Weyerhaeuser Co. V. Ross-Simmons Hardwood Term Paper

Length: 10 pages Sources: 5 Subject: Business - Law Type: Term Paper Paper: #27636272 Related Topics: Antitrust, Antitrust Practices, Exclusionary Rule, Monopoly
Excerpt from Term Paper :

, 93 F. 3d 1358 (CA7 1996) for its statement that "monopsony pricing is analytically the same as monopoly...pricing and is so treated by the law." Based on this determination that the two concepts are analytically similar, the Court thus concludes that therefore "similar legal standards should apply to claims of monopolization and to claims of monopsonization." Reasoning that predatory-pricing is fundamentally an act of monopolization and that predatory-bidding is fundamentally an act of monopsonization, and that both claims involve the deliberate use of unilateral pricing measures for anticompetitive purposes, the Court finds that the logically same legal standard should therefore govern actions brought on both.

Based on this reasoning, the Court concludes that "the general theoretical similarities of monopoly and monopsony combined with the theoretical and practical similarities of predatory pricing and predatory bidding convince us that our two-pronged Brooke Group test should apply to predatory-bidding claims." Accordingly, under the first prong, in a predatory-bidding action the plaintiff must prove that "the alleged predatory bidding led to below-cost pricing of the predator's outputs." To meet this burden, the Court states that "only higher bidding that leads to below-cost pricing in the relevant output market will suffice as a basis for liability for predatory bidding." Under the second prong of the test, the plaintiff must prove that "the defendant has a dangerous probability of recouping the losses incurred in bidding up input prices through the exercise of monopsony power." Because in the case at hand Respondent failed to meet the standard of proof as established by Brooke Group, they cannot prevail in its predatory-bidding theory of liability.

Consequences of the Weyerhaeuser Decision

The Supreme Court relies heavily on the previously mentioned reasoning for its Brooke Group decision. However, since the Brooke Group decision, significant scholarly research has essentially undermined the Brook Group's underlying economic assumption, thus meaning that Weyerhaeuser and all subsequent cases are ruled on false pretenses of reality.

According to in-depth research conducted by numerous modern economist, along with the American Antitrust Institute and the Forest Industry Participants, the factual premises of the Brooke Group decision holding that predatory pricing was economically irrational, rare and rarely successful has since been disproved. The court based its Brooke Group decision on this presumption, making the Brooke Group test an appropriate protection against the "threat of a spate of false positive results that would chill procompetitive conduct in the form of lower prices for consumer." However, this underlying rational was based on faulty research.

Even in 1976, Judge Posner warned "literature on predatory pricing had been excessively influenced by a 1958 pathbreaking article on the Standard Oil Trust." Richard Posner, Antitrust Law: An Economic Perspective (1976). More so, prominent economist Alfred Kahn stated in 2006 that "only the economically brainwashed can deny that price discrimination has also been used as a means of predation, to the ultimate injury of consumers." Further, such noteworthy economist as Boton, Brodley and Riordan concluded: "It is now the consensus view in modern economics that predatory pricing can be successfully and fully rational business strategy. In addition, several sophisticated empirical studies have confirmed the use of predatory pricing strategies. The courts, however, have failed to incorporate the modern writing into judicial decisions, relying instead on earlier theory that is no longer generally accepted."

Whereas at the time of the Brooke Group decision predatory pricing was not common and thus did not effect competition, such is no longer the case. Since the time of the Brooke Group decision, predatory...

...

For example, the government itself has moved to regulate the airline industry against their industry-specific predatory strategies that are based on predatory pricing.

The attorney's for the Respondent summed up the change in the use of predatory pricing in their brief in stating that: "The assumptions of complete information that underlie Brooke Group and the work it relied upon, and the dated theoretical world of partial equilibrium that focused strictly on static and direct effects, have been overtaken since Brooke Group by materially more sophisticated general equilibrium analysis that takes into account long and short run effects in a broad range of markets in a world of incomplete and often asymmetric information." In other words, the reasoning that the Court based its decision on in Brooke Group and thus also based its decision on in Weyerhaeuser is based on a premise of business practice that is no longer a reality. Instead, by maintaining an outdated test, the Courts have essentially undermined the purpose of antitrust legislation, allowing companies to create monopolies, eliminate competition and thus harm the consumer through such strategic business actions as carefully planned predatory pricing and predatory bidding.

Because of this faulty court decisions, large corporations are able to use predatory pricing and predatory bidding as a strategy to eliminate competition. Without competition, the consumer loses because, as has been previously discussed, the prices are increased after competition is eliminated. Originally, this is what antitrust legislations, such as the Sherman Antitrust laws, were enacted to prevent. However, because of decisions such as Brooke Group and Weyerhaeuser that rely on purely legal principals and not economic realities, the purpose of the antitrust laws, which were originally enacted based on an economic reality of monopolies, is extinguished.

More so, because of the nearly impossible burden established by the two-prong test applied in both decisions, companies who are the victim of predatory pricing and predatory bidding are discouraged from taking legal action. The result is that the large corporations have been given a license, or free-range, to incorporate these essentially monopoly creating strategies into their overall business plan.

Although prior to the Brooke Group decision these practices were indeed limited due to the general consensus that they would most likely be held as being in violation of antitrust laws, since the Brooke Group decision's card blanc power to use these strategies, they have become commonplace in the market. Thus, the Supreme Court's decision to apply the same the standard regardless of drastically changed circumstances has effectively created a loophole for the creation of monopolies. The real loser in this decision is the consumer, the exact person whom the Supreme Court alleges to be protecting with its irrational decision.

Bibliography

Bolton, Patrick, et. al. (2000): Predatory Pricing: Strategic Theory and Legal Policy. 88 Geo.L.J. 22239.

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).

Hovencamp, Herbert. (1994): Federal Antitrust Law Policy: The Law of Competition and Its Practice. Minneapolis: West Group Publishing.

Khan v. State Oil Company, 53 F.3d 1358 (CA7 1996).

Ross-Sherman Hardwood Lumber Company. (2005): Respondent's Brief to the Court. http://www.abanet.org/publiced/preview/briefs/pdfs/06-07/05-381_Respondent.pdf

Sherman Antitrust Act. 15 United States Code section 2.

Weyerhaeuser Company v. Ross-Simmons Hardwood…

Sources Used in Documents:

Bibliography

Bolton, Patrick, et. al. (2000): Predatory Pricing: Strategic Theory and Legal Policy. 88 Geo.L.J. 22239.

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).

Hovencamp, Herbert. (1994): Federal Antitrust Law Policy: The Law of Competition and Its Practice. Minneapolis: West Group Publishing.

Khan v. State Oil Company, 53 F.3d 1358 (CA7 1996).


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