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Antitrust Keyed to Gavil, 5th Ed.
Williamson Oil Co. v. Philip Morris USA
Citation:
346 F.3d 1287 (2003)Facts
The American tobacco industry is a classic oligopoly, with the four defendant manufacturers controlling over 97% of the U.S. cigarette market between 1993 and 1999. In the early 1990s, a price gap widened between premium brands and discount brands, leading many premium smokers to shift to discount brands. By 1993, discount brands had captured over 40% of the market. On April 2, 1993 (“Marlboro Friday”), Philip Morris dramatically cut the price of Marlboro cigarettes by 40 cents per pack and announced it would forgo price increases on premium brands “for the foreseeable future.” This move narrowed the price gap between premium and discount cigarettes, reducing consumers’ incentive to purchase discount brands. Competitors matched these price reductions, which led to significant profit losses across the industry.
Between November 1993 and January 2000, the manufacturers implemented twelve parallel price increases. The plaintiffs alleged these synchronized price movements were evidence of a conspiracy that began after Marlboro Friday, with manufacturers using trade press and public announcements to “signal” each other regarding pricing intentions. They claimed various actions, including the adoption of permanent allocation programs, information sharing through Management Science Associates (MSA), and the maintenance of the narrowed price gap, were evidence of collusion.
The defendants countered that their pricing behavior represented legal conscious parallelism in an oligopolistic market. They pointed to intense retail competition during the alleged conspiracy period, with manufacturers spending more than twice the amount on retail promotions than the alleged wholesale overcharges. They also noted that significant market share shifts occurred during this period, with Philip Morris and Lorillard gaining share while RJR and B&W lost substantial portions of their market share.
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