Nature of the Case
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Facts
Ps allege that Ds conspired between 1993 and 2000 to fix cigarette prices at unnaturally high levels and that this collusion resulted in wholesale list price overcharges of nearly $12 billion. The modern American tobacco industry is a classic oligopoly. Because price fluctuations were relatively rare, smokers typically had no reason to change brands, brand loyalties were solidified, and sizable market share shifts were uncommon. During the early 1990s, a price gap widened between premium brands and deep discount brands. Some 'premium smokers' began to shift to one of the non-premium brands, and by 1993 these brands had captured over 40% of the United States market. Philip tried to raise its pricing on lower tier products, but other producers did not follow. Philip then lowered its pricing on is premium brands. Philip regained some of the lost market share. Other producers soon followed. Profits but not market share suffered for everyone. Philips then simultaneously lowered the wholesale price of its discount cigarettes and raised the wholesale price of its deep discount brands by 10 cents per pack, thereby consolidating the prices of these brand categories. Competitors promptly matched these newly announced prices. Ps contend that it is only at this point that Ds began conspiring to fix and steadily increase prices to make up for the tremendous financial losses they suffered as a consequence of this price war. Ps alleged that Ds used trade press to 'signal' each other regarding their willingness to facilitate price increases. An initial price increase was followed by eleven more parallel increases between May 4, 1995, and January 14, 2000. Ps contend that not only is this synchronous movement evidence of a price-fixing agreement but that many of these increases were not in the economic interest of all four alleged co-conspirators. Ps contend that signaling was also accomplished through the use of 'credit memos' that accompanied the price increases. These memos granted wholesalers credits for the difference between the old (pre-increase) prices and the new prices for several weeks after the announcement of a price increase that purportedly was immediately effective. This was an opportunity for the competitors of the manufacturer that implemented the increase to match the increase before the implementing manufacturer began to profit from it. Ds counter with evidence of a massive increase on retail promotions, and an antitrust and unfair competition suits between the parties. From 1993 to 1996, Ds increased wholesale list prices only four times for a total of 16 cents per pack, a sum less than half the price decrease that resulted from Philip's initial actions. Ds also point to significant market share gains and losses. The court granted Ds’ motion for summary judgment. Ps appealed.
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