Brooke Group:The Cigarette War

1
Brooke GroupThe Cigarette War

• Oligopolistic industry where Def has 12 overall
  share
• Should market be all cigarettes or just generics?
• To recoup, Def needs high, stable prices will
  others cooperate? Matsushita probems?
• Evidence showed output increased instead of
  shrunk
• Prices remained low due to promotions and coupons

2
Surrogate Variants

• Ninth Ciruit Transamerica rejects A-T per se.
  Below AVC is prima facie between AVC and ATC, Pl
  has burden of showing predatory intent injury
  above ATC is not safe harbor but Pl must produce
  clear convincing evidence
• First Circuit Barry Wright holds price ATC is
  safe harbor for Defendant
• 9th Cir. requires too much complex data Type II
  Error risk

3
Rebel Oil v ARCO

• Market is retail gasoline in Las Vegas Def had
  28/275 outlets
• Alleged predation in self-serve, cash-only
  (0.10/gal
• Net market exit 23 stations Def allegedly
  recouped as much as 0.19/gal
• Barrier to entry need 10-15 stations for
  pipeline scale economies and no major refiners

4
More on Rebel Oil

• Rival Texaco had some control over supply
• High wholesale supply elasticity so existing
  rivals could preclude retail output restriction
  needed for ARCO to recoup predation losses

5
Predation in Telecommunications

• MFO re ATT breakup DOJ recommends letting BOCs
  provide information services
• BOCs leverage very modest (local access only 6
  of rivals cost)
• Joint cost acctg rules make subsidation of
  predation easier to detect lifeline rates
• BOC entry would deconcentrate financial/travel
  providers
• Irony of lost lifeline subsidy from LD