Opinion ID: 3031963
Heading Depth: 6
Heading Rank: 2

Heading: Barriers to entry and expansion

Text: “Entry barriers are additional long-run costs that were not incurred by incumbent firms but must be incurred by new entrants, or factors in the market that deter entry while permitting incumbent firms to earn monopoly returns.”52 Such barriers may include legal license requirements, control of an essential resource, entrenched buyer preferences, and higher capital costs for new entrants.53 Entry barriers that justify a finding of market power must “be capable of constraining the normal operation of the market to the extent that the problem is unlikely to be self-correcting.”54 We conclude that the high capital costs new entrants faced and the limited availability of sawlogs were barriers to entry that justified an inference of monopoly power. At the outset, we address Weyerhaeuser’s argument that the entry of four new mills during the alleged predation period demonstrated a lack of barriers to entry. We have held that the entry of new competitors does not necessarily demonstrate a lack of barriers to entry.55 If new entrants are “insufficient to take significant business away from the predator, they are unlikely to represent a challenge to the predator’s market power.”56 The evidence did not show that the four new entrants took significant business from Weyerhaeuser or that they had a significant market share. In fact, evidence suggests that Weyerhaeuser’s market share actually increased even though the four new mills entered the market.57 Moreover, the 52 Rebel Oil, 51 F.3d at 1439 (internal citations and quotation marks omitted). 53 Id.; Brunswick, 6 F.3d at 1428. 54 Rebel Oil, 51 F.3d at 1439 (citation omitted). 55 Id. at 1440. 56 Id. (emphasis added). 57 This increase in Weyerhaeuser’s market share was likely due to the fact that although four new mills opened to compete with Weyerhaeuser during the alleged period of predation, thirty-one other competitors went out of business. 5836 ROSS-SIMMONS HARDWOOD v. WEYERHAEUSER evidence indicates that, as soon as the new entrants came into the market, they had to pay the sawlog prices Weyerhaeuser set. Thus, the evidence does not show that the four new entrants could take enough business away from Weyerhaeuser to allow the market to correct itself.58 As a result, the entry of new competitors did not foreclose the possibility that barriers to entry existed. We now turn to the issue of whether higher capital costs and limited sawlog availability were barriers to entry. Ross-Simmons offered expert testimony to support the proposition that the higher capital costs associated with entering the market constituted a barrier to entry. The record contains evidence that the advent of expensive new machines and product-grading, which did not exist when Weyerhaeuser entered the market, made market entry less feasible because new entrants had difficulty matching the necessary technology. The need for this new technology raised the cost of entering the market to $20-$25 million. While Weyerhaeuser also had to incur costs for machinery and product-grading, it was able to do so over time without bearing the burden of heavy front-end costs to gain entry into the market. Thus, substantial evidence supports the inference that higher capital costs were a barrier to entry. With respect to the availability of raw materials, Weyerhaeuser argues that there were sufficient sawlogs available for all competitors if they could afford to buy them. However, Weyerhaeuser purchased approximately 65% of the available sawlogs during the period of alleged predation. The evidence further shows that Weyerhaeuser raised the price of sawlogs and entered into exclusive agreements that restricted competitors’ access to sawlogs. By thus controlling or influencing a number of the available sawlog sources, Weyerhaeuser restricted access to the already limited sawlog 58 See id. at 1439. ROSS-SIMMONS HARDWOOD v. WEYERHAEUSER 5837 supply.59 Weyerhaeuser’s dominance in the market for sawlogs, its overbidding practices, and its restrictive arrangements together support the inference that the limited supply of sawlogs was a barrier to entry. [11] The evidence shows that significant barriers to entry existed in the sawlog market in the form of high capital costs and limited raw materials, and that Weyerhaeuser had a dominant share of the market. Moreover, the record contains direct evidence of Weyerhaeuser’s injurious exercise of market power. Therefore, we hold that substantial evidence supports the jury’s finding that a dangerous probability of Weyerhaeuser’s achievement of monopoly power existed. [12] Because substantial evidence shows that Weyerhaeuser engaged in anticompetitive conduct through predatory overbidding, intended specifically to eliminate competition, and a dangerous probability of Weyerhaeuser’s achievement of monopoly power existed, we uphold the jury’s verdict against Weyerhaeuser on the attempted monopolization claim. Accordingly, we affirm the court’s denial of Weyerhaeuser’s motion for judgment as a matter of law.