United States v. AMR Corp. - 335 F.3d 1109 (10th Cir. 2003)

Rule:

The United States Supreme Court has formulated two prerequisites to recovery on a predatory pricing claim, conditions that "are not easy to establish." First, the government must prove that the prices complained of are below an appropriate measure of the business' costs. While the first element is crucial, that below-cost pricing may impose painful losses on its target is of no moment to the antitrust laws if competition is not injured. Thus, the second prerequisite to recovery on a predatory pricing claim, a demonstration that the business had a dangerous probability of recouping its investment in below-cost prices, must also be met. Without a dangerous probability of recoupment, competition remains unharmed even if individual competitors suffer. The antitrust laws were passed for the protection of competition, not competitors.

Facts:

The Government brought the present suit against AMR Corporation, American Airlines, Inc., and American Eagle Holding Corporation ("American"), alleging monopolization and attempted monopolization through predatory pricing in violation of § 2 of the Sherman Act, 15 U.S.C. § 2. The Government alleged that the airline engaged in multiple episodes of price predation in four city-pair airline markets, all connected to the airline's hub at Dallas/Fort Worth International Airport, with the ultimate purpose of using the reputation for predatory pricing it earned in those four markets to defend a monopoly at the hub. In the Government's view, the airline's combined response of lowering prices, increasing capacity, and altering yield management in response to low cost carrier competition constituted an unlawful, anticompetitive response. Finding that the government failed to demonstrate the existence of a genuine issue of material fact as to either of these allegations, the district court granted summary judgment in favor of American. The Government appealed.

Issue:

Did the Government sufficiently establish the existence of a genuine issue of material fact as to whether the airline had priced below an appropriate measure of cost, thereby making the grant of summary judgment in favor of the airline unwarranted?

Answer:

No.

Conclusion:

The Court noted that in order to establish a predatory pricing claim, two requisites must be established: (i) the government must prove that the prices complained of are below an appropriate measure of the business' costs; and (ii) a demonstration that the business had a dangerous probability of recouping its investment in below-cost prices, must also be met. In this case, the Court determined that the four tests proffered by the Government to measure reliably incremental costs were invalid as a matter of law, fatally flawed in their application, and fundamentally unreliable. Therefore, the court found that it was uncontested that the airline did not price below average variable cost for any route as a whole. Thus, the Government failed to establish the first requisite, i.e., pricing below an appropriate measure of cost. According to the Court, the conclusion that the government has not succeeded in establishing a genuine issue of material fact as to the first prong rendered an examination of whether the government has succeeded in creating a genuine issue of material fact as to the second prong unnecessary. Accordingly, the Court affirmed the judgment of the lower court.