Rebel Oil Co. v. Atlantic Richfield Co.
51 F.3d 1421, 1995 WL 150864 (1995)
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Rule of Law:
To establish antitrust injury from predatory pricing under the Sherman Act, a plaintiff must demonstrate that the defendant possesses sufficient market power to create a dangerous probability of monopolization. Under the Clayton Act's primary-line price discrimination provision, however, a plaintiff need only show that the defendant has a reasonable prospect of recouping predatory losses, which can be established by demonstrating market power sufficient to enforce supracompetitive oligopoly pricing.
Facts:
- Atlantic Richfield Co. (ARCO) is a major gasoline producer, wholesaler, and retailer in Las Vegas.
- Rebel Oil Co., Inc. (Rebel) is a competing independent retail and wholesale marketer of gasoline in the same market.
- In 1982, ARCO adopted a nationwide strategy to compete with discount marketers by focusing exclusively on low-priced, self-serve, cash-only gasoline.
- Between 1985 and 1989, ARCO allegedly sold gasoline in Las Vegas at prices below its marginal cost.
- During this period, Rebel's market share dropped significantly, and 37 of its competitors exited the Las Vegas market.
- After 1989, ARCO allegedly charged supracompetitive prices in Las Vegas—prices significantly higher than those in the competitive Los Angeles market—and its market share grew to 44% of the total retail market.
- During the alleged predation period, two major competitors, Texaco and Southland, expanded their Las Vegas operations by acquiring the assets of exiting rivals, indicating elasticity in the wholesale supply market.
- A 1987 Nevada law barred most major oil refiners from entering the Las Vegas market to directly operate new stations, creating a barrier to entry.
Procedural Posture:
- Rebel Oil Co. sued Atlantic Richfield Co. (ARCO) in the United States District Court for the District of Nevada, a federal trial court.
- Rebel's complaint alleged attempted monopolization (Sherman Act § 2), conspiracy to restrain trade (Sherman Act § 1), and primary-line price discrimination (Clayton Act § 2).
- The district court limited discovery solely to the issue of ARCO's market power.
- On cross-motions for summary judgment, the district court granted summary judgment in favor of ARCO on all three claims, ruling that ARCO lacked sufficient market power as a matter of law.
- Rebel, as the appellant, appealed the district court's decision to the United States Court of Appeals for the Ninth Circuit, an intermediate federal appellate court.
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Issue:
Is evidence of market power sufficient to enforce supracompetitive oligopolistic pricing, but not unilateral monopolistic control, enough to sustain a predatory pricing claim under the Sherman and Clayton Acts?
Opinions:
Majority - Beezer, Circuit Judge
No, as to the Sherman Act claims, but yes, as to the Clayton Act claim. Evidence of market power to enforce an oligopoly is insufficient for Sherman Act claims, which require a dangerous probability of unilateral monopolization, but is sufficient to create a triable issue of fact for a primary-line price discrimination claim under the Clayton Act, which has a lower 'may lessen competition' standard. For the Sherman Act § 2 attempted monopolization claim, Rebel failed to show ARCO had a dangerous probability of achieving monopoly power. While Rebel demonstrated a 44% market share and significant entry barriers, the undisputed fact that competitors like Texaco and Southland were able to expand their output proves the wholesale gasoline supply is elastic. This elasticity prevents ARCO from having the unilateral power to control market-wide output, which is the essence of monopoly power. Rebel’s evidence of recoupment showed only oligopolistic pricing (competitors following ARCO's high prices), which the Sherman Act does not prohibit. Similarly, for the Sherman Act § 1 price-fixing claim, a plaintiff must prove antitrust injury, which requires showing the defendant has market power to recoup its predatory losses. Because ARCO lacked the unilateral power required by the Sherman Act, Rebel could not demonstrate antitrust injury. However, for the Clayton Act primary-line price discrimination claim, the standard is lower. The Act prohibits conduct that 'may' lessen competition, which includes creating a 'disciplined oligopoly.' Rebel presented sufficient evidence of high entry barriers and ARCO's ability to successfully charge supracompetitive prices that competitors followed, creating a genuine issue of material fact as to whether ARCO had a 'reasonable prospect' of recouping its losses through oligopolistic power.
Analysis:
This case establishes a critical distinction between the market power requirements for predatory pricing claims under the Sherman Act versus the Clayton Act. It clarifies that the Sherman Act targets the threat of a single firm gaining unilateral control over a market, making evidence of mere oligopolistic coordination insufficient. In contrast, the Clayton Act's more lenient 'may lessen competition' standard allows claims to proceed based on a showing of power to enforce a 'disciplined oligopoly.' This decision provides an alternative path for plaintiffs in concentrated markets who can prove high entry barriers and coordinated supracompetitive pricing, even if they cannot meet the rigorous standard of proving a dangerous probability of monopolization.
