Opinion ID: 75782
Heading Depth: 4
Heading Rank: 2

Heading: Ability to Sustain Supracompetitive Prices

Text: 69 Even if the Baileys could prove Allgas possessed sufficient market power to set supracompetitive prices, whether through the existence of a monopoly or an oligopoly, they also would need to demonstrate Allgas could sustain the supracompetitive prices long enough to recoup its losses. The key to an antitrust violation is the ability to recoup losses incurred: 70 The success of any predatory scheme depends on maintaining monopoly power for long enough both to recoup the predator's losses and to harvest some additional gain. Absent some assurance that the hoped-for monopoly will materialize, and that it can be sustained for a significant period of time, [t]he predator must make a substantial investment with no assurance that it will pay off. 71 Matsushita, 475 U.S. at 589, 106 S.Ct. at 1357 (quoting Easterbrook, Predatory Strategies and Counterstrategies, 48 U. Chi. L. Rev. 263, 268 (1981)); see also III Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 724b (2d ed. 2002) (Recoupment requires not merely that post-predation monopoly prices be maintainable, but that they be of sufficient duration and magnitude to offset the costs of predation, even after the costs are adjusted for the risk and time value of the earlier investment in predation.). Without the ability to maintain inflated prices long enough to recoup losses, competition is not ultimately injured by the prior predatory pricing. 72 In his preliminary report, Gunther stated Allgas incurred approximately $557,502 in losses as a result of its price war with Bailey's Propane Gas. Gunther projected Allgas would recoup its losses in 8.7 years. Taking into consideration the present value of money, Gunther estimated full recoupment in approximately 10 years. In reaching this conclusion, however, Gunther failed account for structural factors in the market that would affect Allgas' ability to maintain supernormal prices for 10 years. See III Areeda & Hovenkamp, supra ¶ 724b (If structural factors indicate that monopoly or oligopoly prices could not be maintained for a significant time after the predation campaign has destroyed or disciplined rivals, then such `recoupment' is not possible, and the claim must be dismissed.). 73 The most significant structural factor bearing on the ability to recoup predatory losses through inflated prices is the ease or difficulty of entry into the market. Where a market has low barriers to entry, sellers charging supracompetitive prices will soon attract new competitors. See, e.g., Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1439 (9th Cir.1995) ([W]ith easy entry, a predator charging supracompetitive prices will quickly lose market share (as well as any chance of reaping monopoly profits) as new rivals enter the market and undercut its high price.). Entry barriers include trade secrets, patents, licenses, capital outlays required to start a new business, pricing elasticity, and difficulties buyers may have in changing suppliers. See McGahee v. N. Propane Gas Co., 858 F.2d 1487, 1495 (11th Cir.1988). 74 In his preliminary report, Gunther conceded the lack of barriers to entry by new liquid propane gas retailers: 75 Given the economic profits being earned by Allgas, Inc. and the likelihood of the entry of new firms, the question of the existence of barriers to entry arises. There do not appear to be any significant barriers to entry in the retail marketing of propane gas.... Entry barriers must be characterized as relatively weak and given information on the existence of economic profits in the industry, entry of new firms would be expected. 76 Preliminary Report at 9. Furthermore, Gunther failed to demonstrate the inability of existing firms to expand their output in response to a predator's attempts to raise prices above competitive levels. In light of these facts, we conclude Gunther's evidence is insufficient to demonstrate Allgas could maintain supracompetitive prices long enough to recoup its losses. 77