Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.

Facts

In 1980, Liggett pioneered the economy segment of the cigarette market by introducing “black and white” generic cigarettes at prices approximately 30% lower than branded cigarettes. By 1984, Liggett’s generics represented 4% of the total cigarette market. The cigarette industry had long been highly concentrated and profitable, with six major manufacturers and a history of parallel price increases. When Brown & Williamson, the third-largest manufacturer with about 12% market share, entered the generic segment in 1984, it matched Liggett’s list prices but offered larger volume discounts to wholesalers. This precipitated a price war, with Liggett repeatedly attempting to match Brown & Williamson’s rebates. Liggett alleged that Brown & Williamson’s pricing was below cost and designed to pressure Liggett to raise its generic prices, thereby narrowing the price gap between generic and branded cigarettes and slowing the growth of the economy segment. After the 18-month price war, Liggett raised its list prices, and subsequently all cigarette companies implemented regular price increases. By 1989, the economy segment had grown to 15% of the market, though the price gap between generics and branded cigarettes had narrowed.