its terms, the Robinson-Patman
Act condemns price discrimination only to the extent that it
threatens to injure competition. The availability of statutory
defenses permitting price discrimination when it is based on
differences in costs, § 13(a), "changing conditions affecting the
market for or the marketability of the goods concerned,"
ibid., or conduct undertaken "in good faith to meet an
equally low price of a competitor," § 13(b);
Standard Oil
Co. v.
FTC, 340 U. S. 231, 250
(1951), confirms that Congress did not intend to outlaw price
differences that result from or further the forces of competition.
Thus, "the Robinson-Patman Act should be construed consistently
with broader policies of the antitrust laws."
Great Atlantic
&
Pacific Tea Co. v.
FTC, 440 U. S. 69, 80, n. 13
(1979). See also
Automatic Canteen Co. of America v.
FTC, 346 U. S.
61, 63, 74 (1953).
Liggett contends that Brown & Williamson's discriminatory
volume rebates to wholesalers threatened substantial competitive
injury by furthering a predatory pricing scheme designed to purge
competition from the economy segment of the cigarette market. This
type of injury, which harms direct competitors of the
discriminating seller, is known as primary-line injury. See
FTC v.
Anheuser-Busch, Inc., supra, at 538. We last
addressed primary-line injury over 25 years ago, in
Utah Pie
Co. v.
Continental Baking Co.,
221
386 U. S. 685
(1967). In
Utah Pie, we reviewed the sufficiency of the
evidence supporting jury verdicts against three national pie
companies that had engaged in a variety of predatory practices in
the market for frozen pies in Salt Lake City, with the intent to
drive a local pie manufacturer out of business. We reversed the
Court of Appeals and held that the evidence presented was adequate
to permit a jury to find a likelihood of injury to competition.
Id., at 703.
Utah Pie has often been interpreted to permit liability
for primary-line price discrimination on a mere showing that the
defendant intended to harm competition or produced a declining
price structure. The case has been criticized on the ground that
such low standards of competitive injury are at odds with the
antitrust laws' traditional concern for consumer welfare and price
competition. See Bowman, Restraint of Trade by the Supreme Court:
The Utah Pie Case, 77 Yale L. J. 70 (1967); R. Posner, Antitrust
Law: An Economic Perspective 193-194 (1976); L. Sullivan, Antitrust
687 (1977); 3 P. Areeda & D. Turner, Antitrust Law' 720c (1978)
(hereinafter Areeda & Turner); R. Bork, The Antitrust Paradox
386-387 (1978); H. Hovenkamp, Economics and Federal Antitrust Law
188-189 (1985). We do not regard the
Utah Pie case itself as
having the full significance attributed to it by its detractors.
Utah Pie was an early judicial inquiry in this area and did
not purport to set forth explicit, general standards for
establishing a violation of the RobinsonPatman Act. As the law has
been explored since
Utah Pie, it has become evident that
primary-line competitive injury under the Robinson-Patman Act is of
the same general character as the injury inflicted by predatory
pricing schemes actionable under § 2 of the Sherman Act. See,
e.
g., Henry v.
Chloride, Inc., 809 F.2d
1334, 1345 (CA8 1987);
D. E. Rogers Associates, Inc. v.
Gardner-Denver Co., 718 F.2d
1431, 1439 (CA6 1983), cert. denied, 467 U. S. 1242 (1984);
William Inglis &
Sons Baking Co. v.
ITT
Continental Baking Co., 668 F. 2d 1014, 1041 (CA9 1981), cert.
denied, 459 U. S. 825 (1982);
222
Malcolm v.
Marathon Oil Co., 642
F.2d 845, 853, n. 16 (CA5), cert. denied, 454 U. S. 1125
(1981);
Pacific Engineering & Production Co.
of Nevada v.
Kerr-McGee Corp., 551
F.2d 790, 798 (CAlO), cert. denied, 434 U. S. 879 (1977);
International Telephone &
Telegraph Corp., 104 F.
T. C. 280, 401-402 (1984); Hovenkamp,
supra, at 189; 3
Areeda & Turner' 720c; P. Areeda & H. Hovenkamp, Antitrust
Law , 720c (Supp. 1992) (hereinafter Areeda & Hovenkamp). There
are, to be sure, differences between the two statutes. For example,
we interpret § 2 of the Sherman Act to condemn predatory pricing
when it poses "a dangerous probability of actual monopolization,"
Spectrum Sports, Inc. v.
McQuillan, 506 U. S. 447, 455
(1993), whereas the Robinson-Patman Act requires only that there be
"a reasonable possibility" of substantial injury to competition
before its protections are triggered,
Falls City Industries,
Inc. v.
Vanco Beverage, Inc., 460 U. S. 428, 434
(1983). But whatever additional flexibility the Robinson-Patman Act
standard may imply, the essence of the claim under either statute
is the same: A business rival has priced its products in an unfair
manner with an object to eliminate or retard competition and
thereby gain and exercise control over prices in the relevant
market.
Accordingly, whether the claim alleges predatory pricing under §
2 of the Sherman Act or primary-line price discrimination under the
Robinson-Patman Act, two prerequisites to recovery remain the same.
First, a plaintiff seeking to establish competitive injury
resulting from a rival's low prices must prove that the prices
complained of are below an appropriate measure of its rival's
costs.1 See,
e. g., Cargill, Inc. v.
Monfort of Colorado,
Inc., 479 U. S.
104, 117 (1986);
Mat-
1 Because the parties in this case agree that the relevant
measure of cost is average variable cost, however, we again decline
to resolve the conflict among the lower courts over the appropriate
measure of cost. See
Cargill, Inc. v.
Monfort of
Colorado, Inc., 479 U. S. 104, 117-118,
n. 12 (1986);
Matsushita Elec. Industrial Co. v.
Zenith
Radio Corp., 475
U. S. 574, 585, n. 8 (1986).
223
sushita Elec. Industrial Co. v.
Zenith Radio
Corp., 475 U. S.
574,585, n. 8 (1986);
Utah Pie, 386 U. S., at
698,701,702-703, n. 14;
In re E. 1.
DuPont de Nemours
&
Co., 96 F. T. C. 653, 749 (1980). Cf.
United
States v.
National Dairy Products Corp., 372 U. S. 29 (1963)
(holding that below-cost prices may constitute "unreasonably low"
prices for purposes of § 3 of the Robinson-Patman Act, 15 U. S. C.
§ 13a). Although
Cargill and
Matsushita reserved as a
formal matter the question "'whether recovery should
ever be
available ... when the pricing in question is above some measure of
incremental cost,'"
Cargill, supra, at 117-118, n. 12
(quoting
Matsushita, supra, at 585, n. 9), the reasoning in
both opinions suggests that only below-cost prices should suffice,
and we have rejected elsewhere the notion that above-cost prices
that are below general market levels or the costs of a firm's
competitors inflict injury to competition cognizable under the
antitrust laws. See
Atlantic Richfield Co. v.
USA
Petroleum Co., 495 U. S. 328, 340
(1990). "Low prices benefit consumers regardless of how those
prices are set, and so long as they are above predatory levels,
they do not threaten competition .... We have adhered to this
principle regardless of the type of antitrust claim involved."
Ibid. As a general rule, the exclusionary effect of prices
above a relevant measure of cost either reflects the lower cost
structure of the alleged predator, and so represents competition on
the merits, or is beyond the practical ability of a judicial
tribunal to control without courting intolerable risks of chilling
legitimate price cutting. See Areeda & Hovenkamp "714.2, 714.3.
"To hold that the antitrust laws protect competitors from the loss
of profits due to such price competition would, in effect, render
illegal any decision by a firm to cut prices in order to increase
market share. The antitrust laws require no such perverse result."
Cargill, supra, at 116.
Even in an oligopolistic market, when a firm drops its prices to
a competitive level to demonstrate to a maverick the
unprofitability of straying from the group, it would be
224
illogical to condemn the price cut: The antitrust laws then
would be an obstacle to the chain of events most conducive to a
breakdown of oligopoly pricing and the onset of competition. Even
if the ultimate effect of the cut is to induce or reestablish
supracompetitive pricing, discouraging a price cut and forcing
firms to maintain supracompetitive prices, thus depriving consumers
of the benefits of lower prices in the interim, does not constitute
sound antitrust policy. Cf. Areeda & Hovenkamp "714.2d, 714.2f;
Areeda & Turner, Predatory Pricing and Related Practices under
Section 2 of the Sherman Act, 88 Harv. L. Rev. 697, 708-709 (1975);
Posner, Antitrust Law: An Economic Perspective, at 195, n.39.
The second prerequisite to holding a competitor liable under the
antitrust laws for charging low prices is a demonstration that the
competitor had a reasonable prospect, or, under § 2 of the Sherman
Act, a dangerous probability, of recouping its investment in
below-cost prices. See
Matsushita, supra, at 589;
Cargill, supra, at 119, n. 15. "For the investment to be
rational, the [predator] must have a reasonable expectation of
recovering, in the form of later monopoly profits, more than the
losses suffered."
Matsushita, supra, at 588-589. Recoupment
is the ultimate object of an unlawful predatory pricing scheme; it
is the means by which a predator profits from predation. Without
it, predatory pricing produces lower aggregate prices in the
market, and consumer welfare is enhanced. Although unsuccessful
predatory pricing may encourage some inefficient substitution
toward the product being sold at less than its cost, unsuccessful
predation is in general a boon to consumers.
That below-cost pricing may impose painful losses on its target
is of no moment to the antitrust laws if competition is not
injured: It is axiomatic that the antitrust laws were passed for
"the protection of
competition, not
competitors." Brown
Shoe Co. v.
United States, 370 U. S. 294, 320
(1962). Earlier this Term, we held in the Sherman Act § 2
context
225
that it was not enough to inquire "whether the defendant has
engaged in 'unfair' or 'predatory' tactics"; rather, we insisted
that the plaintiff prove "a dangerous probability that [the
defendant] would monopolize a particular market."
Spectrum
Sports, 506 U. S., at 459. Even an act of pure malice by one
business competitor against another does not, without more, state a
claim under the federal antitrust laws; those laws do not create a
federal law of unfair competition or "purport to afford remedies
for all torts committed by or against persons engaged in interstate
commerce."
Hunt v.
Crumboch, 325 U. S. 821, 826
(1945).
For recoupment to occur, below-cost pricing must be capable, as
a threshold matter, of producing the intended effects on the firm's
rivals, whether driving them from the market, or, as was alleged to
be the goal here, causing them to raise their prices to
supracompetitive levels within a disciplined oligopoly. This
requires an understanding of the extent and duration of the alleged
predation, the relative financial strength of the predator and its
intended victim, and their respective incentives and will. See 3
Areeda & Turner , 711b. The inquiry is whether, given the
aggregate losses caused by the below-cost pricing, the intended
target would likely succumb.
If circumstances indicate that below-cost pricing could likely
produce its intended effect on the target, there is still the
further question whether it would likely injure competition in the
relevant market. The plaintiff must demonstrate that there is a
likelihood that the predatory scheme alleged would cause a rise in
prices above a competitive level that would be sufficient to
compensate for the amounts expended on the predation, including the
time value of the money invested in it. As we have observed on a
prior occasion, "[i]n order to recoup their losses, [predators]
must obtain enough market power to set higher than competitive
prices, and then must sustain those prices long enough to earn in
excess
226
profits what they earlier gave up in below-cost prices."
Matsushita, 475 U. S., at 590-591.
Evidence of below-cost pricing is not alone sufficient to permit
an inference of probable recoupment and injury to competition.
Determining whether recoupment of predatory losses is likely
requires an estimate of the cost of the alleged predation and a
close analysis of both the scheme alleged by the plaintiff and the
structure and conditions of the relevant market. Cf.,
e.
g., Elzinga & Mills, Testing for Predation: Is
Recoupment Feasible?, 34 Antitrust Bull. 869 (1989) (constructing
one possible model for evaluating recoupment). If market
circumstances or deficiencies in proof would bar a reasonable jury
from finding that the scheme alleged would likely result in
sustained supracompetitive pricing, the plaintiff's case has
failed. In certain situations-for example, where the market is
highly diffuse and competitive, or where new entry is easy, or the
defendant lacks adequate excess capacity to absorb the market
shares of his rivals and cannot quickly create or purchase new
capacity-summary disposition of the case is appropriate. See,
e.
g., Cargill, 479 U. S., at 119-120, n. 15.
These prerequisites to recovery are not easy to establish, but
they are not artificial obstacles to recovery; rather, they are
essential components of real market injury. As we have said in the
Sherman Act context, "predatory pricing schemes are rarely tried,
and even more rarely successful,"
Matsushita, supra, at 589,
and the costs of an erroneous finding of liability are high. "[T]he
mechanism by which a firm engages in predatory pricing-lowering
prices-is the same mechanism by which a firm stimulates
competition; because 'cutting prices in order to increase business
often is the very essence of competition ... [;] mistaken
inferences ... are especially costly, because they chill the very
conduct the antitrust laws are designed to protect.'''
Cargill,
supra, at 122, n. 17 (quoting
Matsushita, supra, at
594). It would be ironic indeed if the standards for predatory
pricing liability
227
were so low that antitrust suits themselves became a tool for
keeping prices high.
B
Liggett does not allege that Brown & Williamson sought to
drive it from the market but that Brown & Williamson sought to
preserve supracompetitive profits on branded cigarettes by
pressuring Liggett to raise its generic cigarette prices through a
process of tacit collusion with the other cigarette companies.
Tacit collusion, sometimes called oligopolistic price coordination
or conscious parallelism, describes the process, not in itself
unlawful, by which firms in a concentrated market might in effect
share monopoly power, setting their prices at a profit-maximizing,
supracompetitive level by recognizing their shared economic
interests and their interdependence with respect to price and
output decisions. See 2 Areeda & Turner' 404; Scherer &
Ross 199-208.
In
Matsushita, we remarked upon the general
implausibility of predatory pricing. See 475 U. S., at 588-590.
Matsushita observed that such schemes are even more
improbable when they require coordinated action among several
firms.
Id., at 590.
Matsushita involved an allegation
of an express conspiracy to engage in predatory pricing. The Court
noted that in addition to the usual difficulties that face a single
firm attempting to recoup predatory losses, other problems render a
conspiracy "incalculably more difficult to execute."
Ibid.
In order to succeed, the conspirators must agree on how to allocate
present losses and future gains among the firms involved, and each
firm must resist powerful incentives to cheat on whatever agreement
is reached.
Ibid.
However unlikely predatory pricing by multiple firms may be when
they conspire, it is even less likely when, as here, there is no
express coordination. Firms that seek to recoup predatory losses
through the conscious parallelism of oligopoly must rely on
uncertain and ambiguous signals to achieve concerted action. The
signals are subject to misinterpretation and are a blunt and
imprecise means of ensuring smooth
228
cooperation, especially in the context of changing or
unprecedented market circumstances. This anticompetitive minuet is
most difficult to compose and to perform, even for a disciplined
oligopoly.
From one standpoint, recoupment through oligopolistic price
coordination could be thought more feasible than recoupment through
monopoly: In the oligopoly setting, the victim itself has an
economic incentive to acquiesce in the scheme. If forced to choose
between cutting prices and sustaining losses, maintaining prices
and losing market share, or raising prices and enjoying a share of
supracompetitive profits, a firm may yield to the last alternative.
Yet on the whole, tacit cooperation among oligopolists must be
considered the least likely means of recouping predatory losses. In
addition to the difficulty of achieving effective tacit
coordination and the high likelihood that any attempt to discipline
will produce an outbreak of competition, the predator's present
losses in a case like this fall on it alone, while the later
supracompetitive profits must be shared with every other
oligopolist in proportion to its market share, including the
intended victim. In this case, for example, Brown & Williamson,
with its 11-12% share of the cigarette market, would have had to
generate around $9 in supracompetitive profits for each $1 invested
in predation; the remaining $8 would belong to its competitors, who
had taken no risk.
Liggett suggests that these considerations led the Court of
Appeals to rule out its theory of recovery as a matter of law.
Although the proper interpretation of the Court of Appeals' opinion
is not free from doubt, there is some indication that it held as a
matter of law that the Robinson-Patman Act does not reach a
primary-line injury claim in which tacit coordination among
oligopolists provides the alleged basis for recoupment. The Court
of Appeals' opinion does not contain the traditional apparatus of
fact review; rather, it focuses on theoretical and legal arguments.
The final paragraph appears to state the holding: Brown &
Williamson
229
may not be held liable because oligopoly pricing does not
"'provide an economically rational basis'" for recouping predatory
losses. 964 F. 2d, at 342.
To the extent that the Court of Appeals may have held that the
interdependent pricing of an oligopoly may never provide a means
for achieving recoupment and so may not form the basis of a
primary-line injury claim, we disagree. A predatory pricing scheme
designed to preserve or create a stable oligopoly, if successful,
can injure consumers in the same way, and to the same extent, as
one designed to bring about a monopoly. However unlikely that
possibility may be as a general matter, when the realities of the
market and the record facts indicate that it has occurred and was
likely to have succeeded, theory will not stand in the way of
liability. See
Eastman Kodak Co. v.
Image Technical
Services, Inc., 504 U. S. 451, 466-467
(1992).
The Robinson-Patman Act, which amended § 2 of the original
Clayton Act, suggests no exclusion from coverage when primary-line
injury occurs in an oligopoly setting. Unlike the provisions of the
Sherman Act, which speak only of various forms of express agreement
and monopoly, see 15 U. S. C. §§ 1, 2, the Robinson-Patman Act is
phrased in broader, disjunctive terms, prohibiting price
discrimination "where the effect of such discrimination may be
substantially to lessen competition or tend to create a monopoly,"
15 U. S. C. § 13(a). For all the words of the Act to carry adequate
meaning, competitive injury under the Act must extend beyond the
monopoly setting. Cf.
Reiter v.
Sonotone Corp.,
442 U. S. 330,
339 (1979) ("Canons of construction ordinarily suggest that terms
connected by a disjunctive be given separate meanings, unless the
context dictates otherwise"). The language referring to a
substantial lessening of competition was part of the original
Clayton Act § 2, see Act of Oct. 15, 1914, ch. 322, 38 Stat. 730,
and the same phrasing appears in § 7 of that Act. In the § 7
context, it has long been settled that excessive concentration, and
the oligopolistic price coordina-
230
tion it portends, may be the injury to competition the Act
prohibits. See,
e. g., United States v.
Philadelphia Nat.
Bank, 374 U. S.
321 (1963). We adhere to "the normal rule of statutory
construction that identical words used in different parts of the
same act are intended to have the same meaning."
Sullivan v.
Stroop, 496 U.
S. 478, 484 (1990) (internal quotation marks omitted). See also
J. Truett Payne Co. v.
Chrysler Motors Corp.,
451 U. S. 557,
562 (1981) (evaluating the competitive injury requirement of
RobinsonPatman Act § 2(a) in light of analogous interpretations of
Clayton Act § 7). We decline to create a
per se rule of
nonliability for predatory price discrimination when recoupment is
alleged to take place through supracompetitive oligopoly pricing.
Cf.
Cargill, 479 U. S., at 121.
III
Although Liggett's theory of liability, as an abstract matter,
is within the reach of the statute, we agree with the Court of
Appeals and the District Court that Liggett was not entitled to
submit its case to the jury. It is not customary for this Court to
review the sufficiency of the evidence, but we will do so when the
issue is properly before us and the benefits of providing guidance
concerning the proper application of a legal standard and avoiding
the systemic costs associated with further proceedings justify the
required expenditure of judicial resources. See,
e. g., Aspen
Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U. S. 585, 605-611
(1985); Monsanto Co. v.
Spray-Rite Service Corp.,
465 U. S. 752,
765-768 (1984);
United States v.
Pabst Brewing Co.,
384 U. S. 546, 550-552 (1966). The record in this case
demonstrates that the anticompetitive scheme Liggett alleged, when
judged against the realities of the market, does not provide an
adequate basis for a finding of liability.
A
Liggett's theory of competitive injury through oligopolistic
price coordination depends upon a complex chain of cause
231
and effect: Brown & Williamson would enter the generic
segment with list prices matching Liggett's but with massive,
discriminatory volume rebates directed at Liggett's biggest
wholesalers; as a result, the net price of Brown & Williamson's
generics would be below its costs; Liggett would suffer losses
trying to defend its market share and wholesale customer base by
matching Brown & Williamson's rebates; to avoid further losses,
Liggett would raise its list prices on generics or acquiesce in
price leadership by Brown & Williamson; higher list prices to
consumers would shrink the percentage gap in retail price between
generic and branded cigarettes; and this narrowing of the gap would
make generics less appealing to the consumer, thus slowing the
growth of the economy segment and reducing cannibalization of
branded sales and their associated supracompetitive profits.
Although Brown & Williamson's entry into the generic segment
could be regarded as procompetitive in intent as well as effect,
the record contains sufficient evidence from which a reasonable
jury could conclude that Brown & Williamson envisioned or
intended this anticompetitive course of events. See,
e.
g., App. 57-58, 67-68, 89-91, 99, 112-114, 200, 241, 253,
257, 262-263, 279-280, 469-470, 664666. There is also sufficient
evidence in the record from which a reasonable jury could conclude
that for a period of approximately 18 months, Brown &
Williamson's prices on its generic cigarettes were below its costs,
see
id., at 338339,651, 740, and that this below-cost
pricing imposed losses on Liggett that Liggett was unwilling to
sustain, given its corporate parent's effort to locate a buyer for
the company, see
id., at 74, 92, 200, 253, 596-597. Liggett
has failed to demonstrate competitive injury as a matter of law,
however, because its proof is flawed in a critical respect: The
evidence is inadequate to show that in pursuing this scheme, Brown
& Williamson had a reasonable prospect of recovering its losses
from below-cost pricing through slowing the growth of generics. As
we have noted, "[t]he success of any predatory
232
scheme depends on maintaining monopoly power for long enough
both to recoup the predator's losses and to harvest some additional
gain."
Matsushita, 475 U. S., at 589 (emphasis omitted).
No inference of recoupment is sustainable on this record,
because no evidence suggests that Brown & Williamsonwhatever
its intent in introducing black and whites may have been-was likely
to obtain the power to raise the prices for generic cigarettes
above a competitive level. Recoupment through supracompetitive
pricing in the economy segment of the cigarette market is an
indispensable aspect of Liggett's own proffered theory, because a
slowing of growth in the economy segment, even if it results from
an increase in generic prices, is not itself anticompetitive. Only
if those higher prices are a product of nonmarket forces has
competition suffered. If prices rise in response to an excess of
demand over supply, or segment growth slows as patterns of consumer
preference become stable, the market is functioning in a
competitive manner. Consumers are not injured from the perspective
of the antitrust laws by the price increases; they are in fact
causing them. Thus, the linchpin of the predatory scheme alleged by
Liggett is Brown & Williamson's ability, with the other
oligopolists, to raise prices above a competitive level in the
generic segment of the market. Because relying on tacit
coordination among oligopolists as a means of recouping losses from
predatory pricing is "highly speculative," Areeda & Hovenkamp ,
711.2c, at 647, competent evidence is necessary to allow a
reasonable inference that it poses an authentic threat to
competition. The evidence in this case is insufficient to
demonstrate the danger of Brown & Williamson's alleged
scheme.
B
Based on Liggett's theory of the case and the record it created,
there are two means by which one might infer that
233
Brown & Williamson had a reasonable prospect of producing
sustained supracompetitive pricing in the generic segment adequate
to recoup its predatory losses: first, if generic output or price
information indicates that oligopolistic price coordination in fact
produced supracompetitive prices in the generic segment; or second,
if evidence about the market and Brown & Williamson's conduct
indicate that the alleged scheme was likely to have brought about
tacit coordination and oligopoly pricing in the generic segment,
even if it did not actually do so.
1
In this case, the price and output data do not support a
reasonable inference that Brown & Williamson and the other
cigarette companies elevated prices above a competitive level for
generic cigarettes. Supracompetitive pricing entails a restriction
in output. See
National Collegiate Athletic Assn. v.
Board of Regents of Univ. of Okla., 468 U. S. 85, 104-108
(1984);
Broadcast Music, Inc. v.
Columbia Broadcasting
System, Inc., 441
U. S. 1, 19-20 (1979); P. Samuelson & W. Nordhaus,
Economics 516 (12th ed. 1985); Sullivan, Antitrust, at 32; Bork,
The Antitrust Paradox, at 178-179; 2 Areeda & Turner , 403a;
Easterbrook, The Limits of Antitrust, 63 Texas L. Rev. 1, 20, 31
(1984). In the present setting, in which output expanded at a rapid
rate following Brown & Williamson's alleged predation, output
in the generic segment can only have been restricted in the sense
that it expanded at a slower rate than it would have absent Brown
& Williamson's intervention. Such a counterfactual proposition
is difficult to prove in the best of circumstances; here, the
record evidence does not permit a reasonable inference that output
would have been greater without Brown & Williamson's entry into
the generic segment.
Following Brown & Williamson's entry, the rate at which
generic cigarettes were capturing market share did not slow;
indeed, the average rate of growth doubled. During the
234
four years from 1980 to 1984 in which Liggett was alone in the
generic segment, the segment gained market share at an average rate
of 1 % of the overall market per year, from 0.4% in 1980 to
slightly more than 4% of the cigarette market in 1984. In the next
five years, following the alleged predation, the generic segment
expanded from 4% to more than 15% of the domestic cigarette market,
or greater than 2% per year.
While this evidence tends to show that Brown & Williamson's
participation in the economy segment did not restrict output, it is
not dispositive. One could speculate, for example, that the rate of
segment growth would have tripled, instead of doubled, without
Brown & Williamson's alleged predation. But there is no
concrete evidence of this. Indeed, the only industry projection in
the record estimating what the segment's growth would have been
without Brown & Williamson's entry supports the opposite
inference. In 1984, Brown & Williamson forecast in an important
planning document that the economy segment would account for 10% of
the total cigarette market by 1988 if it did not enter the segment.
App. 133, 135. In fact, in 1988, after what Liggett alleges was a
sustained and dangerous anticompetitive campaign by Brown &
Williamson, the generic segment accounted for over 12% of the total
market.
Id., at 354-356. Thus the segment's output expanded
more robustly than Brown & Williamson had estimated it would
had Brown & Williamson never entered.
Brown & Williamson did note in 1985, a year after
introducing its black and whites, that its presence within the
generic segment "appears to have resulted in ... a slowing in the
segment's growth rate."
Id., at 257. But this statement was
made in early 1985, when Liggett itself contends the below-cost
pricing was still in effect and before any anticompetitive
contraction in output is alleged to have occurred.
235
Whatever it may mean,2 this statement has little value in
evaluating the competitive implications of Brown & Williamson's
later conduct, which was alleged to provide the basis for recouping
predatory losses.
In arguing that Brown & Williamson was able to exert market
power and raise generic prices above a competitive level in the
generic category through tacit price coordination with the other
cigarette manufacturers, Liggett places its principal reliance on
direct evidence of price behavior. This evidence demonstrates that
the list prices on all cigarettes, generic and branded alike, rose
to a significant degree during the late 1980's.
Id., at 325.
From 1986 to 1989, list prices on both generic and branded
cigarettes increased twice a year by similar amounts. Liggett's
economic expert testified that these price increases outpaced
increases in costs, taxes, and promotional expenditures.
Id., at 525. The list prices of generics, moreover, rose at
a faster rate than the prices of branded cigarettes, thus narrowing
the list price differential between branded and generic products.
Id., at 325. Liggett argues that this would permit a
reasonable jury to find that Brown & Williamson succeeded in
bringing about oligopolistic price coordination and
supracompetitive prices in the generic category sufficient to slow
its growth, thereby preserving supracompetitive branded profits and
recouping its predatory losses.
A reasonable jury, however, could not have drawn the inferences
Liggett proposes. All of Liggett's data are based upon the list
prices of various categories of cigarettes. Yet the jury had before
it undisputed evidence that during the period in question, list
prices were not the actual prices paid by consumers. 100 Tr.
227-229. As the market became un-
2 This statement could well have referred to the rate at which
the segment was growing relative to prior years' generic volume;
this "internal" rate of growth would inevitably slow as the base
volume against which it was measured grew.
236
settled in the mid-1980's, the cigarette companies invested
substantial sums in promotional schemes, including coupons,
stickers, and giveaways, that reduced the actual cost of cigarettes
to consumers below list prices. 33 Tr. 206-209, 51 Tr. 130. This
promotional activity accelerated as the decade progressed. App.
509, 672. Many wholesalers also passed portions of their volume
rebates on to the consumer, which had the effect of further
undermining the significance of the retail list prices.
Id.,
at 672, 687-692, 761-763. Especially in an oligopoly setting, in
which price competition is most likely to take place through less
observable and less regulable means than list prices, it would be
unreasonable to draw conclusions about the existence of tacit
coordination or supracompetitive pricing from data that reflect
only list prices.
Even on its own terms, the list price data relied upon by
Liggett to demonstrate a narrowing of the price differential
between generic and full-priced branded cigarettes could not
support the conclusion that supracompetitive pricing had been
introduced into the generic segment. Liggett's gap data ignore the
effect of "subgeneric" cigarettes, which were priced at discounts
of 50% or more from the list prices of normal branded cigarettes.
See,
e. g., id., at 682-686. Liggett itself, while
supposedly under the sway of oligopoly power, pioneered this
development in 1988 with the introduction of its "Pyramid" brand.
Id., at 326. By the time of trial, five of the six major
manufacturers offered a cigarette in this category at a discount
from the full list price of at least 50%.
Id., at 685-686;
147 Tr. 107. Thus, the price difference between the highest priced
branded cigarette and the lowest price cigarettes in the economy
segment, instead of narrowing over the course of the period of
alleged predation as Liggett would argue, grew to a substantial
extent. In June 1984, before Brown & Williamson entered the
generic segment, a consumer could obtain a carton of black and
white generic cigarettes from Liggett at a 38% discount from the
list price of a leading brand; after the conduct Liggett
237
complains of, consumers could obtain a branded generic from
Liggett for 52% off the list price of a leading brand. See App.
325-326, 685.
It may be that a reasonable jury could conclude that the
cumulative discounts attributable to subgenerics and the various
consumer promotions did not cancel out the full effect of the
increases in list prices, see
id., at 508-509, and that
actual prices to the consumer did indeed rise, but rising prices do
not themselves permit an inference of a collusive market dynamic.
Even in a concentrated market, the occurrence of a price increase
does not in itself permit a rational inference of conscious
parallelism or supracompetitive pricing. Where, as here, output is
expanding at the same time prices are increasing, rising prices are
equally consistent with growing product demand. Under these
conditions, a jury may not infer competitive injury from price and
output data absent some evidence that tends to prove that output
was restricted or prices were above a competitive level. Cf.
Monsanto, 465 U. S., at 763.
Quite apart from the absence of any evidence of that sort, an
inference of supracompetitive pricing would be particularly
anomalous in this case, as the very party alleged to have been
coerced into pricing through oligopolistic coordination denied that
such coordination existed: Liggett's own officers and directors
consistently denied that they or other firms in the industry priced
their cigarettes through tacit collusion or reaped supracompetitive
profits. App. 394-399, 623-631; 11 Tr. 170-174, 64 Tr. 51-56.
Liggett seeks to explain away this testimony by arguing that its
officers and directors are businesspeople who do not ascribe the
same meaning to words like "competitive" and "collusion" that an
economist would. This explanation is entitled to little, if any,
weight. As the District Court found:
"This argument was considered at the summary judgment stage
since these executives gave basically the same testimony at their
depositions. The court allowed
238
the case to go to trial in part because the Liggett executives
were not economists and in part because of affidavits from the
Liggett executives stating that they were confused by the questions
asked by B[rown] & W[illiamson] lawyers and did not mean to
contradict the testimony of [their economic expert] Burnett.
However, at trial, despite having consulted extensively with
Burnett and having had adequate time to familiarize themselves with
concepts such as tacit collusion, oligopoly, and monopoly profits,
these Liggett executives again contradicted Burnett's theory." 748
F. Supp., at 356.
2
Not only does the evidence fail to show actual supracompetitive
pricing in the generic segment, it also does not demonstrate its
likelihood. At the time Brown & Williamson entered the generic
segment, the cigarette industry as a whole faced declining demand
and possessed substantial excess capacity. App. 82-84. These
circumstances tend to break down patterns of oligopoly pricing and
produce price competition. See Scherer & Ross 294, 315; 2
Areeda & Turner , 404b2, at 275-276; 6 P. Areeda, Antitrust Law
, 1430e, p. 181 (1986). The only means by which Brown &
Williamson is alleged to have established oligopoly pricing in the
face of these unusual competitive pressures is through tacit price
coordination with the other cigarette firms.
Yet the situation facing the cigarette companies in the 1980's
would have made such tacit coordination unmanageable. Tacit
coordination is facilitated by a stable market environment,
fungible products, and a small number of variables upon which the
firms seeking to coordinate their pricing may focus. See generally
Scherer & Ross 215-315; 6 P. Areeda,
supra, "1428-1430.
Uncertainty is an oligopoly's greatest enemy. By 1984, however, the
cigarette market was in an obvious state of flux. The introduction
of generic cigarettes in 1980 represented the first serious price
com-
239
petition in the cigarette market since the 1930's. See Scherer
& Ross 250-251; App. 128. This development was bound to
unsettle previous expectations and patterns of market conduct and
to reduce the cigarette firms' ability to predict each other's
behavior.
The larger number of product types and pricing variables also
decreased the probability of effective parallel pricing. When Brown
& Williamson entered the economy segment in 1984, the segment
included Value-25s, black and whites, and branded generics. With
respect to each product, the net price in the market was determined
not only by list prices, but also by a wide variety of discounts
and promotions to consumers and by rebates to wholesalers. In order
to coordinate in an effective manner and eliminate price
competition, the cigarette companies would have been required,
without communicating, to establish parallel practices with respect
to each of these variables, many of which, like consumer stickers
or coupons, were difficult to monitor. Liggett has not even alleged
parallel behavior with respect to these other variables, and the
inherent limitations of tacit collusion suggest that such multi
variable coordination is improbable. See R. Dorfman, The Price
System 99-100, and n. 10 (1964); Scherer & Ross 279.
In addition, R. J. Reynolds had incentives that, in some
respects, ran counter to those of the other cigarette companies. It
is implausible that without a shared interest in retarding the
growth of the economy segment, Brown & Williamson and its
fellow oligopolists could have engaged in parallel pricing and
raised generic prices above a competitive level. "[C]oordination
will not be possible when any significant firm chooses, for any
reason, to 'go it alone.'" 2 Areeda & Turner' 404b2, at 276. It
is undisputed-indeed it was conceded by Liggett's expert-that R. J.
Reynolds acted without regard to the supposed benefits of
oligopolistic coordination when it repriced Doral at generic levels
in the spring of 1984 and that the natural and probable
consequence
240
of its entry into the generic segment was procompetitive. 55 Tr.
15-16; 51 Tr. 128. Indeed, Reynolds' apparent objective in entering
the segment was to capture a significant amount of volume in order
to regain its number one sales position in the cigarette industry
from Philip Morris. App. 75, 130, 209-211. There is no evidence
that R. J. Reynolds accomplished this goal during the period
relevant to this case, or that its commitment to achieving that
goal changed. Indeed, R. J. Reynolds refused to follow Brown &
Williamson's attempt to raise generic prices in June 1985. The jury
thus had before it undisputed evidence that contradicts the
suggestion that the major cigarette companies shared a goal of
limiting the growth of the economy segment; one of the industry's
two major players concededly entered the segment to expand volume
and compete.
Even if all the cigarette companies were willing to participate
in a scheme to restrain the growth of the generic segment, they
would not have been able to coordinate their actions and raise
prices above a competitive level unless they understood that Brown
& Williamson's entry into the segment was not a genuine effort
to compete with Liggett. If even one other firm misinterpreted
Brown & Williamson's entry as an effort to expand share, a
chain reaction of competitive responses would almost certainly have
resulted, and oligopoly discipline would have broken down, perhaps
irretrievably. "[O]nce the trust among rivals breaks down, it is as
hard to put back together again as was Humpty-Dumpty, and
non-collusive behavior is likely to take over." Samuelson &
Nordhaus, Economics, at 534.
Liggett argues that the means by which Brown & Williamson
signaled its anticompetitive intent to its rivals was through its
pricing structure. According to Liggett, maintaining existing list
prices while offering substantial rebates to wholesalers was a
signal to the other cigarette firms that Brown & Williamson did
not intend to attract additional smokers to the generic segment by
its entry. But a reason-
241
able jury could not conclude that this pricing structure
eliminated or rendered insignificant the risk that the other firms
might misunderstand Brown & Williamson's entry as a competitive
move. The likelihood that Brown & Williamson's rivals would
have regarded its pricing structure as an important signal is low,
given that Liggett itself, the purported target of the predation,
was already using similar rebates, as was R. J. Reynolds in
marketing its Doral branded generic. A Reynolds executive
responsible for Doral testified that given its and Liggett's use of
wholesaler rebates, Brown & Williamson could not have competed
effectively without them. App. 756. And despite extensive discovery
of the corporate records of R. J. Reynolds and Philip Morris, no
documents appeared that indicated any awareness of Brown &
Williamson's supposed signal by its principal rivals. Without
effective signaling, it is difficult to see how the alleged
predation could have had a reasonable chance of success through
oligopoly pricing.
Finally, although some of Brown & Williamson's corporate
planning documents speak of a desire to slow the growth of the
segment, no objective evidence of its conduct permits a reasonable
inference that it had any real prospect of doing so through
anticompetitive means. It is undisputed that when Brown &
Williamson introduced its generic cigarettes, it offered them to a
thousand wholesalers who had never before purchased generic
cigarettes. Record, Plaintiff's Exh. No. 4079; 87 Tr. 191; 88 Tr.
143-147. The inevitable effect of this marketing effort was to
expand the segment, as the new wholesalers recruited retail outlets
to carry generic cigarettes. Even with respect to wholesalers
already carrying generics, Brown & Williamson's unprecedented
volume rebates had a similar expansionary effect. Unlike many
branded cigarettes, generics came with no sales guarantee to the
wholesaler; any unsold stock represented pure loss to the
wholesaler. By providing substantial incentives for wholesalers to
place large orders, Brown & Williamson cre-
242
ated strong pressure for them to sell more generic cigarettes.
In addition, as we have already observed, see
supra, at 236,
many wholesalers passed portions of the rebates about which Liggett
complains on to consumers, thus dropping the retail price of
generics and further stimulating demand. Brown & Williamson
provided a further, direct stimulus, through some $10 million it
spent during the period of alleged predation placing discount
stickers on its generic cartons to reduce prices to the ultimate
consumer. 70 Tr. 246. In light of these uncontested facts about
Brown & Williamson's conduct, it is not reasonable to conclude
that Brown & Williamson threatened in a serious way to restrict
output, raise prices above a competitive level, and artificially
slow the growth of the economy segment of the national cigarette
market.
To be sure, Liggett's economic expert explained Liggett's theory
of predatory price discrimination and testified that he believed it
created a reasonable possibility that Brown & Williamson could
injure competition in the United States cigarette market as a
whole. App.600-614. But this does not alter our analysis. When an
expert opinion is not supported by sufficient facts to validate it
in the eyes of the law, or when indisputable record facts
contradict or otherwise render the opinion unreasonable, it cannot
support a jury's verdict. Cf.
J. Truett Payne Co.,
Inc., 451 U. S., at 564-565 (referring to expert economic
testimony not based on "documentary evidence as to the effect of
the discrimination on retail prices" as "weak" at best). Expert
testimony is useful as a guide to interpreting market facts, but it
is not a substitute for them. As we observed in
Matsushita,
"expert opinion evidence ... has little probative value in
comparison with the economic factors" that may dictate a particular
conclusion. 475 U. S., at 594, n. 19. Here, Liggett's expert based
his opinion that Brown & Williamson had a reasonable prospect
of recouping its predatory losses on three factors:
Brown & Williamson's black and white pricing structure,
cor-
243
porate documents showing an intent to shrink the price
differential between generic and branded cigarettes, and evidence
of below-cost pricing. App.601-602. Because, as we have explained,
this evidence is insufficient as a matter of law to support a
finding of primary-line injury under the Robinson-Patman Act, the
expert testimony cannot sustain the jury's verdict.
IV
We understand that the chain of reasoning by which we have
concluded that Brown & Williamson is entitled to judgment as a
matter of law is demanding. But a reasonable jury is presumed to
know and understand the law, the facts of the case, and the
realities of the market. We hold that the evidence cannot support a
finding that Brown & Williamson's alleged scheme was likely to
result in oligopolistic price coordination and sustained
supracompetitive pricing in the generic segment of the national
cigarette market. Without this, Brown & Williamson had no
reasonable prospect of recouping its predatory losses and could not
inflict the injury to competition the antitrust laws prohibit. The
judgment of the Court of Appeals is
Affirmed.
JUSTICE STEVENS, with whom JUSTICE WHITE and JUSTICE BLACKMUN
join, dissenting.
For a period of 18 months in 1984 and 1985, respondent Brown
& Williamson Tobacco Corporation (B& W) waged a price war
against petitioner, known then as Liggett & Myers (Liggett).
Liggett filed suit claiming that B&W's pricing practices
violated the Robinson-Patman Act.1 After a 115-
1 "It shall be unlawful for any person engaged in commerce, in
the course of such commerce, either directly or indirectly, to
discriminate in price between different purchasers of commodities
of like grade and quality ... where the effect of such
discrimination may be substantially to lessen competition or tend
to create a monopoly in any line of commerce, or to injure,
destroy, or prevent competition with any person who either
grants
244
STEVENS, J., dissenting
day trial, the jury agreed, and awarded Liggett substantial
damages. The Court of Appeals, however, found that Liggett could
not succeed on its claim, because B& W, as an independent actor
controlling only 12% of the national cigarette market, could not
injure competition.
Liggett Group, Inc. v.
Brown
&
Williamson Tobacco Corp., 964 F.2d
335,340-342 (CA41992).
Today, the Court properly rejects that holding. See
ante,
at 229-230. Instead of remanding the case to the Court of Appeals
to resolve the other issues raised by the parties, however, the
Court goes on to review portions of the voluminous trial record,
and comes to the conclusion that the evidence does not support the
jury's finding that B& W's price discrimination "had a
reasonable possibility of injuring competition." 2 In my opinion
the evidence is plainly sufficient to support that finding.
or knowingly receives the benefit of such discrimination, or
with customers of either of them .... " 15 U. S. C. § 13(a).
2 The jury gave an affirmative answer to the following special
issue:
"1. Did Brown & Williamson engage in price discrimination
that had a reasonable possibility of injuring competition in the
cigarette market as a whole in the United States?" App. 27.
The jury made its finding after being instructed that "injury to
competition" means "the injury to consumer welfare which results
when a competitor is able to raise and to maintain prices in a
market or well-defined submarket above competitive levels. In order
to injure competition in the cigarette market as a whole, Brown
& Williamson must be able to create a real possibility of both
driving out rivals by loss-creating price cutting and then holding
on to that advantage to recoup losses by raising and maintaining
prices at higher than competitive levels.
"You must remember that the Robinson-Patman Act was designed to
protect competition rather than just competitors and, therefore,
injury to competition does not mean injury to a competitor. Liggett
& Myers can not satisfy this element simply by showing that
they were injured by Brown & Williamson's conduct. To satisfy
this element, Liggett & Myers must show, by a preponderance of
the evidence, that Brown & Williamson's conduct had a
reasonable possibility of injuring competition in the cigarette
market and not just a reasonable possibility of injuring a
competitor in the cigarette market."
Id., at 829-830.
245
I
The fact that a price war may not have accomplished its purpose
as quickly or as completely as originally intended does not
immunize conduct that was illegal when it occurred. A proper
understanding of this case therefore requires a brief description
of the situation before the war began in July 1984; the events that
occurred during the period between July 1984 and the end of 1985;
and, finally, the facts bearing on the predictability of
competitive harm during or at the end of that period.3
Background
B& W is the third largest firm in a highly concentrated
industry.
Ante, at 213. For decades, the industry has been
marked by the same kind of supracompetitive pricing that is
characteristic of the textbook monopoly.4 Without the necessity of
actual agreement among the six major manufacturers, "prices for
cigarettes increased in lockstep, twice a year, for a number of
years, irrespective of the rate of inflation, changes in the costs
of production, or shifts in consumer demand."
Ibid.
Notwithstanding the controversy over the health effects of smoking
and the increase in the federal excise tax, profit margins improved
"handsomely" during the period between 1972 and 1983.5
3 As the majority notes, the procedural posture of this case
requires that we view the evidence in the light most favorable to
Liggett.
Ante, at 213. On review of a judgment
notwithstanding the verdict, the party against whom the judgment is
entered "must be given the benefit of every legitimate inference
that can be drawn from the evidence." See C. Wright & A.
Miller, Federal Practice and Procedure § 2528, pp. 563-564
(1971).
4 When the Court states that "[sJubstantial evidence suggests
that in recent decades, the industry reaped the benefits of prices
above a competitive level,"
ante, at 213, I assume it
accepts the proposition that a reasonable jury could find
abnormally high prices characteristic of this industry.
5 An internal B& W memorandum, dated May 15, 1984, states in
part:
"Manufacturer's price increases generally were below the rate of
inflation but margins improved handsomely due to favorable leaf
prices and
246
STEVENS, J., dissenting
The early 1980's brought two new developments to the cigarette
market. First, in 1980, when its share of the market had declined
to 2.3%, Liggett introduced a new line of generic cigarettes in
plain black and white packages, offered at an effective price of
approximately 30% less than branded cigarettes.
Ante, at
214. A B&W memorandum described this action as "the first time
that a [cigarette] manufacturer has used pricing as a strategic
marketing weapon in the U. S. since the depression era." App. 128.
This novel tactic proved successful; by 1984, Liggett's black and
whites represented about 4% of the total market and generated
substantial profits. The next development came in 1984, when R. J.
Reynolds (RJR), the second largest company in the industry,
"repositioned" one of its established brands, Doral, by selling it
at discount prices comparable to Liggett's black and whites. App.
117-118;
ante, at 215.
B&W executives prepared a number of internal memoranda
planning responses to these two market developments. See App. 120,
127, 157, 166. With respect to RJR, B&W decided to "follo[w]
precisely the pathway" of that company,
id., at 121,
reasoning that "introduction of a branded generic by B& W now
appears to be feasible as RJR has the clout and sales force
coverage to maintain the price on branded generics,"
id., at
145. Accordingly, B&W planned to introduce a new "branded
generic" of its own, known as Hallmark, to be sold at the same
prices as RJR's Doral.
Id., at 124, 142-144.
cost reductions associated with automation. For example, Brown
& Williamson's variable margin increased from $2.91/M in 1972
to $8.78/M in 1981, an increase of over 200%. In 1982, the industry
became much more aggressive on the pricing front, fueled by a 100%
increase in the Federal Excise Tax. Brown & Williamson's
variable margin increased from $10.78/M in 1982 and
[sic] to
$12.61/M in 1983.
"The impact of these pricing activities on the smoking public
was dramatic. The weighted average retail price of a pack of
cigarettes increased 56% between 1980 and 1983 (from $.63 to
$.98)." App. 127.
247
B&W took a more aggressive approach to Liggett's black and
whites. It decided to launch its own line of black and white
cigarettes with the "[s]ame style array" and list price as
Liggett's, but with "[s]uperior discounts/allowances."
Id.,
at 124. B&W estimated that its own black and whites would
generate a "trading profit" of $5.1 million for the second half of
1984 and $43.6 million for 1985.
Id., at 125. At the same
time, however, B&W, anticipating "competitive counterattacks,"
was "prepared to redistribute this entire amount in the form of
additional trade allowances."
Ibid. B& W's competitive
stance was confined to Liggett; the memorandum outlining B& W's
plans made no reference to the possibility of countermoves by RJR,
or to the use of B& W's trading profits to increase allowances
on any product other than black and whites.
This "dual approach" was designed to "provide B& W more
influence to manage up the prices of branded generics to improve
profitability,"
id., at 123, and also the opportunity to
participate in the economy market, with a view toward "manag[ing]
down generic volume,"
id., at 109. Notwithstanding its
ultimate aim to "limit generic segment growth,"
id., at 113,
B&W estimated an aggregate potential trading profit on black
and whites of $342 million for 1984 to 1988,
id., at 146.
Though B&W recognized that it might be required to use "some or
all of this potential trading profit" to maintain its market
position, it also believed that it would recoup its losses as the
segment became "more profitable, particularly as it approaches
maturity."
Ibid.
B& W began to implement its plan even before it made its
first shipment of black and whites in July 1984, with a series of
price announcements in June of that year. When B& W announced
its first volume discount schedule for distributors, Liggett
responded by increasing its own discounts. Though Liggett's
discounts remained lower than B& W's, B& W responded in
turn by increasing its rebates still further. After four or five
moves and countermoves, the dust settled
248
STEVENS, J., dissenting
with B&W's net prices to distributors lower than Liggett's.6
B&W's deep discounts not only forfeited all of its $48.7
million in projected trading profits for the next 18 months, but
actually resulted in sales below B& W's average variable cost.
Id., at 338-339.
Assessing the pre-July 1984 evidence tending to prove that
B& W was motivated by anticompetitive intent, the District
Court observed that the documentary evidence was "more voluminous
and detailed than any other reported case. This evidence not only
indicates B& W wanted to injure Liggett, it also details an
extensive plan to slow the growth of the generic cigarette
segment."
Liggett Group, Inc. v.
Brown &
Williamson Tobacco Corp., 748 F. Supp. 344, 354 (MDNC
1990).
The i8-Month Price War
The volume rebates offered by B& W to its wholesalers during
the 18-month period from July 1984 to December 1985 unquestionably
constituted price discrimination covered by § 2(a) of the Clayton
Act, 38 Stat. 730, as amended by the Robinson-Patman Act, 49 Stat.
1526, 15 U. S. C. § 13(a).7 Nor were the discounts justified by any
statutory or affirmative defense: They were not cost justified,S
App. 525, were
GOn June 4,1984, B&W announced a maximum rebate of
$0.30 per carton for purchases of over 8,000 cases per quarter; a
week later, Liggett announced a rebate of $0.20 on comparable
volumes. On June 21, B&W increased its rebate to $0.50, and a
day later, Liggett went to $0.43. After three more increases,
B& W settled at $0.80 per carton, while Liggett remained at
$0.73. See App. 327, 420-421.
7 That quantity discounts are covered by the Act, and prohibited
when they have the requisite effect on competition, has been firmly
established since our decision in
FTC v.
Morton Salt
Co., 334 U. S.
37, 42-44 (1948).
8
"Provided, That nothing herein contained shall prevent
differentials which make only due allowance for differences in the
cost of manufacture, sale, or delivery resulting from the differing
methods or quantities in which such commodities are to such
purchasers sold or delivered." § 13(a).
249
not good-faith efforts to meet the equally low price of a
competitor,9 and were not mere introductory or promotional
discounts, 91 Tr. 42.
The rebate program was intended to harm Liggett and in fact
caused it serious injury.lo The jury found that Liggett had
suffered actual damages of $49.6 million, App. 28, an amount close
to, but slightly larger than, the $48.7 million trading profit
B& W had indicated it would forgo in order to discipline
Liggett. See
supra, at 247. To inflict this injury, B& W
sustained a substantial loss. During the full 18-month period,
B& W's revenues ran consistently below its total variable
costs, with an average deficiency of approximately $0.30 per carton
and a total loss on B& W black and whites of almost $15
million. App. 338-339. That B& W executives were willing to
accept losses of this magnitude during the entire 18 months is
powerful evidence of their belief that prices ultimately could be
"managed up" to a level that would allow B& W to recoup its
investment.
The Aftermath
At the end of 1985, the list price of branded cigarettes was
$33.15 per carton, and the list price of black and whites, $19.75
per carton. App. 325. Over the next four years, the list price on
both branded and black and white cigarettes
9
"Provided, however, That nothing herein contained shall
prevent a seller rebutting the prima-facie case thus made by
showing that his lower price or the furnishing of services or
facilities to any purchaser or purchasers was made in good faith to
meet an equally low price of a competitor, or the services or
facilities furnished by a competitor." § 13(b).
The jury gave a negative answer to the following special
issue:
"3. Did Brown & Williamson engage in price discrimination in
good faith with the intention to meet, but not beat, the equally
low net prices of Liggett Group, Inc.?" App.27-28.
10 By offering its largest discounts to Liggett's 14 largest
customers, App. 168-169, 174, B&W not only put its "money where
the volume is,"
id., at 402, but also applied maximum
pressure to Liggett at a lesser cost to itself than would have
resulted from a nondiscriminatory price cut.
250
STEVENS, J., dissenting
increased twice a year, by identical amounts. The June 1989
increases brought the price of branded cigarettes to $46.15 per
carton, and the price of black and whites to $33.75-an amount even
higher than the price for branded cigarettes when the war ended in
December 1985.
Ibid.ll Because the rate of increase
was higher on black and whites than on brandeds, the price
differential between the two types of cigarettes narrowed,
ibid., from roughly 40% in 1985 to 27% in 1989. See 964 F.
2d, at 338.
The expert economist employed by Liggett testified that the
post-1985 price increases were unwarranted by increases in
manufacturing or other costs, taxes, or promotional expenditures.
App. 525. To be sure, some portion of the volume rebates granted
distributors was passed on to consumers in the form of promotional
activity, so that consumers did not feel the full brunt of the
price increases. Nevertheless, the record amply supports the
conclusion that the post-1985 price increases in list prices
produced higher consumer prices, as well as higher profits for the
manufacturers.12
The legal question presented by this evidence is whether the
facts as they existed during and at the close of the 18month
period, and all reasonable inferences to be drawn from
11 It is also true that these same years, other major
manufacturers entered the generic market and expanded their generic
sales.
Ante, at 217. Their entry is entirely consistent with
the possibility that lockstep increases in the price of generics
brought them to a level that was supracompetitive, though lower
than that charged on branded cigarettes.
12 "Q Does this mean that the price increases, which you
testified are happening twice a year, are used up in these consumer
promotions?
"A Not by any stretch of the imagination. Although there has
been an increase in the use of this type of promotional activity
over the last four or five years, the increase in that promotional
activity has been far outstripped by the list price increases. The
prices go up by a lot; the promotional activity, indeed, does go
up. But the promotional activity has not gone up by anywhere near
the magnitude of the list price increases. Further, those price
increases are not warranted by increasing costs, since the
manufacturing costs of making cigarettes have remained roughly
constant over the last five years." App.509.
251
those facts, see n. 3,
supra, justified the finding by
the jury that B& W's discriminatory pricing campaign "had a
reasonable possibility of injuring competition," see
supra,
at 244, and n. 2.
II
The Sherman Act, 26 Stat. 209, enacted in 1890, the Clayton Act,
38 Stat. 730, enacted in 1914, and the RobinsonPatman Act, which
amended the Clayton Act in 1936, all serve the purpose of
protecting competition. Because they have a common goal, the
statutes are similar in many respects. All three prohibit the
predatory practice of deliberately selling below cost to discipline
a competitor, either to drive the competitor out of business or to
raise prices to a level that will enable the predator to recover
its losses and, in the long run, earn additional profits. Sales
below cost and anticompetitive intent are elements of the violation
of all three statutes. Neither of those elements, however, is at
issue in this case. See
ante, at 231 (record contains
sufficient evidence of anticompetitive intent and below-cost
pricing).
The statutes do differ significantly with respect to one element
of the violation, the competitive consequences of predatory
conduct. Even here, however, the three statutes have one thing in
common: Not one of them requires proof that a predatory plan has
actually succeeded in accomplishing its objective. Section 1 of the
Sherman Act requires proof of a conspiracy. It is the joint plan to
restrain trade, however, and not its success, that is prohibited by
§ 1.
Nash v.
United States, 229 U. S. 373, 378
(1913). Section 2 of the Sherman Act applies to independent
conduct, and may be violated when there is a "dangerous
probability" that an attempt to achieve monopoly power will
succeed.
Swift &
Co. v.
United States,
196 U. S. 375,
396 (1905). The Clayton Act goes beyond the "dangerous probability"
standard to cover price discrimination "where the effect of such
discrimination may be to substantially lessen competition or tend
to create a monopoly in any line of commerce." § 2, 38 Stat.
730.
252
STEVENS, J., dissenting
The element of competitive injury as defined in the
Robinson-Patman Act is broader stillP See S. Rep. No. 1502, 74th
Cong., 2d Sess., 4 (1936) (Act substantially broadens similar
clause of Clayton Act).14 The Robinson-Patman Act was designed to
reach discriminations "in their incipiency, before the harm to
competition is effected. It is enough that they 'may' have the
prescribed effect."
Corn Products Refining Co. v.
FTC, 324 U. S.
726, 738 (1945) (internal quotation marks omitted). Or, as the
Report of the Senate Judiciary Committee on the proposed Act
explained, "to catch the weed in the seed will keep it from coming
to flower." S. Rep. No. 1502, at 4.
Accordingly, our leading case concerning discriminatory volume
rebates described the scope of the Act as follows:
13 See text of statute, n. 1,
supra.
14 One of the purposes of broadening the Clayton Act's
competitive injury language in the Robinson-Patman Act was to
provide more effective protection against predatory price cutting.
As the Attorney General's National Committee to Study the Antitrust
Laws explained in its 1955 report:
"In some circumstances, to be sure, injury to even a single
competitor should bring the Act into play. Predatory price cutting
designed to eliminate a smaller business rival, for example, is a
practice which inevitably frustrates competition by excluding
competitors from the market or deliberately impairing their
competitive strength. The invalidation of such deliberate price
slashes for the purpose of destroying even a single competitor,
moreover, accords distinct recognition to the narrower tests of
'injury' added to the price discrimination provisions of the
Clayton Act through the 1936 Robinson-Patman amendments. The
discrimination provisions in the original Clayton Act were feared
by the legislators as inadequate to check the victimization of
individual businessmen by predatory price cuts that nevertheless
created no
general impairment of competitive conditions in a
wider market. To reach such destructive price cuts endangering the
survival of smaller rivals of a powerful seller was an express
objective of the liberalizing amendments in the 'injury' clause of
the Robinson-Patman Act." Report of the Attorney General's National
Committee to Study the Antitrust Laws 165-166 (1955) (footnotes
omitted).
253
"There are specific findings that such injuries had resulted
from respondent's discounts, although the statute does not require
the Commission to find that injury has actually resulted. The
statute requires no more than that the effect of the prohibited
price discriminations 'may be substantially to lessen competition
... or to injure, destroy, or prevent competition.' After a careful
consideration of this provision of the RobinsonPatman Act, we have
said that 'the statute does not require that the discrimination
must in fact have harmed competition, but only that there is a
reasonable possibility that they "may" have such an effect.'
Corn Products Co. v. Federal Trade Comm'n, 324 U. S. 726, 742."
FTC v. Morton Salt Co., 334 U. S. 37, 46
(1948).
See also
Falls City Industries, Inc. v.
Vanco
Beverage, Inc., 460 U. S. 428, 435 (1983)
("In keeping with the RobinsonPatman Act's prophylactic purpose, §
2(a) does not require that the discriminations must in fact have
harmed competition" (internal quotation marks omitted)).
In this case, then, Liggett need not show any actual harm to
competition, but only the reasonable possibility that such harm
would flow from B& W's conduct. The evidence presented supports
the conclusion that B& W's price war was intended to discipline
Liggett for its unprecedented use of price competition in an
industry that had enjoyed handsome supracompetitive profits for
about half a century. The evidence also demonstrates that B&W
executives were confident enough in the feasibility of their plan
that they were willing to invest millions of company dollars in its
outcome. And all of this, of course, must be viewed against a
background of supracompetitive, parallel pricing, in which "prices
for cigarettes increased in lockstep, twice a year ... irrespective
of the rate of inflation, changes in the cost of production, or
shifts in consumer demand,"
ante, at 213, bringing with them
dramatic increases in profit margins, see n. 5,
supra. In
this context, it is surely fair to infer that B& W's
discipli-
254
STEVENS, J., dissenting
nary program had a reasonable prospect of persuading Liggett to
forgo its maverick price reductions and return to parallel pricing
policies, and thus to restore the same kind of supracompetitive
pricing that had characterized the industry in the past. When the
facts are viewed in the light most favorable to Liggett, I think it
clear that there is sufficient evidence in the record that the
"reasonable possibility" of competitive injury required by the
statute actually existed.
III
After 115 days of trial, during which it considered 2,884
exhibits, 85 deposition excerpts, and testimony from 23 live
witnesses, the jury deliberated for nine days and then returned a
verdict finding that B& W engaged in price discrimination with
a "reasonable possibility of injuring competition." 748 F. Supp.,
at 348, n. 4; n. 2,
supra. The Court's contrary conclusion
rests on a hodgepodge of legal, factual, and economic propositions
that are insufficient, alone or together, to overcome the jury's
assessment of the evidence.
First, as a matter of law, the Court reminds us that the
Robinson-Patman Act is concerned with consumer welfare and
competition, as opposed to protecting individual competitors from
harm; "the antitrust laws were passed for the protection of
competition, not competitors." See
ante, at 224 (internal
quotations marks and emphasis omitted). For that reason, predatory
price cutting is not unlawful unless the predator has a reasonable
prospect of recouping his investment from supracompetitive profits.
Ibid. The jury, of course, was so instructed, see n. 2,
supra, and no one questions that proposition here.
As a matter of fact, the Court emphasizes the growth in the
generic segment following B& W's entry. As the Court notes,
generics' expansion to over 12% of the total market by 1988 exceeds
B& W's own forecast that the segment would grow to only about
10%, assuming no entry by B&W.
Ante, at 234. What these
figures do not do, however, is answer the
255
relevant question: whether the prices of generic cigarettes
during the late 1980's were competitive or supracompetitive.
On this point, there is ample, uncontradicted evidence that the
list prices on generic cigarettes, as well as the prices on branded
cigarettes, rose regularly and significantly during the late
1980's, in a fashion remarkably similar to the price change
patterns that characterized the industry in the 1970's when
supracompetitive, oligopolistic pricing admittedly prevailed. See
supra, at 245;
ante, at 213. Given its knowledge of
the industry's history of parallel pricing, I think the jury
plainly was entitled to draw an inference that these increased
prices were supracompetitive.
The Court responds to this evidence dismissively, suggesting
that list prices have no bearing on the question because
promotional activities of the cigarette manufacturers may have
offset such price increases.
Ante, at 235-236. That response
is insufficient for three reasons. First, the promotions to which
the majority refers related primarily to branded cigarettes;
accordingly, while they narrowed the differential between branded
prices and black and white prices, they did not reduce the consumer
price of black and whites. See 33 Tr. 208-210. Second, the Court's
speculation is inconsistent with record evidence that the
semiannual list price increases were not offset by consumer
promotions. See n. 12,
supra. See also
ante, at 218
("at least some portion of the list price increase was reflected in
a higher net price to the consumer"). Finally, to the extent there
is a dispute regarding the effect of promotional activities on
consumer prices for generics, the jury presumably resolved that
dispute in Liggett's favor, and the Court's contrary speculation is
an insufficient basis for setting aside that verdict.15
15 In finding an absence of actual supracompetitive pricing, the
Court also relies on the testimony of Liggett executives, who
stated that industry prices were fair. Illustrative is the
following exchange:
"Q I want to know-yes or no-sir, whether or not you say that the
price you charged for branded cigarettes, which is the same price
you say
256
STEVENS, J., dissenting
As a matter of economics, the Court reminds us that price
cutting is generally procompetitive, and hence a "boon to
consumers."
Ante, at 224. This is true, however, only so
long as reduced prices do not fall below cost, as the cases cited
by the majority make clear.16 When a predator deliberately engages
in below-cost pricing targeted at a particular competitor over a
sustained period of time, then price cutting raises a credible
inference that harm to compe-
everybody else charged, was a fair and equitable price for that
product to the American consumer.
"A It's what the industry set, and based on that it's a fair
price."
App.396.
The problem with this testimony, and testimony like it, is that
it relates to the period before the price war, as well as after,
see
id., at 392, when there is no real dispute but that
prices were supracompetitive. ("[T]he profits in the cigarette
industry are the best of any industry I've been associated with,
very much so."
Ibid.) Some of the testimony cited by the
Court, for instance, is that of an outside director who served only
from 1977 or 1978 until 1980, see 64 Tr. 51-56, cited
ante,
at 237; his belief in the competitiveness of his industry must be
viewed against the "[s]ubstantial evidence suggest[ing] that in
recent decades, the industry reaped the benefits of prices above a
competitive level" to which the majority itself refers,
ante, at 213.
The jury was, of course, entitled to discount the probative
force of testimony from executives to the effect that there was no
collusion among tobacco manufacturers, App. 397-398, and that they
had appeared before a congressional committee to vouch for the
competitive nature of their industry,
id., at 623-631. The
jury was also free to give greater weight to the documentary
evidence presented, the inferences to be drawn therefrom, and the
testimony of experts who agreed with the textbook characterization
of the industry. See App. 640-645; R. Tennant, American Cigarette
Industry 342 (1950).
16 In
Atlantic Richfield Co. v.
USA Petroleum Co.,
495 U. S. 328,
339-340 (1990), for example, we noted that low prices benefit
consumers "so long as they are above predatory levels." In
Cargill, Inc. v.
Monfort of Colorado, Inc., 479 U. S. 104, 118
(1986), we recognized that price cutting of a predatory nature is
"inimical" to competition, and limited our approving comments to
pricing that is "above some measure of incremental costs."
Id., at 117-118, and n. 12 (internal quotation marks
omitted).
257
tition is likely to ensue.17 None of our cases disputes that
proposition.
Also as a matter of economics, the Court insists that a
predatory pricing program in an oligopoly is unlikely to succeed
absent actual conspiracy. Though it has rejected a somewhat
stronger version of this proposition as a rule of decision, see
ante, at 229-230, the Court comes back to the same economic
theory, relying on the supposition that an "anticompetitive minuet
is most difficult to compose and to perform, even for a disciplined
oligopoly,"
ante, at 228. See
ante, at 238-243
(implausibility of tacit coordination among cigarette oligopolists
in 1980's). I would suppose, however, that the professional
performers who had danced the minuet for 40 to 50 years would be
better able to predict whether their favorite partners would follow
them in the future than would an outsider, who might not know the
difference between Haydn and Mozart.18 In any event, the jury
was
17
Utah Pie Co. v.
Continental Baking Co.,
386 U. S. 685,
696-698, and n. 12 (1967). See also
Lomar Wholesale Grocery,
Inc. v.
Dieter's Gourmet Foods, Inc., 824 F.2d
582, 596
(CA8 1987) (threat to competition may be shown
by predatory intent, combined with injury to competitor), cert.
denied, 484 U. S. 1010 (1988);
Double H Plastics, Inc. v.
Sonoco Products Co., 732 F.2d
351, 354
(CA3) (threat to competition may be shown by
evidence of predatory intent, in form of below-cost pricing), cert.
denied,
469 U. S.
900 (1984);
D. E. Rogers Associates, Inc. v.
Gardner-Denver Co., 718 F.2d
1431, 1439
(CA6 1983) (anticompetitive effect may be
proven inferentially from anticompetitive intent), cert. denied,
467 U. S. 1242 (1984). See generally
Board of Trade of
Chicago v.
United States, 246 U. S. 231, 238 (1918) (in
determining whether rule violates antitrust law, "knowledge of
intent may help the court to interpret facts and to predict
consequences").
18Judge Easterbrook has made the same point: ''Wisdom lags far
behind the market
"[L]awyers know less about the business than the people they
represent .... The judge knows even less about the business than
the lawyers." Easterbrook, The Limits of Antitrust, 63 Texas L.
Rev. 1, 5 (1984).
258
STEVENS, J., dissenting
surely entitled to infer that at the time of the price war
itself, B& W reasonably believed that it could signal its
intentions to its fellow oligopolists, see App. 61, assuring their
continued cooperation.
Perhaps the Court's most significant error is the assumption
that seems to pervade much of the final sections of its opinion:
that Liggett had the burden of proving either the actuality of
supracompetitive pricing, or the actuality of tacit collusion. See
ante, at 233-237 (finding absence of actual supracompetitive
pricing), 238-243 (finding absence of evidence suggesting actual
coordination). In my opinion, the jury was entitled to infer from
the succession of price increases after 1985-when the prices for
branded and generic cigarettes increased every six months from
$33.15 and $19.75, respectively, to $46.15 and $33.75-that B&
W's below-cost pricing actually produced supracompetitive prices,
with the help of tacit collusion among the players. See
supra, at 255. But even if that were not so clear, the jury
would surely be entitled to infer that B& W's predatory plan,
in which it invested millions of dollars for the purpose of
achieving an admittedly anticompetitive result, carried a
"reasonable possibility" of injuring competition.
Accordingly, I respectfully dissent.
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