A firm with monopoly power can violate section 2 if it engages in classic price predation, namely, predatory pricing, or in its buy-side equivalent, predatory bidding.(1) Drawing on the testimony and submissions presented at the hearings, as well as cases and commentary, this chapter explores and provides the Department's views on some important issues surrounding these forms of exclusionary conduct.
However, a firm accused of pursuing a predatory-pricing strategy is, in essence, accused of charging prices that are too low. Therein lies "a difficult conundrum in antitrust law."(6) Price cutting is a core competitive activity. Consumers prefer lower prices to higher prices, and they benefit when firms aggressively compete to price as low as possible. Price competition enables consumers to secure desired products and services for less.
Thus, alongside the broad consensus that predatory pricing can be anticompetitive, there is general recognition that, in the words of one treatise, "[a]ntitrust would be acting foolishly if it forbade price cuts any time a firm knew that its cuts would impose hardship on any competitor or even force its exit from the market."(7) In the absence of clear standards, distinguishing harmful predation from procompetitive discounting is often difficult and runs the risk of erroneous condemnation, which can discourage firms from engaging in beneficial price competition and thus "chill the very conduct the antitrust laws are designed to protect."(8) The key question, therefore, is how to structure a rule under section 2 that effectively condemns only harmful predation while providing clear and sound guidance to firms, competition authorities, potential private plaintiffs, and courts.
To prevail on a predatory-pricing claim, plaintiff must prove that (1) the prices were below an appropriate measure of defendant's costs in the short term, and (2) defendant had a dangerous probability of recouping its investment in below-cost prices.
By establishing these basic prerequisites, Brooke Group brought needed rigor and order to predatory-pricing law. Importantly, while the Court in Brooke Group recognized that there can be occasions when above-cost pricing theoretically could hurt consumers, it also concluded that there is no reliable way to distinguish between above-cost predatory pricing and legitimate price discounting.(54) Thus, any rule permitting findings of above-cost predation, the Court reasoned, could discourage desirable price competition. The Court concluded that above-cost predatory-pricing schemes may be "beyond the practical ability of a judicial tribunal to control"(55) and created a safe harbor for pricing above cost.
Six key issues animate the structuring of a rule under section 2 that provides clear and sound guidance regarding predatory pricing: (1) the frequency of predatory pricing, (2) treatment of above-cost pricing, (3) cost measures, (4) recoupment, (5) potential defenses, and (6) equitable remedies. This part of the chapter describes the legal and economic analysis pertinent to each of these issues.
In certain circumstances, predatory pricing can be a rational strategy for a firm with monopoly power facing a smaller competitor.
[T]hink of it this way. You are walking along and you want to have a picnic, and there's a sign that says, "No trespassing." . . . You throw down your blanket, you have a nice picnic, and you leave, right?
The Department concurs with the panelists and the vast majority of commentators that, absent legal proscription, predatory pricing can occur in certain circumstances. Accordingly, it is necessary to develop rules for distinguishing between legitimate discounting and unlawful predation.
Some commentators advocate revisiting Brooke Group's safe harbor for above-cost pricing. They contend that economic theory now can reliably be used to identify and efficiently prosecute anticompetitive above-cost pricing.(103) One economist, for example, asserts that above-cost predation is possible "where rivals have higher costs than an incumbent monopoly."(104) He proposes preventing an incumbent monopolist from charging prices above its costs if preventing it from doing so would facilitate entry by new competitors.
Most panelists concluded that "[p]rices above some measure of cost . . . should not be considered predatory."(108) They largely agreed that "[administrability] is a serious concern,"(109) that current game theory models "do not give a clear reading on cost benchmarks,"(110) and that it is still not within "the practical ability of a judicial tribunal to control" above-cost predatory pricing "without courting intolerable risks of chilling legitimate price cutting."(111) The Department sees no reason to revisit Brooke Group under these circumstances.
Most panelists concluded that prices above some measure of cost should not be considered predatory.
Moreover, even if beneficial above-cost price cutting and deleterious predatory pricing could be distinguished after the fact, the Department does not believe that there is a practical, readily applicable test businesses can use to determine whether their above-cost prices are legal at the time they are making pricing decisions.(112) For example, under the approach one commentator describes, the legality of above-cost price cuts could depend, in part, on whether the price cut permits an entrant "reasonable time" to recover its "entry costs" or "become viable," or capture sufficient market share so that the price-cutting firm "loses its dominance."(113) However, an incumbent firm is unlikely to be able to make this determination with any confidence, even assuming it has all relevant data about its rivals, which it usually will not.
The Department believes that above-cost pricing should remain per se legal. Aggressive price cutting is central to a properly functioning market.(116) Consequently, it is critical that enforcement against predatory pricing avoids chilling procompetitive price discounting to the extent reasonably possible. The Department, therefore, will intervene only in those instances where prices are below an appropriate measure of cost, in addition to meeting the other elements of a price-predation claim.
The Department believes that above-cost pricing should remain per se legal.
The Department believes three factors bear on the appropriate measure of cost to use in the price-cost test for predatory pricing. First, the cost measure should help reveal whether the firm made unprofitable sales--or, to be more precise, whether the firm's sales were economically irrational but for their apparent exclusionary effect.
The issue, then, is what kind of incremental cost best serves the above three goals.
Given the above factors, the Department agrees with the many courts and commentators concluding that pricing above average total cost--total cost divided by total output--should be per se legal.(127) Moreover, even pricing below average total cost frequently may be economically rational.(128) A price below average total cost would often be cash-flow positive for an equally efficient competitor. Such a rival would find it more advantageous in the short run to continue producing than to exit. Accordingly, since lower prices will always provide short-term benefits to consumers, the Department believes that merely showing that prices are below average total cost should not be sufficient to support a finding of liability.
The four most frequently suggested incremental-cost measures are: (1) marginal cost, (2) average variable cost, (3) long-run average incremental cost, and (4) average avoidable cost. Each seeks to ascertain what it would cost a firm to make additional units of output.
Marginal Cost. For each unit sold, marginal cost is the additional cost of producing that unit.(129) It refers to short-run marginal cost--the change in cost that results from producing a unit of output during a period in which "a firm does not change its fixed cost-productive assets, such as its plant."(130) In other words, fixed costs are not included in determining marginal costs.
However, as Areeda and Turner pointed out as early as 1975, marginal cost is difficult to determine in most instances.(136) In addition, because marginal cost indicates only the cost of a single unit, comparing price with marginal cost does not indicate whether the alleged predation is causing the firm to lose money on anything but that single unit--normally the last unit produced.
Long-run Average Incremental Cost. Long-run average incremental cost is the average "cost of producing the predatory increment of output whenever such costs [are] incurred."(146) Unlike average variable cost, it includes all product-specific fixed costs, "even if those costs were sunk before the period of predatory pricing."(147) That is, long-run average incremental cost by definition includes both recoverable and sunk fixed costs.
Average Avoidable Cost. Average avoidable cost consists of all costs, including both variable costs and product-specific fixed costs, that could have been avoided by not engaging in the predatory strategy. Unlike long-run average incremental cost, average avoidable cost omits all fixed costs that were already sunk before the time of the predation; consequently, average avoidable cost will generally be lower than long-run average incremental cost.
The following example illustrates some of these different cost measures. Suppose a dominant firm produces 1,500 units at a variable cost of $8 per unit with no fixed costs. A new firm enters the market. The dominant firm produces an additional 500 units at a variable cost of $10 per unit and sells 2,000 units at a price of $9.50 per unit. Since the dominant firm would have sold 1,500 units absent entry, the potentially predatory increment is 500 units. The dominant firm's marginal cost (the cost of producing the last good) is $10, its average variable cost is $8.50 per unit,(154) and its average avoidable cost is $10 per unit.(155) The firm's $9.50 per unit price is thus greater than its average variable cost, but less than its marginal cost and its average avoidable cost and is potentially predatory.
In this example, all the costs included in average avoidable cost are variable. There can be instances where some fixed costs would be included in average avoidable cost, such as if some fixed costs were incurred to produce the predatory increment, but would have been avoided if that increment had not been produced. For example, suppose that the dominant firm had a factory capable of producing 1,500 units and that to produce the additional 500 units it had to expand the factory. The cost of expansion would be included in average avoidable cost. In contrast, long-run average incremental cost would include the cost of both the initial factory and the expansion.
The emerging consensus is that average avoidable cost typically is the best cost measure to evaluate predation claims.(156) However, there is not complete unanimity on this issue.
The Department agrees that average avoidable cost is the most appropriate cost measure to use when evaluating an alleged predatory-pricing scheme because it focuses on the costs that were incurred when the predatory pricing was pursued. Predatory pricing, if it is to have an exclusionary effect, must result in additional sales for the predator that were taken away from its prey. When price is set below average avoidable cost, the firm is experiencing a negative cash flow on its incremental sales at that price. Prices below average avoidable cost should trigger antitrust inquiry because they suggest that the firm is making sales that are unprofitable and may reflect an effort to exclude. Prices that are set above average avoidable cost, however, may enhance the firm's profits irrespective of any exclusionary effects.
The illustration demonstrates the superiority of average avoidable cost over both marginal cost and average variable cost as the appropriate measure for predatory pricing. The dominant firm made 500 additional units when the new firm entered. It was not the 500th unit that caused the new firm's demise. Rather, it was all 500 new units--the whole additional incremental lot. Average avoidable cost measures what it cost to make those additional units. That is a better measure of what it cost the firm to make the alleged predatory incremental sales than the cost of the last unit of that increment.
Likewise, it was not the original production quantity of the dominant firm that caused the entrant's demise. It was the 500 additional units the dominant firm produced after the new firm arrived on the scene. Yet, average variable cost reflects what it cost the dominant firm to make each unit of the combined original and incremental production. Average avoidable cost, in contrast, focuses on what it cost the dominant firm to make just the incremental amount.
Moreover, as long as the rival firm can cover its average avoidable cost, selling its goods will be more profitable than exiting the market or not entering.(161) The consequence is that an equally efficient rival pricing below long-run average incremental cost, but above average avoidable cost, will remain in the market and compete against the alleged predator. Only when price falls below average avoidable cost will the equally efficient rival exit the market.
When the Department can determine the predatory increment, it generally will rely on average avoidable cost in determining whether prices are predatory.
A panelist indicated that recoupment is most likely when there is asymmetry between conditions of exit from, and entry into, a particular market--in other words, when exit from the market is easy, but entry is difficult.(187) In that situation, a predator is more likely to recoup its investment in below-cost pricing. Once its prey exits quickly, the predator may enjoy the payoff of its relatively low-cost investment without fear of subsequent entry rapidly eroding its monopoly profits.
The recoupment requirement serves as a valuable screening device to identify implausible predatory-pricing claims.
Even when recoupment appears plausible, below-cost pricing is not necessarily proof of anticompetitive predation. Certain defenses may justify below-cost pricing. Although the Department will not accept a meeting-competition defense, as discussed below, the Department will consider efficiency defenses in appropriate circumstances.
A meeting-competition defense would be difficult to administer and could protect below-cost pricing that harms competition and consumers. The Department believes that a meeting-competition defense should not apply in section 2 predatory-pricing cases.
The Department believes that a meeting-competition defense should not apply in section 2 predatory-pricing cases.
These efficiency defenses received little attention at the hearings, and the Department will not attempt in this report to depict all the circumstances in which their recognition would or would not be appropriate. However, some general points can be made here.
Certain types of efficient conduct, such as promotional pricing,(210) may not be plausible when the firm already has monopoly power or a dangerous probability of acquiring monopoly power.(211) Network externalities, which occur "when a consumer's valuation of a product increases with the number of other consumers using the product,"(212) raise somewhat similar issues. When a firm is trying to build an installed base and win a standards competition, initially pricing below cost may enhance the value of and demand for its product.(213) When a monopolist has already built a large installed-base network, that rationale may not hold.(214) Other efficiencies, such as "learning-by-doing," which occurs when a firm's cost of production "decreases as it produces more because it learns how to produce the product more efficiently,"(215) may be plausible for a new product even when a firm has achieved monopoly power as to different products; the below-cost price of today may become an above-cost price in the future, and "the prospect of reducing costs in the future" may "justif[y] the lower price as an important investment for the firm."(216) Accordingly, the Department will consider efficiency claims supported by evidence even in settings where there is existing monopoly power.
In cases where predatory pricing is established, the next question for an enforcer or a court is what to do about it. Chapter 9 of this report discusses the topic of section 2 remedies in greater detail, but there are aspects of equitable remedies in the context of predatory-pricing cases that should be noted here.
Injunctive remedies can pose particularly severe difficulties in predatory-pricing cases. For instance, an injunction setting a defendant's prices would substitute a court's or agency's judgment for the workings of the market. Summarizing concerns with this approach, one panelist observed that he "probably like everybody" is "suspicious of having antitrust become a price regulatory regime."(217) The pricing issues often will be both complex and constantly shifting and call to mind the Supreme Court's warning against remedies that require a court "to assume the day-to-day controls characteristic of a regulatory agency."(218) And, of course, in predatory-pricing contexts, any errors on the side of stringency will suppress legitimate price competition.
The Department believes courts should exercise particular care when crafting behavioral injunctive relief in privately litigated predatory-pricing cases.(219) The plaintiff in a private predatory-pricing injunctive action is typically a rival whose interests may conflict with those of consumers or the general public. Indeed, it may be in the interest of both plaintiff and defendant to have the court preclude defendant from discounting even if consumers would be better off with the lower prices.
Another suggestion was that courts, where possible, consider ways of altering market structure to eliminate opportunities for continued predatory pricing.(222) A drawback to this approach, however, is that structural remedies may impose large costs of their own; a divestiture may harm a firm's own efficiency and not necessarily create an efficient rival.(223) A divestiture also may raise regulatory issues. For example, one panelist suggested that predatory pricing by an airline might be remedied by requiring the airline to divest airport-gate leases or landing or take-off rights that prevent entry and enable predation to succeed.(224) However, another panelist responded that this remedy raised issues of access pricing for those gates. According to this panelist, the structural remedy might merely replace a difficult price-regulation issue with an even more difficult access-regulation issue.(225) Thus, the Department believes that courts should be very cautious in imposing structural remedies in predatory-pricing cases.
The Department believes that predatory pricing can harm competition and should be condemned in appropriate circumstances. It is nonetheless important to develop sound, clear, objective, effective, and administrable predatory-pricing rules that enable firms to know in advance whether their price cutting will result in antitrust liability. The development of such rules is necessary, feasible, and already far along. Such rules must enable enforcers, courts, and businesses to determine whether the incremental revenue from the pricing claimed to be predatory is greater than the incremental cost of the additional output. Only claims involving prices below average avoidable cost, or below a similarly appropriate cost measure, combined with a dangerous probability of recoupment, should be subject to potential liability. Efficiency defenses, when supported by evidence, should be considered, and, in instances where injunctive relief is appropriate, care should be taken to ensure that the remedy imposed ultimately benefits consumers.
In effect, predatory bidding is the mirror image of predatory pricing.(227) When a firm engages in predatory pricing, it lowers its price to consumers, to the detriment of competing sellers. When a firm engages in predatory bidding, it raises its price to input suppliers, to the detriment of competing input buyers. Just as consumers benefit in the short run from lower prices charged by a firm that pursues a predatory-pricing strategy, input suppliers benefit in the short run from higher prices paid for inputs by a firm that pursues a predatory-bidding strategy.
To prevail on a predatory-bidding claim, plaintiff must show that defendant (1) suffered (or expected to suffer) a short-term loss as a result of its higher bidding and (2) had a dangerous probability of recouping its loss.
Although the exercise of monopsony power against input suppliers can be associated with the exercise of monopoly power in the output market, that does not have to be the case, and Weyerhaeuser was a case in which the potential anticompetitive effects were confined to the input market.(243) The Department believes that the Sherman Act "does not confine its protection to consumers, or to purchasers, or to competitors, or to sellers."(244) "The Act is comprehensive in its terms and coverage, protecting all who are made victims of . . . forbidden practices[,] by whomever they may be perpetrated."(245) As the Court observed in Weyerhaeuser, "The kinship between monopoly and monopsony suggests that similar legal standards should apply to claims of monopolization and to claims of monopsonization."(246) Thus, the Department will challenge under section 2 conduct that threatens harm to the competitive process, whether that harm occurs upstream or downstream.
In this regard, as the Supreme Court recognized in Weyerhaeuser, higher input prices alone do not indicate harm to the competitive process.(247) To the contrary, they are often indicative of vigorous competition, raising the danger that faulty assessments could chill procompetitive activity.(248) For example, a firm might "acquire excess inputs as a hedge against the risk of future rises in input costs or future input shortages"(249) or to "ensure that it obtains the input from a particularly reliable or high-quality supplier."(250) In those situations, the competitive process has not been harmed, and antitrust enforcement should not discourage the conduct.(251) Moreover, even where potential harm to competition can be demonstrated, appropriate efficiency defenses also need to be considered.
The Supreme Court's Weyerhaeuser decision was a significant step towards the development of clear, administrable rules for predatory bidding. The Department believes that the decision strikes the right balance in ensuring that only bidding that harms the competitive process will be found to violate section 2.
1. See generally 3 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶¶ 72249 (2d ed. 2002). This chapter deals solely with what one commentator characterizes as "conventional" predatory pricing and not with bundling, quantity discounts, market-share discounts, and other forms of what he terms "exclusionary pricing." Herbert Hovenkamp, The Law of Exclusionary Pricing, Competition Pol'y Int'l, Spring 2006, at 21. These other types of conduct are addressed in other chapters.
2. See generally Areeda & Hovenkamp, supra note 1, ¶ 723b, at 27374; Richard A. Posner, Antitrust Law 214 (2d ed. 2001).
3. See Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 117 (1986); Areeda & Hovenkamp, supra note 1, ¶ 723a, at 272.
4. See Sherman Act Section 2 Joint Hearing: Predatory Pricing Hr'g Tr. 30, June 22, 2006 [hereinafter June 22 Hr'g Tr.] (Bolton).
5. Phillip Areeda & Donald F. Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697, 697 (1975).
6. Ari Lehman, Note, Eliminating the Below-Cost Pricing Requirement from Predatory Pricing Claims, 27 Cardozo L. Rev. 343, 385 (2005).
7. Areeda & Hovenkamp, supra note 1, ¶ 722, at 271.
8. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)). See generally Phillip Areeda, Monopolization, Mergers, and Markets: A Century Past and the Future, 75 Cal. L. Rev. 959, 96570 (1987); Daniel A. Crane, The Paradox of Predatory Pricing, 91 Cornell L. Rev. 1, 5556 (2005).
9. Roland H. Koller II, The Myth of Predatory Pricing: An Empirical Study, Antitrust L. & Econ. Rev., Summer 1971, at 105, 105.
10. 221 U.S. 1, 43 (1911). See generally Elizabeth Granitz & Benjamin Klein, Monopolization by "Raising Rivals' Costs": The Standard Oil Case, 39 J.L. & Econ. 1 (1996); John S. McGee, Predatory Price Cutting: The Standard Oil (N.J.) Case, 1 J.L. & Econ. 137 (1958).
11. 221 U.S. 106, 160 (1911).
12. Areeda & Hovenkamp, supra note 1, ¶ 723a, at 27273 (footnotes omitted).
13. 509 U.S. 209 (1993).
14. Patrick Bolton et al., Predatory Pricing: Strategic Theory and Legal Policy, 88 Geo. L.J. 2239, 2250 (2000).
15. 386 U.S. 685 (1967).
16. 15 U.S.C. § 13(a) (2000); see Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1074 n.1 (2007) ("'[P]rimary-line competitive injury under the Robinson-Patman Act is of the same general character as the injury inflicted by predatory pricing schemes actionable under 2 of the Sherman Act.'" (quoting Brooke Group, 509 U.S. at 221)).
17. 386 U.S. at 698.
20. Aaron S. Edlin, Stopping Above-Cost Predatory Pricing, 111 Yale L.J. 941, 953 (2002); see also Kenneth G. Elzinga & Thomas F. Hogarty, Utah Pie and the Consequences of Robinson-Patman, 21 J.L. & Econ. 427, 427 (1978) ("The Utah Pie opinion . . . has provoked much criticism on the grounds that it serves to protect localized firms from the competition of more distant sellers.").
21. Ward S. Bowman, Restraint of Trade by the Supreme Court: The Utah Pie Case, 77 Yale L.J. 70, 84 (1967).
22. Robert H. Bork, The Antitrust Paradox 387 (1978).
23. Id.; see also Edlin, supra note 20, at 953 (the "facts [of Utah Pie] suggest vigorous price competition that benefited consumers").
24. Areeda & Hovenkamp, supra note 1, ¶ 723d, at 27677.
25. Areeda & Turner, supra note 5, at 699700, see also June 22 Hr'g Tr., supra note 4, at 8 (Elzinga) (stating that Areeda and Turner's 1975 article on predatory pricing is "the most often cited article in antitrust scholarship").
26. Areeda & Turner, supra note 5, at 733.
27. Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial Organization 29 (4th ed. 2005) (Average variable costs are the "costs that change with the level of output.").
28. Areeda & Turner, supra note 5, at 711, 71618.
29. See, e.g., Bolton et al., supra note 14, at 225 ("The Areeda-Turner rule had an immediate impact on the courts."); William E. Kovacic, The Intellectual DNA of Modern U.S. Competition Law for Dominant Firm Conduct: The Chicago/Harvard Double Helix, 2007 Colum. Bus. L. Rev. 1, 46 ("In 1975, Areeda and Turner published a proposal that courts use the relationship of the dominant firm's prices to its variable costs to determine the legality of a challenged pricing strategy. Within months of the article's publication, two courts of appeals relied heavily on the paper to dismiss predatory pricing allegations.").
30. See generally Richard O. Zerbe, Jr. & Michael T. Mumford, Does Predatory Pricing Exist? Economic Theory and the Courts After Brooke Group, 41 Antitrust Bull. 949, 94950 (1996) (summarizing the pre-Brooke Group criticism).
31. Transamerica Computer Co. v. IBM, 698 F.2d 1377, 1386 (9th Cir. 1983). Average total cost is total fixed and total variable costs, divided by quantity of output. Id. at 1384.
34. 475 U.S. 574 (1986).
35. 479 U.S. 104 (1986).
36. See June 22 Hr'g Tr., supra note 4, at 8 (Elzinga) (describing Matsushita and the Areeda and Turner article as the two events that most changed the thinking regarding predatory pricing).
37. 475 U.S. at 59092 ("In order to recoup their losses, petitioners must obtain enough market power to set higher than competitive prices, and then must sustain those prices long enough to earn in excess profits what they earlier gave up in below-cost prices. Two decades after their conspiracy is alleged to have commenced, petitioners appear to be far from achieving this goal: the two largest shares of the retail market in television sets are held by RCA and respondent Zenith. . . . The alleged conspiracy's failure to achieve its ends in the two decades of its asserted operation is strong evidence that the conspiracy does not in fact exist." (citations omitted) (footnote omitted)).
38. Id. at 589. But see Cargill, 479 U.S. at 121 ("While firms may engage in [predatory pricing] only infrequently, there is ample evidence suggesting that the practice does occur.").
39. See 479 U.S. at 11921 n.15; id. at 12122 n.17.
40. Id. at 119 n.15.
41. Id. at 120 n.15 (quoting Matsushita, 475 U.S. at 591).
42. Kenneth G. Elzinga & David E. Mills, Testing for Predation: Is Recoupment Feasible?, 34 Antitrust Bull. 869 (1989).
47. See infra Part C(1).
48. 509 U.S. 209, 212 (1993).
54. See id. at 223 ("As a general rule, the exclusionary effect of prices above a relevant measure of cost either reflects the lower cost structure of the alleged predator . . . or is beyond the practical ability of a judicial tribunal to control without courting intolerable risks of chilling legitimate price cutting.").
55. Id. The Court strongly reiterated this conclusion in Weyerhaeuser, 127 S. Ct. 1069, 1074 (2007), and Trinko, 540 U.S. 398, 414 (2004).
56. Brooke Group, 509 U.S. at 223.
57. See June 22 Hr. Tr., supra note 4, at 52 (Melamed).
58. Bolton et al., supra note 14, at 224149; Edlin, supra note 20, at 941942.
59. Crane, supra note 8, at 1; see also id. at 45 (noting that "although it is accepted wisdom that no predatory pricing plaintiff has won a verdict since Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., plaintiffs have recently won some predatory pricing cases and procured substantial settlements in others. Additionally, regardless of their low probability of success, plaintiffs continue to file a significant number of federal predatory pricing cases, suggesting that predatory pricing complaints may afford plaintiffs strategic advantages whether or not they ultimately prevail.") (footnote omitted).
60. 335 F.3d 1109, 1115 (10th Cir. 2003).
63. Id. at 1116 & n.7.
67. Spirit Airlines, Inc. v. Nw. Airlines, Inc., 431 F.3d 917, 938 (6th Cir. 2005).
68. Bolton et al., supra note 14, at 2243.
69. 475 U.S. 574, 589 (1986).
70. Richard O. Zerbe, Jr., Monopsony and the Ross-Simmons Case: A Comment on Salop and Kirkwood, 72 Antitrust L.J. 717, 717 (2005); see also Zerbe & Mumford, supra note 30, at 95564, 98285 (noting that "there is theoretical and empirical evidence to refute" the Court's statement).
71. William J. Baumol, Principles Relevant to Predatory Pricing, in Swedish Competition Authority, The Pros and Cons of Low Prices 15, 35 (2003); see also June 22 Hr'g Tr., supra note 4, at 58 (Bolton) ("[T]here has been new scholarship started in the 1980s, rigorous economic scholarship based on rigorous game theory analysis showing exactly how predatory pricing strategy could be rational, and . . . slowly, this literature is being brought in, is being acknowledged, and is being recognized, and so . . . today, we should be less skeptical about the rationale for predatory pricing than we have been and that the Supreme Court has been in its Brooke decision and its Matsushita decision, which was based on older writing which couldn't be articulated using the tools of modern game theory."); Thomas B. Leary, The Dialogue Between Students of Business and Students of Antitrust: A Keynote Address, 47 N.Y.L. Sch. L. Rev. 1, 13 (2003).
72. See Kenneth G. Elzinga, Remarks 3 (June 23, 2006) (hearing submission) ("In my experience, if one plays with the math behind most alleged episodes of predatory pricing, it is difficult to come up with examples where recoupment is mathematically possible."). See generally John R. Lott, Jr., Are Predatory Commitments Credible? 410 (1999).
73. See Areeda & Hovenkamp, supra note 1, ¶ 723b, at 273 & nn.79.
74. McGee, supra note 10.
76. Bork, supra note 22, at 155; see also Frank H. Easterbrook, When Is It Worthwhile to Use Courts to Search for Exclusionary Conduct?, 2003 Colum. Bus. L. Rev. 345, 34647 ("Claims that the long run will depart from the short run are easy to make but hard to prove. . . . If monopolistic prices happen later, prosecute then."); Frank H. Easterbrook, Predatory Strategies and Counterstrategies, 48 U. Chi. L. Rev. 263, 26364 (1981) [hereinafter Predatory Strategies] ("[T]here is no sufficient reason for antitrust law or courts to take predation seriously.").
77. See, e.g., Paul Milgrom & John Roberts, Predation, Reputation, and Entry Deterrence, 27 J. Econ. Theory 280, 303 (1982); David M. Kreps & Robert Wilson, Reputation and Imperfect Information, 27 J. Econ. Theory 253 (1982).
78. Paul Milgrom, Predatory Pricing, in 3 The New Palgrave: A Dictionary of Economics 937, 938 (John Eatwell et al. eds., 1987) (emphasis in original).
79. Kenneth G. Elzinga & David E. Mills, Predatory Pricing and Strategic Theory, 89 Geo. L.J. 2475, 2475 (2001).
80. Id. at 2494; see also id. at 249394 (noting that they are "pristine theoretical existence proofs" and "require more factual support than the authors admit" and require compliance with strict assumptions that may not be likely to be met in the real world); id. at 2478 ("These theories typically assume an extremely simple market structure. . . . While this stylized market structure yields sufficient conditions to sustain the plausibility of predatory pricing, the plausibility does not transfer automatically to other generally more complex market structures."); id. at 247778 ("The foundational assumption upon which most strategic theories of predation rest is either asymmetric information or asymmetric access to financial resources. . . . Before the authority of a strategic theory can be invoked in a particular dispute, it must be established that the information or financial resource condition in the market square[s] with the theory." (internal quotation marks omitted)).
81. See June 22 Hr'g Tr., supra note 4, at 58 (Bolton).
82. Bolton et al., supra note 14, at 2248.
83. June 22 Hr'g Tr., supra note 4, at 6768 (Ordover).
84. Id. at 67 (Ordover); see also id. at 74 (Melamed) (noting the difficulty of implementing a game theory model); Sherman Act Section 2 Joint Hearing: Business Testimony Hr'g Tr. 187, Feb. 13, 2007 [hereinafter Feb. 13 Hr'g Tr.] (Sewell) ("The laws [to which] we're seeking to conform need to be understandable by the people who are asked to adhere to them.").
85. Posner, supra note 2, at 214; see also Malcolm R. Burns, New Evidence of Price-Cutting, 10 Managerial & Decision Econ. 327, 327 (1989) (letters between officers of the tobacco trust show predatory intent); Malcolm R. Burns, Predatory Pricing and the Acquisition Cost of Competitors, 94 J. Pol. Econ. 266, 26869 (1986) (the tobacco trust between 1891 and 1901 engaged in profitable predation); Kenneth G. Elzinga & David E. Mills, Predatory Pricing in the Airlines Industry: Spirit Airlines v. Northwest Airlines, in The Antitrust Revolution 219, 244 (John E. Kwoka & Lawrence J. White eds., 5th ed. 2008) ("[T]he facts in Spirit v. Northwest feature the exit of a viable competitor and a subsequent increase in prices."); David Genesove & Wallace P. Mullin, Predation and Its Rate of Return: The Sugar Industry, 18871914, 37 RAND J. Econ. 47, 67 (2006) (the American Sugar Refining Company engaged in predatory pricing); Fiona Scott Morton, Entry and Predation: British Shipping Cartels 18791929, 6 J. Econ. & Mgmt. Strategy 679, 714 (1997) ("The evidence on price wars in the early liner shipping industry suggests they were predatory in nature."); Balder Von Hohenbalken & Douglas S. West, Empirical Tests for Predatory Reputation, 19 Can. J. Econ. 160, 176 (1986) (describing empirical evidence that "having a reputation for aggressiveness created by earlier spatial predation" discourages "new entry by other firms"); David F. Weiman & Richard C. Levin, Preying for Monopoly? The Case of Southern Bell Telephone Company, 18941912, 102 J. Pol. Econ. 103, 103 (1994) ("Southern Bell effectively eliminated competition through a strategy of pricing below cost in response to entry. . . ."); B. S. Yamey, Predatory Price Cutting: Notes and Comments, 15 J.L. & Econ. 129, 13742 (1972) (a conference of shipowners in the China-England trade in the 1880s engaged in predatory pricing).
86. Zerbe & Mumford, supra note 30, at 956.
87. See, e.g., June 22 Hr'g Tr., supra note 4, at 31 (Bolton) ("I would argue that over time, things have moved in the direction of thinking of predatory pricing as being more prevalent than we thought and also more likely to succeed than we thought before . . . ."); id. at 5556 (Elzinga); see also, e.g., Carlton & Perloff, supra note 27, at 360 ("[I]t is a mistake to think of price predation as inconceivable.").
88. Crane, supra note 8, at 6.
89. Zerbe & Mumford, supra note 30, at 957; see also Bolton et al., supra note 14, at 225859 (noting that in the six years following the 1993 Brooke Group decision, defendants won thirty-six of thirty-nine reported decisions; two cases settled after plaintiffs' claims survived motions for summary judgment; and the disposition of the remaining case was uncertain).
90. Crane, supra note 8, at 39; see also id. at 3839 ("The incidence of costs of predatory pricing in a regime without any predatory pricing prohibition . . . remains highly speculative" and "is unlikely to be ascertained empirically except by reference to historical case studies of particular firms from the time period before the adoption of the Sherman Act, since predatory pricing has long been illegal . . . ." (footnote omitted)). Accord Posner, supra note 2, at 214; Bolton et al., supra note 14, at 2247.
91. See generally Areeda & Hovenkamp, supra note 1, ¶ 723c.
92. See Bolton et al., supra note 14, at 224849.
93. The Current State of Economics Underlying Section 2: Comments of Michael Katz and Michael Salinger, Antitrust Source, Dec. 2006, at 1, 5, http://www.abanet.org/antitrust/at-source/06/12/Dec06-BrownBag.pdf [hereinafter Katz & Salinger Comments]; Bolton et al., supra note 14, at 2248 ("In reputation effect predation . . . a predator reduces price in one market to induce the prey to believe that the predator will cut price in its other markets or in the predatory market itself at a later time, thereby enabling multimarket recoupment of predatory losses.").
94. Milgrom & Roberts, supra note 77, at 302; see also Bolton et al., supra note 14, at 2301 n.271.
95. See Katz & Salinger Comments, supra note 93, at 5.
96. See Sherman Act Section 2 Joint Hearing: Academic Testimony Hr'g Tr. 12, Jan. 31, 2007 [hereinafter Jan. 31 Hr'g Tr.] (Farrell) ("[E]verybody recognizes that if [Spirit] enters and offers the three hundred dollar deal, Northwest will cut its price to two hundred dollars. . . . So, [Spirit] anticipates that, doesn't enter, and consumers continue to pay five hundred dollars.").
97. Sherman Act Section 2 Joint Hearing: Monopoly Power Session Hr'g Tr. 191, Mar. 7, 2007 (Stelzer).
98. See Jonathan B. Baker, Predatory Pricing After Brooke Group: An Economic Perspective, 62 Antitrust L.J. 585, 590 (1994).
99. Areeda & Hovenkamp, supra note 1, ¶ 723c.
100. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 223 (1993).
101. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1074 (2007) (alteration in original) (citing Brooke Group, 509 U.S. at 22223).
102. Dennis W. Carlton, Does Antitrust Need to Be Modernized?, J. Econ. Persp., Summer 2007, at 155, 160.
103. Some commentators are particularly concerned about possible above-cost predation with products such as software or pharmaceuticals that have large fixed costs but very low marginal costs. This is discussed further below at part C(3)(c) in connection with long-run average incremental cost.
104. Edlin, supra note 20, at 963.
106. Einer Elhauge, Why Above-Cost Price Cuts to Drive Out Entrants Are Not Predatory--and the Implications for Defining Costs and Market Power, 112 Yale L.J. 681, 826 (2003).
107. Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 23536 (1st Cir. 1983) (Breyer, J.).
108. June 22 Hr'g Tr., supra note 4, at 72. Although one panelist disagreed that "prices above average variable cost should not be considered as predatory," id. at 72 (Bolton), he "would not object to a rule that says price above average total cost is per se legal as a way of implementing an easily administrable rule," id. at 75.
109. Id. at 75 (Bolton); see also id. at 99 (Ordover) ("I think at this point we have enough learning to try to go back to first principles and try to understand what it is that we are trying to accomplish, taking full account of the [administrability] of whatever provisions are going to ultimately be developed . . . .").
110. Id. at 73 (Bolton); see id. (Ordover); see also id. (Bolton) (adding, however, that focusing on cost may not be an effective way of distinguishing between procompetitive and anticompetitive effects).
111. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 223 (1993); see also June 22 Hr'g Tr., supra note 4, at 74 (Melamed) ("I understand the theory, even if I cannot understand the game theory, of why an above cost . . . test could be predatory. . . . What I don't understand . . . is how one turns that into a legal rule that companies can comply with."); id. at 75 (Bolton).
112. See June 22 Hr'g Tr., supra note 4, at 6768, 74 (Ordover); id. at 74 (Melamed).
113. See, e.g., Edlin, supra note 20, at 945. This commentator notes, however, that "for the sake of correctness in application, this Essay usually assumes that if an entrant prices twenty percent below an incumbent monopoly, the incumbent's prices will be frozen for twelve to eighteen months." Id. at 94546. "The exact operationalization of the rule," however, "could vary by industry or be decided on a case-by-case basis. The price freeze might also be adjusted for inflation in periods of high inflation or for substantial industry-specific price trends." Id. at 946 n.19.
114. See June 22 Hr'g Tr., supra note 4, at 6869 (Melamed) (acknowledging some chilling of procompetitive discounting but refraining from comparing the magnitude of harm from false positives and false negatives); see also Crane, supra note 8, at 10.
115. Cf. Crane, supra note 8, at 32 ("In sum, the available information on lawyer fee structures in post-Brooke Group predatory pricing cases supports two hypotheses regarding the Chicago School predatory pricing precedents: First, that the potential for substantial plaintiff's verdicts in predatory pricing cases remains, and second, that some firms use predatory pricing complaints strategically to diminish price competition by competitors."). Available evidence, however, suggests that in recent years liability findings on claims involving predatory pricing have been rare. See supra Part I(C)(1).
116. Cf. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986) (noting that "cutting prices in order to increase business often is the very essence of competition").
117. Cf. Elhauge, supra note 106, at 784 (suggesting no need to protect from incumbent's above-cost price cuts an entrant who will eventually become more, or as, efficient as the incumbent since capital markets already successfully take that into account); id. at 78292.
118. 509 U.S. 209, 223 (1993) ("Although Cargill and Matsushita reserved as a formal matter the question whether recovery should ever be available . . . when the pricing in question is above some measure of incremental cost, the reasoning in both opinions suggests that only below-cost prices should suffice . . . ." (citations omitted) (internal quotation omitted) (emphasis in original)).
119. Matsushita, 475 U.S. at 585 n.9 ("We do not consider whether recovery should ever be available on a theory such as respondents' when the pricing in question is above some measure of incremental cost." (emphasis in original)); Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 117 n.12 (1986) (same).
120. Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 232 (1st Cir. 1983) (Breyer, J.).
122. June 22 Hr'g Tr., supra note 4, at 4445 (Melamed).
123. Id. at 46 (emphasis added).
124. Areeda & Hovenkamp, supra note 1, ¶ 736d, at 392.
125. June 22 Hr'g Tr., supra note 4, at 74 (Melamed); see also id. at 75 (Bolton); Sherman Act Section 2 Joint Hearing: Section 2 Policy Issues Hr'g Tr. 7779, May 1, 2007 [hereinafter May 1 Hr'g Tr.] (Baker) (discussing difficulties in administering price-cost test in predatory-pricing cases); Feb. 13 Hr'g Tr., supra note 84, at 187 (Sewell).
126. June 22 Hr'g Tr., supra note 4, at 67 (Ordover).
127. See, e.g., United States v. AMR Corp., 335 F.3d 1109, 1117 (10th Cir. 2003) (asserting that Brooke Group's focus on incremental costs "implicitly ruled out" above-total-cost pricing as a basis for antitrust liability); Areeda & Hovenkamp, supra note 1, 723d2, at 280 ("Dicta in the Supreme Court's Brooke decision appears to have settled this matter for all prices higher than average total cost."); id. ¶ 739c3, at 420 ("But numerous lower courts have concluded that condemning prices greater than average total cost--that is, fully profitable prices--unwisely invites plaintiffs into protracted litigation and close questions about the precise location of marginal cost and the reasons for such prices. The prospect of such litigation serves to deter legitimate, pro-competitive price cutting." (footnote omitted)); see also June 22 Hr'g Tr., supra note 4, at 75 (Bolton) ("I would not object to a rule that says price above average total cost is per se legal as a way of implementing an easily administrable rule.").
128. June 22 Hr'g Tr., supra at note 4, at 89 (Elzinga) ("Let's say . . . that this [television] set was sold by Toshiba . . . to Sears for $95, and the average total cost was $100, but the average variable cost was $90 . . . . Almost everyone at the time believed Toshiba was selling below cost. . . . And it took an instinct for economic reasoning or a recollection of a price theory course to realize that such a price was above the shut-down point, it was cash flow positive, and that Toshiba was better off making the sale to Sears than not making that sale . . . .").
129. E.g., Pac. Eng'g & Prod. Co. of Nev. v. Kerr-McGee Corp., 551 F.2d 790, 796 n.7 (10th Cir. 1977) (citing Areeda & Turner, supra note 5, at 700); Areeda & Hovenkamp, supra note 1, ¶ 753b3, at 367; Carlton & Perloff, supra note 27, at 783 (defining marginal cost as "the increment, or addition, to cost that results from producing one more unit of output").
130. Areeda & Hovenkamp, supra note 1, ¶ 735b1, at 365; see id. ¶ 735b3, at 367.
131. See infra note 136.
132. AMR, 335 F.3d at 1116 (alteration in original) (quoting Advo, Inc. v. Phila. Newspapers, Inc., 51 F.3d 1191, 1198 (3d Cir. 1995)); see also Spirit Airlines, Inc. v. Nw. Airlines, Inc., 431 F.3d 917, 93738 (6th Cir. 2005); Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 532 (5th Cir. 1999); Kelco Disposal, Inc. v. Browning-Ferris Indus. of Vt. Inc., 845 F.2d 404, 407 (2d Cir. 1988), aff'd on other grounds, 492 U.S. 257 (1989); McGahee v. N. Propane Gas Co., 858 F.2d 1487, 1504 (11th Cir. 1988); Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d 1050, 1056 (6th Cir. 1984); MCI Commc'ns Corp. v. AT&T, 708 F.2d 1081, 111923 (7th Cir. 1983).
133. Areeda & Hovenkamp, supra note 1, ¶ 739a, at 41213.
135. Feb. 13 Hr'g Tr., supra note 84, at 185 (Wark).
136. See Areeda & Turner, supra note 5, at 716 (noting that "[t]he incremental cost of making and selling the last unit cannot readily be inferred from conventional business accounts"); see also AMR, 335 F.3d at 1116 (acknowledging that "marginal cost, an economic abstraction, is notoriously difficult to measure and 'cannot be determined from conventional accounting methods'" (quoting Ne. Tel. Co. v. AT&T, 651 F.2d 76, 88 (2d Cir. 1981))).
137. Areeda & Hovenkamp, supra note 1, ¶ 735b3 ("Variable costs, as the name implies, are costs that vary with changes in output," and "[t]he average variable cost is the sum of all variable costs divided by output." (internal quotation marks omitted)).
138. See Bolton et al., supra note 14, at 227172.
139. Areeda & Hovenkamp, supra note 1, ¶ 735b3, at 366.
140. Id. ¶ 740a, at 425.
141. See AMR, 335 F.3d at 1116; Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 532 (5th Cir. 1999); see also Areeda & Turner, supra note 5, at 718 ("[D]espite the possibility that average variable cost will differ from marginal cost, it is a useful surrogate for predatory pricing analysis"); Feb. 13 Hr'g Tr., supra note 84, at 185 (Wark) ("I think it's important to recognize that average variable cost is really a proxy for marginal cost because that really i[s] the right test.").
142. See William J. Baumol, Predation and the Logic of the Average Variable Cost Test, 39 J.L. & Econ. 49, 5557 (1996); cf. Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 910 (9th Cir. 2008) (holding that the appropriate measure of costs in a "bundled discounting context" is average variable cost).
143. See Baumol, supra note 142, at 5759; see also June 22 Hr'g Tr., supra note 4, at 32 (Bolton) ("price being below average variable cost is a very poor proxy for measuring profit sacrifice, which is what we are trying to go after").
144. See June 22 Hr'g Tr., supra note 4, at 8283 (Elzinga); id. at 83 (Ordover).
145. Kelco Disposal, Inc. v. Browning-Ferris Indus. of Vt., Inc., 845 F.2d 404, 408 (2d Cir. 1988), aff'd on other grounds, 492 U.S. 257 (1989); see also U.S. Philips Corp. v. Windmere Corp., 861 F.2d 695, 704 (Fed. Cir. 1988) (whether advertising expenses were variable or fixed costs was a question of fact); Sunshine Books, Ltd. v. Temple Univ., 697 F.2d 90, 9497 (3d Cir. 1982) (whether inventory shrinkage and payroll expenses are variable or fixed costs are questions of fact); Ne. Tel. Co. v. AT&T, 651 F.2d 76, 86 n.12 (2d Cir. 1981) ("Whether a particular expense, e.g., the cost of a new factory, should be classified as variable or fixed depends in part on the time under consideration.").
146. Bolton et al., supra note 14, at 2272.
147. Id. at 2272. "Sunk cost" is "the portion of fixed costs that is not recoverable." Carlton & Perloff, supra note 27, at 785.
148. Bolton et al., supra note 14, at 2273.
151. See generally Elzinga & Mills, supra note 79, at 2484 ("Adopting . . . [the long-run average incremental cost standard] would be inconsistent with the generally accepted view that predatory pricing means pricing that would not be remunerative except for its exclusionary effect."); Areeda & Hovenkamp, supra note 1, ¶ 741e, at 44955 (noting that preexisting capital costs "are not part of the cost of predation, because those costs remain the same").
152. See Carlton & Perloff, supra note 27, at 29 ("A sunk cost is like spilled milk. Once it is sunk, there is no use worrying about it, and it should not affect any subsequent decisions. . . . Costs, including fixed costs, that are not incurred if operations cease are called avoidable costs.").
153. See Competition Bureau, Can., Enforcement Guidelines: Predatory Pricing 1415 (2008), available at http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/vwapj/Predatory_Pricing_Guidelines-e.pdf/$file/Predatory_Pricing_Guidelines-e.pdf; Directorate-Gen. for Competition, European Comm'n, Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses 31 (2005), available at http://ec.europa.eu/comm/competition/antitrust/art82/discpaper2005.pdf.
154. (1,500 units at $8 per unit + 500 units at $10 per unit) divided by 2,000 units.
155. (500 units at $10 per unit) divided by 500 units.
156. See June 22 Hr'g Tr., supra note 4, at 36 (Bolton), 46 (Melamed); id. at 5354 (Melamed); id. at 7780 (panelists voiced no disagreement that average avoidable cost was the "best cost measure," although one panelist questioned this proposition's phrasing and another panelist noted definitional ambiguities in the cost measure); Baumol, supra note 142, at 49, 5759; Bolton et al., supra note 14, at 227172; see also Gregory J. Werden, The American Airlines Decision: Not with a Bang but a Whimper, Antitrust, Fall 2003, at 32, 3435; Unilateral Conduct Working Group, Int'l Competition Network, Report on Predatory Pricing 3, 1011 (2008), available at http://www.internationalcompetition network.org/media/library/unilateral_conduct/FINALPredatoryPricingPDF.pdf ("The most commonly cited measure is average variable cost, although there appears to be a growing trend toward the use of average avoidable cost."); see supra note 153.
157. See Bolton et al., supra note 14, at 2271; June 22 Hr'g Tr., supra note 4, at 3637 (Bolton).
158. See June 22 Hr'g Tr., supra note 4, at 37 (Bolton); Bolton et al., supra note 14, at 227174.
159. See Bolton et al., supra note 14, at 227273; cf. Feb. 13 Hr'g Tr., supra note 84, at 93 (Balto) (arguing that average variable cost is a poor test for predatory pricing in the context of pharmaceuticals where "all the costs are up front").
160. See Baumol, supra note 142, at 5859.
161. See id. at 58.
162. See June 22 Hr'g Tr., supra note 4, at 83 (Ordover).
163. Cf. id. at 82 (Elzinga) (noting the potential sensitivity of average variable cost to choice of accounting convention). But see Feb. 13 Hr'g Tr., supra note 84, at 187 (Sewell) (stating that "average variable cost is a measure which is widely understood by business people . . . it's a metric that exists for other than just antitrust enforcement purposes . . . and therefore has some additional validity").
164. See June 22 Hr'g Tr., supra note 4, at 46 (Melamed); id. at 79 (Ordover) (noting that "these avoidable costs which we looked at at the route level are typically the kind of costs business people look at when they make business decisions in the airline business").
165. Id. at 8485 (Bolton); see also Jan. 31 Hr'g Tr., supra note 96, at 33 (Edlin) ("The [AMR trial] Judge thought there that the extra plane was profitable if you ignore effects on other planes. I suggest that everyone reread footnote 13 of that case over and over and over again if you think that the extreme sacrifice test might make sense, as the Judge did.").
166. June 22 Hr'g Tr., supra note 4, at 84 (Bolton).
167. Id. at 53 (Melamed).
169. Baumol, supra note 142, at 7071.
170. See United States v. AMR Corp., 335 F.3d 1109, 111819 (10th Cir. 2003) (treating as "invalid as a matter of law" a cost test that "simply performs a 'before-and-after' comparison of the route as a whole, looking to whether profits on the route as a whole decline after capacity was added, not to whether the challenged capacity additions were done below cost" because such a test treats foregone profits as costs (citation omitted)).
171. Id. at 111819. See also Stearns Airport Equip. Co., Inc. v. FMC Corp., 170 F.3d 518, 533 n.14 (5th Cir. 1999); MCI Comm'ns Corp. v. AT&T, 708 F.2d 1081, 1114 (7th Cir. 1983).
172. Cf. June 22 Hr'g, supra note 4, at 9 (Elzinga).
173. The Department will, however, consider the foregone value of the possibility of renting or leasing an owned fixed asset in determining the cost the firm incurred in producing the putatively predatory increment. See generally Baumol, supra note 142, at 7071 (noting that "a price of firm F that does not cover the opportunity cost of that firm's avoidable investment can constitute a threat to a more efficient rival and should be considered to fail the generalized Areeda-Turner Test"). In that situation, there is a readily available means to ascertain the firm's cost of the asset used to produce the purportedly predatory increment. This does not involve constructing hypothetical costs for the firm or imputing lost profits to it.
174. See generally id. at 5558 ("I will argue now that the Areeda-Turner test is entirely defensible as a criterion to determine whether the price at issue constitutes a threat to efficient rivals of firm F. But I will show that for this purpose it is average variable cost or a near relative of [average variable cost], rather than marginal cost, that provides the requisite information."); Hovenkamp, supra note 1, at 2324.
175. Wallace v. IBM, 467 F.3d 1104, 1106 (7th Cir. 2006) (Easterbrook, J.).
176. 509 U.S. 209, 224 (1993). But see Katz & Salinger Comments, supra note 93, at 6 (noting that, as a logical matter, even without successful recoupment, predatory pricing could, under certain circumstances, harm consumers).
177. 509 U.S. at 224.
178. June 22 Hr'g Tr., supra note 4, at 4950 (Melamed).
181. Elzinga & Mills, supra note 42, at 87072, 893; see also Bolton et al., supra note 14, at 2263; Katz & Salinger Comments, supra note 93, at 6.
182. Cf. June 22 Hr'g Tr., supra note 4, at 7172 (Bolton) (stating that recoupment is "the right question to ask").
183. Sherman Act Section 2 Joint Hearing: Conduct as Related to Competition Hr'g Tr. 70, May 8, 2007 [hereinafter May 8 Hr'g Tr.] (Rule).
184. See June 22 Hr'g Tr., supra note 4, at 10 (Elzinga) ("[T]he recoupment returns for the aspiring monopolist must be enjoyed for a longer time period than the time frame in which the aspiring monopolist shouldered the cost of the predation strategy . . . ."); Predatory Strategies, supra note 76, at 26669.
185. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 22526 (1993).
187. See June 22 Hr'g Tr., supra note 4, at 13 (Elzinga); see also Kenneth G. Elzinga, When Does Predatory Pricing Work? 1 (n.d.) (hearing submission).
188. See Multistate Legal Studies, Inc. v. Harcourt Brace Jovanovich Legal and Prof'l Publ'ns, Inc., 63 F.3d 1540, 1549 n.6 (10th Cir. 1995).
189. Advo, Inc. v. Phila. Newspapers, Inc., 51 F.3d 1191, 1196 n.4 (3d Cir. 1995); accord Areeda & Hovenkamp, supra note 1, ¶ 727g, at 337 (stating that a firm that operates in numerous markets may predate in only one to acquire or maintain "higher prices in all the others as well"); see also Bolton et al., supra note 14, at 226768 (recoupment "may occur in either the predatory market or in a strategically related market where the effects of the predation are felt"); id. at 2300 ("Reputation effects may be present when the predator sells in two or more markets or in successive time periods within the same market.").
190. See Baker, supra note 98, at 59091; Bolton et al., supra note 14, at 224849, 226768; see also June 22 Hr'g Tr., supra note 4, at 22 (Ordover); id. at 36 (Bolton).
191. See, e.g., June 22 Hr'g Tr., supra note 4, at 63 (Bolton) ("We have to look at the deterrent effect of episodic, very rare predatory pricing."); id. at 8692 (multiple panelists).
192. Id. at 87 (Bolton); see also Aaron S. Edlin & Joseph Farrell, The American Airlines Case: A Chance to Clarify Predation Policy (2001), in The Antitrust Revolution 502, 51819 (John E. Kwoka & Lawrence J. White eds., 2004) (observing that "there is apt to be a reason why a firm is in multiple markets, so there will usually be some link").
193. June 22 Hr'g Tr., supra note 4, at 8990 (Ordover) (adding, "I just don't see how I can translate that into an administrable test for the courts and for counsel . . . ."); see also id. at 4849 (Melamed) (noting that while "the recoupment requirement is central to and a great contribution to predatory pricing law," demanding stringent quantification as some have suggested "clearly complicates the proceedings, increases costs" and "may be an impossible burden for the plaintiff in a multi-market reputation effect recoupment story"); cf. id. at 88 (Elzinga) ("[O]nce you start bringing in reputation effects as a potential hammer for antitrust plaintiffs, what is the consequence of that for all the good things that reputations do . . . to keep people, even for their own good, out of markets in which they have no business competing because they will not be efficient utilizers of society's scarce resources in those settings?").
194. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 223 (1993).
195. See A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1401 (7th Cir. 1989) (Easterbrook, J.) ("Only if market structure makes recoupment feasible need a court inquire into the relation between price and cost."); see also June 22 Hr'g Tr., supra note 4, at 70 (Ordover) (stating sometimes "there is no need to somehow construct this potentially complicated analytics" because industry structure is such that "you know, quick as a bunny, somebody else is going to show up who may be even [a] more competitively advantaged rival"); id. at 71 (Elzinga) ("I do not think you need to do a recoupment analysis for many predation allegations, because entry conditions or prices and costs will tell you you needn't take that extra step.").
196. For an example of an approach to considering out-of-market effects in assessing the likelihood of recoupment, see Bolton et al., supra note 14, at 230204 (articulating a four-part test: (1) a dominant multi-market firm or a predator that "faces localized or product-limited competition or potential competition, or alternatively operating within a single market . . . and faces probable successive entry over time," (2) the reputation effect either reinforces another predatory strategy or is based on the perceived probability that the predator will repeat its conduct in the future, (3) the "predator deliberately pursues a reputation effects strategy," and (4) potential entrants observe the exit or other adverse effect).
197. 140 F. Supp. 2d 1141, 1204 (D. Kan. 2001).
199. Brief for Appellant United States of America at 67, United States v. AMR Corp., 335 F.3d 1109 (10th Cir. 2003) (No. 01-3202), available at http://www.usdoj.gov/atr/cases/f9800/9814.pdf.
200. AMR, 335 F.3d at 1120 n.15.
201. Spirit Airlines, Inc. v. Nw. Airlines, Inc., No. 00-71535, 2003 WL 24197742, at 12 & n.15 (E.D. Mich. Mar. 31, 2003), rev'd on other grounds, 431 F.3d 917 (6th Cir. 2005).
202. June 22 Hr'g Tr., supra note 4, at 93 (Melamed).
203. Bolton et al., supra note 14, at 2276 n.198.
204. Id. At the hearings, however, this panelist stated, "If meeting the competition is a best response, then this should be a defense." June 22 Hr'g Tr., supra note 4, at 92 (Bolton). Another panelist responded, "If it's the best response, then it would seem . . . that the revenues generated by the response are in excess of the avoidable costs, in which case it passes the price-cost test, but if that's not the case, if it fails that test, it's an inefficient response." Id. at 93 (Melamed).
205. Feb. 13 Hr'g Tr., supra note 84, at 180 (Wark).
207. June 22 Hr'g Tr., supra note 4, at 9293 (Bolton).
208. See, e.g., Areeda & Hovenkamp, supra note 1, ¶ 742f, at 47071, id. ¶ 746a, at 49195. See generally Bolton et al., supra note 14, at 227682.
209. May 1 Hr'g Tr., supra note 125, at 7879 (Baker).
210. See Bolton et al., supra note 14, at 227879 (noting that promotional pricing involves "temporarily pric[ing] below . . . cost in order to induce consumers to try a new product"). The firm's expectation in engaging in promotional pricing is that "a favorable consumption experience induced by prices below cost will increase future consumer demand at prices above cost." Id. at 2279. Efficiency is enhanced if this occurs, since the firm's profits stem from customers' future willingness to purchase its product and not the elimination of rivals. This "reflects rational, profit-maximizing behavior," not predation. Carlton & Perloff, supra note 27, at 357.
211. See Areeda & Hovenkamp, supra note 1, ¶ 746a, at 494 ("When a firm has considerable market power in the very product or service being promoted, the promotional pricing defense disappears. . . . In contrast to new entrants or small rivals, the monopolist has little need to resort to extreme price reductions to acquaint existing consumers with the merits of its brand."); cf. id. at 492 ("Unless continued over a long period of time, in which case it is no longer promotional, promotional pricing by new entrants or established firms who lack power in the promoted product or service are no threat to competition.").
212. Bolton et al., supra note 14, at 2281.
213. See Sherman Act Section 2 Joint Hearing: Remedies Hr'g Tr. 9597, Mar. 29, 2007 (Page).
214. See Bolton, supra note 14, at 228182.
215. Carlton & Perloff, supra note 27, at 359.
217. June 22 Hr'g Tr., supra note 4, at 95 (Elzinga).
218. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 415 (2004) (discussing access remedies for refusals to deal).
219. See May 8 Hr'g Tr., supra note 183, at 15960 (Rule) (suggesting that injunctive remedies be available only in section 2 cases brought by the federal government).
220. Id. at 158 (Melamed); see also Gregory J. Werden, Remedies for Exclusionary Conduct Should Protect and Preserve the Competitive Process, 76 Antitrust L.J. (forthcoming 2009) ("[A] predatory pricing decree should prescribe a particular price-cost comparison. Thus, the decree should specify a particular measure of the defendant's cost and indicate how the defendant's accounts are to be employed in constructing that cost measure. The decree also should specify how the defendant's price data are to be used in the comparison.").
221. Cf. Trinko, 540 U.S. at 41415.
222. See, e.g., June 22 Hr'g Tr., supra note 4, at 9596 (Elzinga) ("It may be that in a genuine predatory pricing case . . . you could get at some other part of the structure of the market that allows the predatory pricing to be a viable marketing strategy.").
223. See infra Chapter 9, Part IV(B).
224. See June 22 H'rg Tr., supra note 4, at 96 (Elzinga).
225. See id. at 97 (Ordover).
226. See generally John B. Kirkwood, Buyer Power and Exclusionary Conduct: Should Brooke Group Set the Standards for Buyer-Induced Price Discrimination and Predatory Pricing?, 72 Antitrust L.J. 625, 652 (2005).
227. June 22 Hr'g Tr., supra note 4, at 104 (Kirkwood).
228. See Scott C. Hall, Ross-Simmons v. Weyerhaeuser: Antitrust Liability in Predatory Bidding Cases, Antitrust, Spring 2006, at 55.
229. Confederated Tribes of Siletz Indians v. Weyerhaeuser Co., 411 F.3d 1030 (9th Cir. 2005), vacated and remanded sub nom. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069 (2007).
230. June 22 Hr'g Tr., supra note 4.
231. 127 S. Ct. 1069.
232. 411 F.3d at 1036 n.8.
233. 509 U.S. 209 (1993).
234. 411 F.3d at 1037 (concluding that "benefit to consumers and stimulation of competition do not necessarily result from predatory bidding the way they do from predatory pricing").
235. 127 S. Ct. at 1077.
237. Id. at 107677 & n.2.
238. Id. at 1077 (internal quotation marks omitted).
241. See supra Part I.
243. See 127 S. Ct. at 1076 ("[T]his case does not present . . . a risk of significantly increased concentration in . . . the market for finished lumber.").
244. Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 236 (1948).
246. 127 S. Ct. at 1076.
248. See June 22 Hr'g Tr., supra note 4, at 135 (Salop) (stating that he was "very worried that there could be false positives"). But cf. id. at 106 (Kirkwood) ("[A]rguably, there have been no false positives, no liability findings [in predatory bidding cases] where it appeared that the defendant had not, indeed, harmed welfare.").
249. Weyerhaeuser, 127 S. Ct. at 1077; see also June 22 Hr'g Tr., supra note 4, at 158 (McDavid) (stating that a firm might decide to "stockpile inventory to preclude future shortages or to hedge against a future price increase").
250. Brief for the United States as Amicus Curiae Supporting Petitioner at 16, Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069 (No. 05-381), available at http://www.usdoj.gov/atr/cases/f217900/217988.pdf.
251. Cf. June 22 Hr'g Tr., supra note 4, at 113 (Kirkwood) ("[I]f the defendant can show that bidding up input prices was profitable, without regard to any increase in monopsony power, [then] it should have a complete defense.").


There are three degrees to which the state exercises power over commerce. First exclusively; second, in the absence of legislation by Congress, until Congress does act; third, where, Congress having legislated, the power of the state cannot operate at all.
without burdening, interstate commerce, there may at any time be federal exertion of authority which takes that power from the state.
Although where Congress and the state have concurrent powers, that of the state is superseded when the power of Congress is exercised, the action of Congress must be specific in order to be paramount. Missouri Pacific Ry. Co. v. Larabee Mills, 211 U. S. 612 .
By the specific provision of the Act to Regulate Commerce, as amended, Congress has taken control of ratemaking and charging for interstate shipments, and in that respect such provisions supersede state statutes on the same subject, and so held that a statute of North Carolina requiring common carriers to transport freight as soon as received to interstate points under penalties for failure, conflicts with the requirement of § 2 of the Hepburn Act of July 29, 1906, c. 3591, 34 Stat. 584, forbidding transportation until rates had been fixed and published, and is therefore unenforceable.
As between the federal government and the states, one authority must be paramount, and when it speaks, the other must be silent.
No essential power is taken from the states in preserving the balances of the Constitution and giving to Congress the power which belongs to it.
Any middle ground on which state authority might still be preserved after Congress has spoken in regard to interstate commerce is passed when the state regulation burdens such commerce, and the imposition of penalties for failure to receive and transport freight does impose a burden.
Quaere whether conceding that a state may impose a penalty does not concede the state to be competent to determine the amount.
The facts, which involve the validity of a statute of North Carolina affecting common carriers, are stated in the opinion.
Defendants in error brought suit against plaintiff in error, herein called the railway company, in one of the courts of North Carolina to recover penalties and damages for the failure of the railway company, in violation of the statute, on dates from September 17 to September 23, 1907, to receive goods tendered to it by Etta C. Reid, defendant in error at Charlotte, North Carolina, for transportation to a point in the State of West Virginia.
The material facts, as stipulated, are as follows: the railway company is a Virginia corporation, and is a common carrier, and operates a line of railroad from the city of Charlotte to the City of Alexandria, Virginia, and another line to the City of Richmond. Davis is a town in West Virginia, and a terminus of a branch road of the Western Maryland Railroad Company, six miles long, running from a point on the railroad, known as Thomas, to Davis.
The railway company operates no line of railroad or other means of conveyance to Davis, nor does it connect with the Western Maryland Railroad's line.
and kitchen furniture, and offered to pay the freight charges thereon. She demanded that the company issue to her a bill of lading "reading from Charlotte, in the State of North Carolina, to Davis, in the State of West Virginia, consignee to be Samuel Hammock." The railway company declined to name a rate to be charged for transportation of the goods, declined to permit her to prepay the freight charges from Charlotte to Davis, declined to receive the goods for shipment, and declined to issue a bill of lading therefor.
She renewed her request on four successive days, and with each demand the company refused to comply. On September 23, 1907, the company named the sum of $34.08 as the amount necessary to prepay the freight charges on the shipment from Charlotte to Davis, and thereupon she paid the said sum and the company issued a bill of lading to her.
"and no such rates had been filed with the Interstate Commerce Commission, and no rate of freight had been established of filed with the Interstate Commerce Commission, or published, covering shipments between said points."
On that day, when Etta C. Reid made her demand of the railway company, the company's agent advised her that there was no established rate for the shipment, that no rate had been filed or published, that he did not know the rate, that he had no authority to receive the goods or the freight charges thereon to destination, and no authority to issue a bill of lading reading "final destination, Davis, in the State of West Virginia."
to receive the shipment and issue a bill of lading. Immediately thereafter the officers of the company took up with the officers of the companies over whose lines the shipment of freight would have to move the establishment of a rate, with the result that a rate was established. On Monday, September 23, 1907, the local agent was informed of such rate and given authority to receive the shipment and to issue a bill of lading. Thereupon the company received the shipment, accepted the amount of freight in accordance with the joint and through rate, and issued the bill of lading.
There is, and was at the date of the tender of the goods, a telegraph office at Davis. Mrs. Reid remained at Charlotte for the time mentioned, awaiting the establishment of the rate.
It is stipulated that she was damaged in the sum of $25, for the recovery of which and the penalties prescribed by the statute she asked the court to adjudge.
The railway company resisted the demand and contended that to hold that the act was applicable to it would violate the commerce clause of the Constitution of the United States.
Judgment was awarded to defendants in error as prayed, and it was affirmed by the supreme court of the state, two members of the court dissenting. 153 N.C. 490.
the power of the state over the general subject of commerce has been divided into three classes: first, those in which the power of the state is exclusive; second, those in which the states may act in the absence of legislation by Congress; third, those in which the action of Congress is exclusive and the state cannot act at all. Covington &c.; Bridge Co. v. Kentucky, 154 U. S. 209 ; Western Union Telegraph Co. v. James, 162 U. S. 650 , 162 U. S. 655 .
These divisions, however, express but the extreme boundaries of the subject. Something more definite is necessary for the decision of the opposing contentions in the case at bar. The supreme court of the state was of the view that the statute simply regulated a duty which preceded the entry of the goods in interstate commerce, and concluded therefore that the statute was "neither an interference with nor a burden upon interstate commerce." And it decided that the execution of this duty was not precluded by the provision of the Interstate Commerce Act requiring a schedule of tariffs to be established and charged. It was said by the court that it was the duty of the railway company to file such schedule, and that the company could not justify the violation of it common law duty by the neglect of its statutory duty.
of the state's power, citing Atlantic Coast Line R. Co. v. Mazursky, 216 U. S. 122 ; Western Union Tel. Co. v. James, 162 U. S. 650 .
"there are many occasions where the police power of the state can be properly exercised to insure a faithful and prompt performance of duty within the limits of the state upon the part of those engaged in interstate commerce."
Such exercise of power, it was further said, was in aid of interstate commerce, and, although incidentally affecting it, did not burden it. But the facts of those cases distinguish them from the case at bar, and make their principle inapplicable. In the Telegraph Company cases, there was a failure to transmit or deliver telegrams, in violation of the duty so to do imposed by the particular state statutes. In the Railroad case, a statute of the State of South Carolina which required carriers to settle within a specified time claims for loss of or damage to freight while in their possession within the state was sustained against the objection that it was an interference with interstate commerce. In none of the cases, however, was there any federal legislation upon the subject involved, and in all of them such circumstance was stated as an element of decision. The circumstance is important, and we are brought to the inquiry whether it exists in the present case.
"the mere grant by Congress to the Commission of certain national powers in respect to interstate commerce does not of itself, and in the absence of action by the Commission, interfere with the authority of the state to make those regulations conducive to the welfare and convenience of its citizens. . . . Until specific action by Congress or the Commission, the control of the state over those incidental matters remains undisturbed."
The duty which was enforced in the state court was the duty of a railroad company engaged in interstate commerce to afford equal local switching service to its shippers notwithstanding the cars concerning which the service was claimed were eventually to be engaged in interstate commerce. This duty was declared to be a common law duty which the state might, "at least, in the absence of congressional action, compel a carrier to discharge."
The principle of that case therefore requires us to find specific action either by Congress in the Interstate Commerce Act, or by the Commission, covering the matters which the statute of North Carolina attempts to regulate. There is no contention that the Commission has acted, so we must look to the act. Does it, as contended by plaintiff in error, take control of the subject matter and impose affirmative duties upon the carriers which the state cannot even supplement? In other words, has Congress taken possession of the field?
"if no joint rate over a through route has been established the several carriers in such through route shall file, print, and keep open to public inspection as aforesaid, the separately established rates, fares, and charges applies to the through transportation."
"shall engage or participate in the transportation of passengers or property, as defined in this act, unless the rates, fares, and charges upon which the same are transported by said carrier have been filed and published in accordance with the provisions of this act."
It is evident, therefore, that Congress has taken control of the subject of ratemaking and charging. All of the particular details we cannot set forth without extensive quotation from the act, which it is quite inconvenient to make. The provisions of the act are directed at the abuses most to be feared -- unreasonableness in the rates, and discriminations, including in the latter discriminations in service, in the acceptance and delivery of freight, and in facilities furnished.
"It is apparent that the means by which these great purposes were to be accomplished was the placing upon all carriers the positive duty to establish schedules of reasonable rates which should have a uniform application to all, and which should not be departed from so long as the established schedule remained unaltered in the manner provided by law."
"When the general scope of the act is enlightened by the considerations just stated, it becomes manifest that there is not only a relation, but an indissoluble unity between the provision for the establishment and maintenance of rates until corrected in accordance with the statute and prohibitions against preferences and discrimination."
the traffic, or to furnish cars or other facilities for transportation." And transportation means not only the physical instrumentalities, but all services in connection with receipt, delivery, and handling of property transported, and such transportation the carrier must "provide and furnish upon reasonable request therefor." (Section 1, paragraph 2, of the act, as amended June 29, 1906, by the Hepburn Act.) Section 7 of the latter act requires the carrier to issue a bill of lading for an interstate shipment, and makes the carrier liable for the loss of or damage to property while on its own line, and also while on the lines over which the property may pass.
There is scarcely a detail of regulation which is omitted to secure the purpose to which the Interstate Commerce Act is aimed. It is true that words directly inhibitive of the exercise of state authority are not employed, but the subject is taken possession of. We are therefore brought to consider what the statute of North Carolina provides. Leaving out qualifications with which we are not concerned, the act requires railroad companies to receive freight for transportation whenever tendered at a regular station, and forward the same over the route selected by the person offering the shipment. Fifty dollars a day is the penalty prescribed for refusal, and all the damages incurred.
"The statutory enforcement under penalty of the common law duty to accept freight 'whenever tendered' is not within the scope or terms of any act of Congress. It is neither an interference with nor a burden upon interstate commerce."
received by shippers is given through the Interstate Commerce Commission. See Robinson v. Baltimore & O. R. Co., post, p. 222 U. S. 506 . By these provisions, Congress has taken possession of the field of regulation with the purpose, which we have already pointed out, to keep under the eye and control of the Commission the rates charged and the action of the railroad in regard to them, to secure their reasonableness, and to secure their impartial application. The statute of North Carolina conflicts with these requirements. What they forbid the carrier to do the statute requires him to do, and punishes disobedience by successive daily penalties.
We cannot assume that it was without consideration of its necessity that Congress enacted § 2 of the Hepburn Act. It was no doubt the adaptation of experience to the exigencies of a practical problem, Congress coming to believe that the most effective way to prevent preferences in charges by carriers was to forbid them to "engage or participate in the transportation of passengers or property" until they had fixed and proclaimed the rate to be charged therefor -- a rate that would be not only for one shipper or shipment, but for all shippers and shipments; not for one time only, but for all times. The power of Congress to so provide cannot be doubted. If the regulation be not exclusive, this situation is presented: if the carrier obey the state law, he incurs the penalties of the federal law; if he obey the federal law, he incurs the penalties of the state law. Manifestly one authority must be paramount, and when it speaks, the other must be silent. We can see no middle ground. In so deciding, we take no essential power from the states. The balances of the Constitution are only preserved, and there is given to the states the power which is the states' and to Congress the power which belongs to Congress.
"not given solely on the idea of making pecuniary compensation to the person injured, but usually for the more important purpose of enforcing the performance of a duty required by public policy or positive statutory enactment."
The policy of the statute, then, is to require the acceptance of freight "when tendered," with daily accumulating penalties upon refusal to do so. If such power be conceded, what is the limit of its exercise, either as to conditions or penalties?
"if no joint rate over the through route has been established, the several carriers in such through route shall file, print, and keep open to public inspection as aforesaid, the separately established rates, fares, and charges applied to the through transportation."
There is nothing in the record to show that there were such established separate rates, and that separately established rates were published and kept open for inspection. Indeed, the record shows that a through rate had to be fixed by the several carriers in the through route.
It was only because of the obligation imposed by the Hepburn Act that the railway company refused to receive the goods tendered to it, and the agent of the company informed defendant in error that he was without power to comply with her demand. He promptly acted in the matter when the lines over which the freight had to pass established a joint rate. He then received the goods, issued a bill of lading therefor, "and the shipment went forward to its destination."
"Agents or other officers of railroads and other transportation companies whose duty it is to receive freights shall receive all articles of the nature and kind received by such company for transportation whenever tendered at a regular depot, station, wharf, or boat landing, and every loaded car tendered at a side track, or any warehouse connected with the railroad by a siding, and shall forward the same by the route selected by the person tendering the freight under existing laws, and the transportation company represented by any person refusing to receive such freight shall forfeit and pay to the party aggrieved the sum of fifty dollars for each day said company refuses to receive said shipment of freight, and all damages actually sustained by reason of the refusal to receive freight. If such loaded car be tendered at any siding or workhouse warehouse at which there is no agent, notice shall be given to an agent at the nearest regular station at which there is an agent that such car is loaded and ready for shipment."
Code of North Carolina, 1905, § 2631.


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Today, the Supreme Court granted certiorari to review the D.C. Circuit's U.S. v. Jones decision and asked the parties to brief the following issue: "Whether the government violated respondent's Fourth Amendment rights by installing the GPS tracking device on his vehicle without a valid warrant and without his consent." See The next big privacy case; see also my electronic surveillance posts. Maybe the Fourth Amendment won't be as obsolete as Ninth Circuit Chief Judge Alex Kozinski and his clerk Stephanie Grace think, "Remember what the Fourth Amendment protects? No? Just as well."
As electronic surveillance and Fourth Amendment scholar Professor Orin Kerr notes, the Court's cert grant is particularly interesting because it framed the question under review in a way that includes whether just the warrantless installation of a GPS tracking device (in contrast to prolonged GPS tracking) may violate the Fourth Amendment--an issue that the lower courts have universally rejected but that Prof. Kerr believes deserves further scrutiny.
Following up on my Electronic Surveillance and the Fourth Amendment post last month, check out Steve Treglia's article The Fourth Amendment In The World of E-Communications, Prof. Laurie Levinson's piece Do GPS Tracking Devices Violate the Fourth Amendment?, Steve Titch's Data In The Cloud Needs Fourth Amendment Protection, and CNN's Warrantless Cell Phone Searches Spread To More States. I found all on fourthamendment.com, which I highly recommend. See also Orin Kerr, Email accounts, the warrant requirement, and the territorial limits of court orders and Delaware courts: Police use of tracking devices at issue.
Fourthamendment.com also pointed me to this Mink v. Knox opinion where the Colorado federal district court found a prosecutor civilly liable for authorizing a search warrant to look for evidence of "criminal libel" from a blogger who had criticized a university professor online. See Reporter's Committee for Freedom of the Press. This case is notable on many levels. The plaintiff first won a rare TRO enjoining the threatened prosecution in state court. Thereafter, the Tenth Circuit reversed the district court's ruling that the prosecutor was entitled to absolute immunity and, in a second appeal, reversed a grant of qualified immunity. Congratulations to my former co-clerk and now ACLU of Colorado legal director Mark Silverstein, one of plaintiff's counsel. Briefs and decisions available at ACLU-Colo.
While I'm in Boston to watch the Cubs play the Red Sox in Fenway for the first time since the 1918 World Series, Boston.com, 5/15/11, this seems as good as time as any to debut my series on cutting edge criminal defense issues. (No, I'm not writing this in Boston. I finished it before I left Sac.) This series is to help criminal defense attorneys spot unsettled legal issues and potential defenses perculating through the courts, which can be raised now in anticipation of changes in the law later.
There may be no bigger area of unsettled legal questions in criminal law right now than the application of the Fourth Amendment to various forms of electronic surveillance and communication, such as cell phones, emails, instant messaging, and GPS tracking. Smart phones now routinely include GPS tracking that may be recording a trail of every where you've been. "It's Tracking Your Every Move And You May Not Even Know," NY Times, 3/26/11. And, if it's there, expect government agents will be trying to find ways to use it. See, e.g., "ACLU: U.S. Attorney Used GPS To Track Cell Phones."
Appellate courts are starting to recognize that individuals may have a "reasonable expectation of privacy" from government intrusion into these new forms of surveillance and electronic communication, thereby triggering Fourth Amendment protections. Last year, the Sixth Circuit held that the Fourth Amendment requires the government to obtain a search warrant to obtain emails (though the court declined to apply the exclusionary rule). U.S. v. Warshak, No. 10-0377; see also EFF Amicus Brief. And the D.C. Circuit held that officers' long-term GPS surveillance of a vehicle requires a warrant, U.S. v. Maynard, No. 08-3030 , causing a split with, among others, the Ninth Circuit. U.S. v. Pineda-Moreno, No. 08-30385 and Pineda-Moreno Order Denying Rehearing En Banc With Judge Kozinski's Spirited Dissent.
Last month, the United States asked the Supreme Court to review the D.C. Circuit's GPS decision, see U.S. v. Jones Cert. Petition (formerly U.S. v. Maynard), and Legal Times Blog Summary, 4/15/11, and it appears that the high court is holding the defendant's cert petition in the Ninth Circuit's Pineda-Moreno GPS case pending disposition of the government's petition in Jones. Scotus Blog, 5/17/11; U.S. Response To Pineda-Moreno Cert Petition. I'm not smart enough to predict when and how the Supreme Court will decide these and similar questions. But if these issues are not raised in the district courts now, they may be lost forever.
To jump start your research, here are couple of excellent outlines by UNC School of Government professor Jeff Welty. Warrantless Searches Of Computers and Other Electronic Devices, April 2011 and Warrant Searches of Computers, May 2011.

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I develop and implement fast parallel algorithms on very large geometric datasets in CAD and GIS. I've also modeled and processed large terrain databases, e.g., to compress, to compute hydrography and visibility, and to site observers, and compressed 5D environmental data sets. The algorithms are the fastest in their class; awards are listed below.
Salles Viana Gomes de Magalhães, W. Randolph Franklin, and Ricardo dos Santos Ferreira. Fast analysis of upstream features on spatial networks (GIS Cup). In Proceedings of the 26th ACM SIGSPATIAL International Conference on Advances in Geographic Information Systems, SIGSPATIAL '18, 622–625. New York, NY, USA, 2018. ACM. Winner (1st place). doi:10.1145/3274895.3276474.
W. Randolph Franklin, Salles V. G. Magalhães, and Marcus V. A. Andrade. Data structures for parallel spatial algorithms on large datasets (vision paper). In Proceedings of BigSpatial’18: 7th ACM SIGSPATIAL Workshop on Analytics for Big Geospatial Data. Seattle, USA, 6 Nov 2018.
This paper describes data structures and algorithms for efficient implementation of GIS operations for large datasets on multicore Intel CPUs and on NVIDA GPUs. Typical operations are boolean combinations of polygons and map overlay. Efficient parallelization prefers simple regular data structures, such as structures of arrays of plain old datatypes. Warps of 32 threads are required to execute the same instruction (or be idle). Ideally, the data used by adjacent threads is adjacent in memory. Minimizing storage is important, as is accessing it in a regular pattern. That disparages pointers, linked lists, and trees. That implies that explicitly representing global topology is bad. If using only local topological formulae is sufficient, then it will be much faster. E.g., for many operations on a 2-D map (aka planar graph), the set of oriented edges suffices. Each edge knows the locations of its endpoints and the ids of its adjacent polygons. Any mass operation, such as area computation or point location, can be implemented as a map-reduce. All these techniques also apply in 3D to CAD/CAM and additive manufacturing. Indeed they are more important there.
W. Randolph Franklin, Salles V. G. Magalhães, and Marcus V. A. Andrade. Exact fast parallel intersection of large 3-D triangular meshes (extended abstract). In 28th Annual Fall Workshop on Computational Geometry. Queens College, CUNY, New York City, 26–27 Oct 2018.
We present 3D-EPUG-Overlay, a fast, exact, parallel, memory-efficient, algorithm for computing the intersection between two large 3-D triangular meshes with geometric degeneracies. Applications include CAD/CAM, CFD, GIS, and additive manufacturing. 3D-EPUG-Overlay combines 5 separate techniques: multiple precision rational numbers to eliminate roundoff errors during the computations; Simulation of Simplicity to properly handle geometric degeneracies; simple data representations and only local topological information to simplify the correct processing of the data and make the algorithm more parallelizable; a uniform grid to efficiently index the data, and accelerate testing pairs of triangles for intersection or locating points in the mesh; and parallel programming to exploit current hardware. 3D-EPUG-Overlay is up to 101 times faster than LibiGL, and comparable to QuickCSG, a parallel inexact algorithm. 3D-EPUG-Overlay is also more memory efficient. In all test cases 3D-EPUG-Overlay's result matched the reference solution. It is freely available for nonprofit research and education at https://github.com/sallesviana/MeshIntersection . The full version of this paper is being presented at the 2018 International Meshing Roundtable; it is currently online at https://project.inria.fr/imr27/files/2018/09/1035.pdf.
W. Randolph Franklin, Salles V. G. Magalhães, and Marcus V. A. Andrade. Exact fast parallel intersection of large 3-D triangular meshes. In 27th International Meshing Roundtable. Alberqueque, New Mexico, 2 Oct 2018.
We present 3D-EPUG-Overlay, a fast, exact, parallel, memory-efficient, algorithm for computing the intersection between two large 3-D triangular meshes with geometric degeneracies. Applications include CAD/CAM, CFD, GIS, and additive manufacturing. 3D-EPUG-Overlay combines 5 separate techniques: multiple precision rational numbers to eliminate roundoff errors during the computations; Simulation of Simplicity to properly handle geometric degeneracies; simple data representations and only local topological information to simplify the correct processing of the data and make the algorithm more parallelizable; a uniform grid to efficiently index the data, and accelerate testing pairs of triangles for intersection or locating points in the mesh; and parallel programming to exploit current hardware. 3D-EPUG-Overlay is up to 101 times faster than LibiGL, and comparable to QuickCSG, a parallel inexact algorithm. 3D-EPUG-Overlay is also more memory efficient. In all test cases 3D-EPUG-Overlay's result matched the reference solution. It is freely available for nonprofit research and education.
W. Randolph Franklin. Applications of geometry. In Kenneth H Rosen, editor, Handbook of Discrete and Combinatorial Mathematics, Discrete Mathematics and Its Applications, chapter 13.8, pages 998–1022. CRC Press, 2nd edition, 1 Dec 2017.
Geometry overlays the entire computing spectrum, having applications in almost every area of science and engineering, including astrophysics, molecular biology, mechanical design, fluid mechanics, computer graphics, computer vision, geographic information systems, robotics, multimedia, and mechanical engineering. The growing availability of large geometric databases is a major driver of the increase in applications. GIS mapping databases containing most of the world's roads enable route planning applications. Airborne LIDAR creates terrain elevation databases. That enables observer visibility computation, with applications ranging from radio tower siting to visual nuisance mitigation. Laser scanners produce 3D point clouds recording the surfaces of objects from buildings down to sculptures and even people. The ensuing applications include deducing the structure of those objects' surfaces.
Visiting positions at Genoa, Laval, CSIRO Canberra, National University of Singapore, 1992—1993.
Visitor at Georgia Tech, 2016.

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