Martin Silver is a practicing attorney with offices in Hauppauge, N.Y. He was a flooring installer before and during the time he went to law school and has since represented numerous industry people and companies. To contact him, call 631-435-0700.
The price war
Before reducing its prices through various "specials," one manufacturer recently told a competing mill, "We're going to run you out of business. Your days are numbered." The smaller company eventually did go out of business.
On the sound legal theory that "they can't do that, can they?" the out-of-business producer sued the under-pricing competitor. A jury found the competition did indeed commit a violation of the Anti-Trust Laws and the Robinson-Patman Act by engaging in price discrimination and pricing below cost. It awarded the plaintiff total damages in the sum of $27.9 million.
That's what the jury did. What the judge did, however, was an entirely different matter. At the request of the "guilty" mill, the judge, in effect, "threw out" the jury's finding upon his judgment the evidence and the law could not support such a verdict.
The company that almost had $27.9 million in hand was obviously upset with the judge's decision, and so appealed his action to the federal circuit court of appeals. The appeals court agreed with the judge and allowed his dismissal of the case to stand.
The judge's ruling, as supported by the appeals court, was based primarily upon the finding that the supposedly injured company had been unable to prove the competition had engaged in conduct that rose to the level of "predatory pricing" as required by the anti-trust statutes. In order to establish this type of claim, the judge held the plaintiff must prove the market structure in that business is sufficiently non-competitive so as to make it possible for the "predator" to make up its short-term losses through long-run monopoly pricing.
The purpose of our anti-trust law is to prevent monopolies, which will prevent competition. Capitalism, it is felt, is best served by a free market system with, for the most part, as little as possible government interference. A lawsuit such as this one is, in effect, a request to the government to interfere with the free market. To be successful, this type of suit must fall within the very specific boundaries of the anti-trust laws. These laws, we should remember, are intended primarily to protect the consuming public and not to necessarily protect one competitor from another.
In this case, the court determined the parties' business remained highly competitive regardless of the fact one had forced the other out. Although the market share of the larger company did go up as a result of its pricing and its competitor's loss of business, the evidence at the trial showed a healthy, competitive market even during this "war."
The continued competition, according to the decision, meant the under-pricing company would not be able to monopolize the market to the extent it would be able to raise its prices so as to both recoup its losses and to overcharge the public. The judge found in this situation the evidence of entry and expansion of other producers in the same market ruled out the success of "maintaining a monopoly long enough to recoup the losses and to harvest some additional gain."
In fact, the judge continued, "Any attempt to raise prices creates fresh opportunity for its rivals and for the other firms that have been flocking to the business. In competitive markets, those who cannot keep up with the technology or pricing intended to extinguish them are appropriately left scratching in the dust."
Since prices could not later be raised to take advantage of the situation, what we had, according to the court, was merely "competition" which could not be restrained even if one competitor actually intended to and did drive another competitor out of business through below-cost pricing.
Edited by Admin 4/21/2008