Court Opinion

ID: 6948836
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:28:50.734609+00
Date Added: 2024-06-11T16:08:00.481517
License: Public Domain

WALLACE, Circuit Judge,
concurring and dissenting:
I concur with the majority in large measure, but its analysis of the antitrust claims in part IV.C. is so troubling that I cannot agree. Although reasonable minds can differ, in this complex economic terrain, I am *1483inclined to the position that the district court did not err in concluding that Forsyth’s evidence for a submarket of for-profit hospitals was insufficient to survive summary judgment. The majority’s analysis of this issue displays a subtle but important error of market definition theory. I would affirm.
Forsyth contends that Humana monopolized or attempted to monopolize a market for major for-profit acute care hospitals in Clark County, Nevada. The district court held that Forsyth failed to establish the existence of a separate market for for-profit hospitals within the general Clark County hospital market. In holding that there is a genuine factual dispute on this issue, the majority points to two categories of evidence submitted by Forsyth. The first depends on a faulty inference about cross-price elasticity of demand, and the second is insufficient to avoid summary judgment.
As evidence for the existence of a separate market, the majority states that although “UMC charged patients 15 to 20 percent less than Sunrise Hospital, ... patients with a choice, such as those with insurance, eschewed UMC in favor of the larger for-profit hospitals despite the significantly lower price at UMC.” The majority interprets this consumer behavior as evidence that demand for for-profit hospitals is not responsive to the price charged by non-profit hospitals; “when demand for the commodity of one producer shows no relation to the price for the commodity of another producer, it supports the claim that the two commodities are not in the same relevant market.”
The majority’s test refers to the economic concept of cross-price elasticity of demand, which is a useful tool for evaluating whether products compete in the same market. Cross elasticity of demand measures the percentage change in the quantity which consumers demand of one product in response to a percentage change in the price of another.
When the cross-price elasticity of demand for good i with respect to the price of good j is positive, an increase in [the price of] j causes the demand for good i to rise; in that case, the goods are substitutes (as fuel oil and coal). Conversely, if the cross-price elasticity is negative, the goods are complements (as cigars and matches).
2A Phillip E. Areeda, et al., Antitrust Law 105 (rev. ed. 1995). A high cross elasticity of demand indicates that products are close substitutes, and should probably be treated as part of the same market. A low or zero cross elasticity of demand is evidence that products do not compete in the same relevant market.
By focusing on this relationship between the demand for one commodity and the price of another, the majority attempts to avoid the common but fallacious assumption that expensive products automatically compete in a separate market from inexpensive ones. See Twin City Sportservice v. Charles O. Finley & Co., 512 F.2d 1264, 1274 (9th Cir.1975) (“the scope of the relevant market is not governed by the presence of a price differential”). The majority reasons that if “patients with a choice” prefer Sunrise hospital even though it is more expensive, then demand for Sunrise “shows no relation” to the prices charged at UMC and the other “indigent” hospitals.
That inference causes me to depart from the majority. We cannot conclude that demand for Sunrise “shows no relation” to the prices at UMC without some evidence of how demand for Sunrise responds to a change in the prices at UMC. Cross elasticity of demand measures a dynamic relationship between two variables: the quantity demanded of product i, and the price of product j. That is, by economic formulation,
(change in) Q;d
/ Qid
E/ = - -
(change in) Pj/Pj
2A Areeda, Antitrust Law at 105. Cross elasticity cannot be calculated or approximated without information about the quantity demanded of i at (at least) two different prices of j. The record does not reflect that Forsyth introduced any such evidence, and without it the majority’s inference is inappropriate.
The following example may help in making my point. Suppose that Ford and Chevrolet each sell a light truck. The Ford has four-wheel drive, and costs $2000 more than the *1484Chevrolet, which does not have four-wheel drive. Both trucks sell equally well. If Chevrolet cuts the price of its truck in half and Ford’s sales are unaffected, we might infer that the two vehicles are in different relevant markets. But the majority would interpret the simple fact that some consumers buy the Ford, notwithstanding the price differential, as evidence that the trucks do not compete. That reasoning, it seems to me, is faulty.
If four-wheel drive is worth about $2000 to most consumers, for example, small changes in the price of the Ford could have a dramatic impact on demand for the Chevrolet. If the availability of the Chevrolet significantly limits the rational pricing strategies for Ford, then the two trucks “compete” in the sense that matters for antitrust market definition. Ford could not exact monopoly profits by raising the price of its truck, because it would lose too many customers to Chevrolet. See Rebel Oil v. Atlantic Richfield, 51 F.3d 1421, 1434 (9th Cir.) (“If the sales of other producers substantially constrain the price-increasing ability of the monopolist or hypothetical cartel, these other producers must be included in the market.”), cert. denied, — U.S. -, 116 S.Ct. 515, 133 L.Ed.2d 424 (1995).
The majority also points to certain documentary evidence, including an expert’s affidavit and testimony before the Nevada legislature, which tended to support Forsyth’s contention that the “niche” hospitals did not compete with Sunrise. “Niche” sellers are generally considered to be in the same market with larger, more diverse vendors which carry the same products. See Thurman Industries v. Pay ‘N Pak Stores, 875 F.2d 1369, 1374-77 (9th Cir.1989). I do not believe that the district judge erred in concluding that Forsyth’s evidence on this point was insufficient to create a triable issue of fact.