THE COURTS : Supreme Court Agrees to Hear Antitrust Case on Arco’s Price Cuts
The Supreme Court intervened Monday in a high-stakes California case, agreeing to decide whether a giant corporation violates federal antitrust laws by cutting its prices and thereby driving some smaller competitors out of business.
Acting on a pretrial appeal by Los Angeles lawyers for the Atlantic Richfield Co., the justices said they would rule on a question that has divided the lower courts. Do the antitrust laws protect small independent companies from the economic power of big companies? Or are they intended to foster vigorous competition, even where the competition destroys small independent companies?
Cuts Increased Arco’s Share
This case grew out of Arco’s highly successful campaign to cut its prices at the gas pump by, among other things, ending its credit cards. Thanks to its price cutting, Arco said, its share of the retail gasoline market in California and Washington rose from 10% to 12% in 1981 to 16% in 1983.
But Arco’s success spelled troubles for some independents, including USA Petroleum Co., a company that supplies gasoline to independent dealers. In 1983, lawyers for USA Petroleum filed an antitrust suit against Arco, seeking triple damages for its losses resulting from the discount pricing. The suit alleged that the giant corporation was seeking to monopolize the “discount segment of the gasoline market” in California, and thereby violated antitrust laws.
In its defense, Arco said it was merely engaging in vigorous price competition, which could not be considered a violation of the nation’s antitrust laws. Arco said it could not be accused of “predatory pricing,” which refers to setting prices below the cost of production.
‘An Even Playing Field’
A district judge agreed and threw out the suit by USA Petroleum. Last October, however, the U.S. 9th Circuit Court of Appeals in Pasadena reinstated the suit on a 2-1 vote and cleared the way for a jury trial.
Writing for the majority, Judge Stephen Reinhardt said the antitrust laws were “intended to give entrepreneurs and independent distributors ‘an even playing field.’ ” He concluded that lawyers for USA Petroleum should be given a chance to convince a jury that Arco had engaged in a “price fixing conspiracy” that harmed small distributors.
The federal appellate court in Chicago has taken the opposite view, ruling that vigorous price competition by big companies cannot be considered a violation of the antitrust laws, regardless of its impact on smaller firms.
The case of Atlantic Richfield vs. USA Petroleum, 88-1668, will be heard by the court in the fall, with a decision likely early next year.
