Predatory Pricing Conspiracies Prosecutions
Overview
Predatory pricing occurs when one or more firms deliberately set prices below their costs with the intent to eliminate competitors from the market, gain monopoly power, and later raise prices to recoup losses. When done in conspiracy — i.e., multiple firms colluding to engage in predatory pricing — it constitutes a serious violation of antitrust laws.
Relevant Laws
1. Sherman Antitrust Act, 15 U.S.C. §§ 1-7
Section 1 prohibits contracts, combinations, or conspiracies that restrain trade (e.g., agreements to fix prices or engage in predatory pricing).
Section 2 prohibits monopolization and attempts to monopolize.
2. Federal Trade Commission Act (FTC Act), 15 U.S.C. §§ 41-58
Prohibits unfair methods of competition, including predatory pricing schemes.
Elements of Predatory Pricing Conspiracy
Agreement among competitors to sell below cost.
Intent to eliminate competitors.
Likelihood of recouping losses by raising prices later.
Impact on competition and consumer harm.
Key Case Law: Detailed Analysis
1. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993)
Facts:
Brown & Williamson was accused of predatory pricing to eliminate Brooke Group, a competitor in the cigarette market.
Holding:
The Supreme Court established a two-prong test for predatory pricing claims:
The plaintiff must prove prices were below an appropriate measure of cost.
The plaintiff must prove the defendant had a dangerous probability of recouping losses through higher prices later.
Significance:
Set the standard requiring proof of both below-cost pricing and likelihood of recoupment, raising the bar for successful predatory pricing claims.
2. United States v. U.S. Gypsum Co., 438 U.S. 422 (1978)
Facts:
Several gypsum manufacturers conspired to fix prices and divide markets, including engaging in predatory pricing tactics.
Holding:
The Supreme Court upheld convictions under Sherman Act Section 1 for conspiracy to fix prices and restrain trade.
Outcome:
Affirmed that conspiracies involving predatory pricing violate antitrust laws.
3. In re High Fructose Corn Syrup Antitrust Litigation, 295 F.3d 651 (7th Cir. 2002)
Facts:
Corn syrup producers conspired to maintain supracompetitive prices and engaged in below-cost pricing in certain markets to exclude competitors.
Holding:
The court allowed the conspiracy and predatory pricing claims to proceed, emphasizing the need for strong evidence of intent and effect.
Significance:
Demonstrated how predatory pricing fits within broader antitrust conspiracy cases.
4. Conwood Co. v. United States Tobacco Co., 290 F.3d 768 (6th Cir. 2002)
Facts:
U.S. Tobacco was found to have engaged in predatory pricing and other anticompetitive acts to drive Conwood out of the smokeless tobacco market.
Holding:
The Sixth Circuit upheld the jury verdict finding predatory pricing and awarded significant damages.
Outcome:
Highlighted consequences of conspiratorial predatory pricing in antitrust enforcement.
5. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993)
Facts:
Alleged predatory pricing conspiracy among sports equipment manufacturers.
Holding:
The Supreme Court emphasized the importance of proving actual injury to competition and not merely harm to a competitor.
Significance:
Clarified that antitrust laws protect competition, not individual competitors.
6. Timberlane Lumber Co. v. Bank of America, 549 F.2d 597 (9th Cir. 1976)
Facts:
Allegations included conspiracies to engage in predatory pricing in lumber sales.
Holding:
Court examined elements including below-cost pricing and intent to monopolize, focusing on antitrust damages standards.
Outcome:
Set precedents on economic analysis of predatory pricing conspiracies.
Summary Table of Cases
| Case | Year | Court | Key Issue | Outcome/Significance |
|---|---|---|---|---|
| Brooke Group Ltd. v. Brown & Williamson | 1993 | U.S. Supreme Court | Established two-prong test for predatory pricing | Raised proof standard for predatory pricing claims |
| United States v. U.S. Gypsum Co. | 1978 | U.S. Supreme Court | Price fixing & predatory pricing conspiracy | Upheld conspiracy convictions under Sherman Act |
| In re High Fructose Corn Syrup | 2002 | 7th Circuit | Predatory pricing as part of antitrust conspiracy | Allowed claims with strong evidence of intent |
| Conwood Co. v. United States Tobacco | 2002 | 6th Circuit | Predatory pricing conspiracy & damages | Affirmed verdict, emphasizing enforcement |
| Spectrum Sports, Inc. v. McQuillan | 1993 | U.S. Supreme Court | Proof of injury to competition vs. competitor | Clarified antitrust protects competition, not competitors |
| Timberlane Lumber Co. v. Bank of America | 1976 | 9th Circuit | Economic standards in predatory pricing claims | Set analytical standards for damages |
Conclusion
Predatory pricing conspiracies are prosecuted under the Sherman Act when multiple competitors collude to sell below cost intending to eliminate rivals and recoup losses later. The Supreme Court’s landmark Brooke Group decision requires proof of below-cost pricing and a dangerous probability of recoupment, making these claims challenging but enforceable. Courts require clear evidence of intent and actual competitive harm. Penalties can include injunctions, treble damages, and criminal sanctions in severe cases.
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