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Law School Case Brief

Brooke Grp. v. Brown & Williamson Tobacco Corp. - 509 U.S. 209, 113 S. Ct. 2578 (1993)

Rule:

A 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. 

Facts:

Cigarette manufacturing is a concentrated industry dominated by only six firms, including the two parties here. In 1980, petitioner Brooke Group Ltd. (“Brooke”) 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 Brooke's net price. Brooke 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 Brooke, 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.

Issue:

Did the appellate court err in affirming the trial court's determination that Brown & Williamson was entitled to judgment as a matter of law in Brooke’s price discrimination suit?

Answer:

No

Conclusion:

Although it refused to create a per se rule of nonliability for predatory price discrimination through oligopolistic price coordination, the Supreme Court held that Brooke had failed to demonstrate competitive injury as a matter of law. Specifically, it held that the evidence did not prove that Brown & Williamson had a reasonable prospect of recovering its losses from its alleged below-cost pricing scheme through slowing the growth of the generic market. The lower court's judgment was thereby affirmed.

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