Relevant Court cases

Barry Write Corp. v. ITT Grinnell Corp (1983)

Case Summary

  • ITT Grinnell was accused of excluding Barry Wright from the market for mechanical snubbers (components used in constructing nuclear power plants)
    • Grinnell offered to sign an exclusive contract with Barry Wright from 1977-1979 and help fund their startup if Barry Wright could have a full product line ready
    • Barry Wright could not keep up with Grinnell’s demands and Grinnell instead bought from Pacific Scientific Co. at a bulk discount
  • Barry Wright alleged that Pacific’s bulk discount was meant to exclude Barry Wright from the market

Court Decision

  • The courts ruled against Barry Wright Corp.
    • The prices Pacific offered were above Pacific’s ATC
    • Pacific had a lot of excess capacity, so producing more snubbers would lower Pacific’s ATC
    • Encouraging a price cut in this fashion brings us closer to the competitive outcome

Masushita Electric Industrial Co. v. Zenith Radio Corp. (1986)

Case Summary

  • Zenith Radio alleged that Matsushita Electric had formed a coalition monopoly in Japan and used the excess profits to finance predatory pricing in the US electronics market
    • Zenith argued that if the practice were to be allowed, US consumers would eventually face monopoly prices

Court Decision

  • The judge ruled in favor of Matsuhista, because plaintiff’s argument was inconsistent with the evidence at hand which includes structural characteristics of the market (incentive logic filter)
    • First, Zenith’s market share was not consistent with the predatory pricing story; (1) the alleged predators had held 5% of the U.S. market (2) The alleged prey, Zenith still accounted for 24% market share, while another competitor accounted for 20% market share after twenty full years of alleged predatory pricing
    • After twenty years of not able to successfully pull through predatory pricing (Matsushita didn’t have a US monopoly), it is far-fetched to argue that it will ever be able to recoup the losses
    • There was no explicit evidence of collusion
    • This case set precedent for the incentive logic filter: the only antitrust cases that should go to court are the ones where the evidence is consistent with economic incentives. Otherwise, an argument is either logically invalid or inconsistent with the fact, and it is a fatal flaw to an antitrust case

Brook Group Ltd. v. Brown & Williamson Tobacco Corp. (1993)

  • Brook Group alleged that a rival cigarette producer, Brown & Williamson, engaged in predatory pricing
    • Brook Group won in a jury court but it was later overturned by the court of appeals and the Supreme Court
  • This case set two precedents:
    1. The plaintiff must show the defendant charged prices below some “appropriate measure of cost”
    2. The plaintiff must show the defendant planned on recouping its losses from charging a price below cost