Price Cutting to Widen Market Share Is Upheld : Antitrust: The Supreme Court says small rivals can’t sue simply because they were hurt by Arco’s plan to lower its prices and increase share.

In a victory for major corporations trying to increase market share by forcing down retail prices, the Supreme Court ruled Monday that competitors cannot sue simply because price-cutting strategies hurt their business.

In the 7-2 ruling, which stressed that the nation’s antitrust laws were designed to “protect competition, not competitors,” the justices voted to end a lawsuit against Atlantic Richfield Co. brought by independent gas stations in California and Washington states.

Simply because a big company can undercut the prices of a smaller competitor does not give the smaller company a legal right to complain, even if the corporation’s intent is to drive competitors out of business, the court said.

“Cutting prices . . . to increase business often is the very essence of competition,” wrote Justice William J. Brennan Jr. for the court. “Low prices benefit consumers regardless of how these prices are set.”

The court stressed that companies still can be sued for so-called predatory pricing, or charging below-cost prices as a temporary measure to undercut competitors. As a practical matter, however, lawyers say that it is very difficult to show that a company is engaging in below-cost pricing.

This case grew out of Arco’s highly publicized effort to lower its gasoline prices in 1982 by moving to self-service stations and by eliminating its credit cards. Arco dealers were then able in 1983 to capture about 17% of the retail gasoline market in southern California, up from about 13% earlier. By March, 1990, independents’ market share had shrunk to 10.7% and Arco’s had soared to 24.9%.

Independent stations allied with USA Petroleum, based in Santa Monica, filed an antitrust law suit, contending that Arco was trying to drive them out of business by fixing prices at a low level.

In the 1960s, the high court said price fixing in any form was illegal. But in the past decade, the justices have backed away from that view, especially when confronted by “vertical” arrangements between manufacturers, distributors and retailers.

Nevertheless, the U.S. 9th Circuit Court of Appeals ruled in 1988 that Arco could be held liable if it could be shown at a trial that it conspired to force its dealers to lower their prices to drive the independents out of the market. Judge Stephen Reinhardt of Los Angeles said the antitrust laws were designed to create “an even playing field” between competitors.

The high court disagreed and dismissed the suit against Arco. Taking a more narrow view of the antitrust laws, Brennan said consumers or Arco dealers could complain that somehow they were hurt by the corporation’s price-cutting campaign, but competitors like USA Petroleum could not.

To do so, he said, “would, in effect, render illegal any decision by a firm to cut prices in order to increase market share,” he wrote in the case (Atlantic Richfield vs. USA Petroleum, 88-1668).

“I think this will encourage (companies) to be aggressive competitors and to give lower prices to consumers,” said Ronald C. Redcay, a Los Angeles lawyer who represented Arco.

If USA Petroleum had shown that Arco could, in fact, monopolize the market, it would have had a strong case, he noted. But because the Los Angeles-based oil giant controlled only about 20% of retail sales, it could not be accused of holding monopoly power, he said.

Lawyers for USA Petroleum predicted that the ruling will hurt consumers in the long run.

“If they drive out the discounters, the most competitive segment of the market, the ultimate result will hurt consumers,” said Lyle Schlyer, general counsel for USA Petroleum. In 1982, the company had more than 300 retail outlets in California, but that number has been reduced to about 100.

“It was the independents who were keeping the major companies honest,” Schlyer said. “Now there are only a few independents left.”

In dissent, Justices John Paul Stevens and Byron R. White chided their colleagues for backing away from the view that all price fixing is illegal. “The antitrust laws protect competitors precisely for the purpose of protecting competition,” Stevens said.

This case did not involve the more typical allegation of price fixing among competitors. The high court has continued to view this sort of “horizontal” price fixing as illegal in all circumstances.

The case was also unusual because Arco was not accused of forcing its dealers to prop up retail prices but rather to hold them down.

Brennan’s opinion was joined by Chief Justice William H. Rehnquist and Justices Thurgood Marshall, Harry A. Blackmun, Sandra Day O’Connor, Antonin Scalia and Anthony M. Kennedy.