Boeing and Other Antitrust Cases - Case Study Example

Economics (Antitrust case) Task: Economics (Antitrust case Provide background information on the relevant market/industryThe market (the generic segment) is notable for its high bargain prices from the competition experienced (Duke, 2003). It also has a vast variety of products. It entails the sale of generic cigarettes. Genuine generics are in plain white packages with their contents labeled using black letters. They are known as black and whites. There are private label generics in the market. Their packaging has the purchaser’s mark used for trade. There are also the branded generics in the market. They bear the brand names on their package. The sale of the three aforementioned types of generics had with least advertisement cost incurred and at a considerable discount rates. Brown & William got to the generics industry in the year 1984. By then, black and whites were the dominant type of generics in the market. It was under the ownership of Liggett. This led in sales of generic cigarettes and high its high contribution in the domestic cigarette market, in the country. The industry experienced a decline given the effects of broad market trends, which did not favor the market. There was a remarkable decline in cigarette demand in the 1980s, in the country. Liggett, therefore, experienced severe effects of the unfavorable market trends against it. There were also the effects of non-price competition in the market. The market share of Liggett also experienced a shrink. It faced the possibility of getting out of business. Liggett decided to strategize in efforts to remain in the industry. They reduced the price of black and white generics. Liggett also embarked on promotion efforts through rebates on wholesale terms. It, therefore, adopted the low price as its competitive power in the industry. The brand gained market demand against others in the market. This had detrimental effects on other companies in the industry. The effect was great on Brown & Williamson since its brands’ consumers were conscious of differences in cigarette price changes. Consumers of Brown & Williamson brands shifted to those of Liggett. Brown & Williamson, as a way of responding to the threat, added other brands to its initial list. This included black and white cigarettes. Brown and Williamson also gave rebates to wholesalers. This affected the sales of Liggett. The price war ended in a court case between Liggett (as the plaintiff) and Brown and Williamson. 2) Describe the economic issue Predatory pricing, in economics, refers the act of putting excessively low price for the product to face off competitors out of the product’s market. The intension may be to deter the competitors in business from coming into the market. The low prices set by the business, in most occasions, are a business that has little competition in the market. The notion behind the low pricing is that, if competitors cannot sustain it, they undoubtedly would be out of the market (Taylor & Weerapana, 2007). The predator business intends to recoup the forgone income during the period. After eliminating all competitors from the market, the predator business resorts to setting exceptionally high prices. The predator business, therefore, can gunner the losses made due to the act of lowering the price during the low price period. The forgone profits during the predation period act as a form of investment made by the company (Dillbary, 2010). Predatory pricing entails making speculations and taking many risks in the process. The predator business certainly makes losses and can never be sure to recoup them in the future from the created monopoly. Besides, it is not possible to gain the monopoly that would help in the compensation of the forgone profits during the predation period. It becomes challenging in situations when the predation period is not short since the business can make immense losses. In some instances, the predator fails to achieve the predatory power to through its failure to eliminate its competitors. The unlikelihood of realizing the monopoly profit further complicates the scheme. After achieving the monopoly and starting to charge high prices, competitors are likely to fall back to the market. It, therefore, calls for the predator to maintain the monopoly it enjoys in the market. Competitive pricing is different from the predatory pricing but finding the distinction between the two needs considerations of the exclusionary nature of the case in say. The predatory pricing claim falls under the second section of the Sherman Act. The case provided that any antitrust plaintiff should have evidence of conditions of predatory pricing. The plaintiff should provide an evidence of market condition changes placed by the defendant have effects on the plaintiff’s interest. The effects of the market changes on the plaintiff’s interest should form the threshold reason for determining predatory pricing. Besides, the plaintiff should prove that the price complained of in the case fall less than the suitable measure that would be favorable to the rival in the market (Jacobson, 2007). The plaintiff should further prove that the competitor’s prospect has concrete grounds of recovering the investments lost through the scheme during the predatory period. 3) Discuss the arguments made by the plaintiff(s) and defendant(s). In the case, Brooke Group used the name Liggett. Liggett (plaintiff) complained of prices discrimination that emanated from the high rebates offered by the defendant to wholesalers. According to Liggett, the scheme would be injurious to competition in the market and, therefore, equivalent to predatory pricing. This, according to Liggett, placed pressure on it that brought detrimental effects on its sales while allowing the defendant to gain market monopoly. Liggett termed the issuance of rebates offered by the defendant tantamount to schemes aimed at predatory pricing. The defendant (Brown & Williamson), however, maintained that its efforts to give rebates were not in relation to predatory pricing. It maintained that there were no prior negative transitions in the growth rates, in the market. On a further note, the price competition in the market had no implied coordination existing among the manufactures. The act of Brown &Williamson, therefore, could not result in predatory pricing. 4) Explain the Supreme Court’s decision and rationale the court The Supreme Court ruled on the case in favor of the plaintiff. According to the verdict, the defendant was guilty of involvement in actions that were tantamount to predatory pricing. They supreme court found the actions of the defendant subject to price discrimination. This would result to possible injuries in the competition between stakeholders in the domestic cigarette market. An amount of $ 49.6 million was the compensation offered to the plaintiff for damages undergone. According to the court, it was unlawful for Brown & Williamson to discriminate prices between two commodities that had the same value and of similar grades. This was in view of the Clayton Act. This was because of the possibility of the scheme to create market monopoly. The scheme by Brown & Williamson led to primary line injury to the plaintiff (Jacobson, 2007). 5) Cite a related article from the Wall Street Journal and explain how it is related to the antitrust case. The Wall Street journal reported of an antitrust case. According to the report, Airbus pointed accusations at Boeing of engaging in possible predatory pricing. According to Airbus, Boeing Co. was involved in acts likely to evoke price wars between the two firms (Ostrower, 2012). Boeing Co. declared to maintain their market share at a 50%. Airbus, in response to the decision by their competitor, pledged the move as a case of price war in the single aisle market. Boeing Co. hinted possibilities of instances of predatory pricing in the market. The case involved launch pricing that entails the giving of discounts to prime sales in later times. Airbus, in the near future, had strategies aimed at getting to the market share of Boeing Co. This saw Airbus overtake its main competitor in market share. Boeing Co., therefore, had plans of using pricing power to dominate the single-aisle market. In the article, there was a case of speculations of predatory by Boeing Co. to regain its initial market share. This relates to the antitrust case in which competitors intend to lower their prices to gain dominance in the market. The case has similarities to that between Brooke Group v. Brown & Williamson Tobacco. References Dillbary, J. (2010). Predatory Bundling and the Exclusionary Standard. Washington and Lee Law Review, 67(4), 1231-1282. Duke, M. (2003). Drugs and Money: Prices, Affordability and Cost Containment. Burke, VA: IOS Press. Jacobson, J. (2007). Antitrust Law Developments (sixth). Chicago, IL: American Bar Association. Ostrower, J. (May 15, 2012). Airbus Accuses Boeing of Price War. The Wall Street Journal. Retrieved from: http://online.wsj.com/article/SB10001424052702304371504577406830992897136.html Taylor, J. & Weerapana, A. (2007). Economics. New York, NY: Cengage Learning. Read More