This case presents the question whether a firm incurs an "injury" within the meaning of the antitrust laws when it loses sales to a competitor charging nonpredatory prices pursuant to a vertical, maximum-price-fixing scheme. We hold that such a firm does not suffer an "antitrust injury" and that it therefore cannot bring suit under § 4 of the Clayton Act, 38 Stat. 731, as amended, 15 U. S. C. § 15.
Respondent USA Petroleum Company (USA) sued petitioner Atlantic Richfield Company (ARCO) in the United States District Court for the Central District of California, alleging the existence of a vertical, maximum-price-fixing agreement prohibited by § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. § 1, an attempt to monopolize the local retail gasoline sales market in violation of § 2 of the Sherman Act, 15 U. S. C. § 2, and other misconduct not relevant here. Petitioner ARCO is an integrated oil company that, inter alia, markets gasoline in the Western United States. It sells gasoline to consumers both directly through its own stations and indirectly through ARCO-brand dealers. Respondent USA is an independent retail marketer of gasoline which, like other independents, buys gasoline from major petroleum companies for resale under its own brand name. Respondent competes directly with ARCO dealers at the retail level. Respondent's outlets typically are low-overhead, high-volume "discount" stations that charge less than stations selling equivalent quality gasoline under major brand names.
In early 1982, petitioner ARCO adopted a new marketing strategy in order to compete more effectively with discount
In its amended complaint, respondent USA charged that ARCO engaged in "direct head-to-head competition with discounters" and "drastically lowered its prices and in other ways sought to appeal to price-conscious consumers." First Amended Complaint ¶ 19, App. 15. Respondent asserted that petitioner conspired with retail service stations selling ARCO brand gasoline to fix prices at below-market levels: "Arco and its co-conspirators have organized a resale price maintenance scheme, as a direct result of which competition that would otherwise exist among Arco-branded dealers has been eliminated by agreement, and the retail price of Arcobranded gasoline has been fixed, stabilized and maintained at artificially low and uncompetitive levels." ¶ 27, App. 17. Respondent alleged that petitioner "has solicited its dealers and distributors to participate or acquiesce in the conspiracy and has used threats, intimidation and coercion to secure compliance with its terms." ¶ 37, App. 19. According to respondent, this conspiracy drove many independent gasoline dealers in California out of business. ¶ 39, App. 20. Count one of the amended complaint charged that petitioner's vertical, maximum-price-fixing scheme constituted an agreement in restraint of trade and thus violated § 1 of the Sherman Act. Count two, later withdrawn with prejudice by respondent,
The District Court granted summary judgment for ARCO on the § 1 claim. The court stated that "[e]ven assuming that [respondent USA] can establish a vertical conspiracy to maintain low prices, [respondent] cannot satisfy the `antitrust injury' requirement of Clayton Act § 4, without showing such prices to be predatory." App. to Pet. for Cert. 3b. The court then concluded that respondent could make no such showing of predatory pricing because, given petitioner's market share and the ease of entry into the market, petitioner was in no position to exercise market power.
A divided panel of the Court of Appeals for the Ninth Circuit reversed. 859 F.2d 687 (1988). Acknowledging that its decision was in conflict with the approach of the Court of Appeals for the Seventh Circuit in several recent cases,
We granted certiorari, 490 U.S. 1097 (1989).
A private plaintiff may not recover damages under § 4 of the Clayton Act merely by showing "injury causally linked to an illegal presence in the market." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Instead, a plaintiff must prove the existence of "antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Ibid. (emphasis in original). In Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104 (1986), we reaffirmed that injury, although causally related to an antitrust violation, nevertheless will not qualify as "antitrust injury" unless it is attributable to an anticompetitive aspect of the practice under scrutiny, "since `[i]t is inimical to [the antitrust] laws to award damages' for losses stemming from continued competition." Id., at 109-110 (quoting Brunswick, supra, at 488). See also Associated General Contractors of California, Inc. v. Carpenters, 459 U.S. 519, 539-540 (1983); Blue Shield of Virginia v. McCready, 457 U.S. 465, 483, and n. 19 (1982); J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 562 (1981).
In Albrecht v. Herald Co., 390 U.S. 145 (1968), we found that a vertical, maximum-price-fixing scheme was unlawful per se under § 1 of the Sherman Act because it threatened to inhibit vigorous competition by the dealers bound by it and because it threatened to become a minimum-price-fixing scheme.
In holding such a maximum-price vertical agreement illegal, we analyzed the manner in which it might restrain competition by dealers. First, we noted that such a scheme, "by substituting the perhaps erroneous judgment of a seller for the forces of the competitive market, may severely intrude upon the ability of buyers to compete and survive in that market." Id., at 152. We further explained that "[m]aximum
Respondent alleges that it has suffered losses as a result of competition with firms following a vertical, maximum-price-fixing agreement. But in Albrecht we held such an agreement per se unlawful because of its potential effects on dealers and consumers, not because of its effect on competitors. Respondent's asserted injury as a competitor does not resemble any of the potential dangers described in Albrecht.
Respondent argues that even if it was not harmed by any of the anticompetitive effects identified in Albrecht, it nonetheless suffered antitrust injury because of the low prices produced by the vertical restraint. We disagree. When a firm, or even a group of firms adhering to a vertical agreement, lowers prices but maintains them above predatory levels, the business lost by rivals cannot be viewed as an "anticompetitive" consequence of the claimed violation.
Respondent further argues that it is inappropriate to require a showing of predatory pricing before antitrust injury can be established when the asserted antitrust violation is an agreement in restraint of trade illegal under § 1 of the Sherman Act, rather than an attempt to monopolize prohibited by § 2. Respondent notes that the two sections of the Act are quite different. Price fixing violates § 1, for example, even if a single firm's decision to price at the same level would not create § 2 liability. See generally Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767-769 (1984). In a § 1 case, the price agreement itself is illegal, and respondent contends that all losses flowing from such an agreement must by definition constitute "antitrust injuries." Respondent observes that § 1 in general and the per se rule in particular are grounded " `on faith in price competition as a market force
We reject respondent's argument. Although a vertical, maximum-price-fixing agreement is unlawful under § 1 of the Sherman Act, it does not cause a competitor antitrust injury unless it results in predatory pricing.
We have adhered to this principle regardless of the type of antitrust claim involved. In Cargill, Inc. v. Monfort of Colorado, Inc., for example, we found that a plaintiff competitor had not shown antitrust injury and thus could not challenge a merger that was assumed to be illegal under § 7 of the Clayton Act, even though the merged company threatened to engage in vigorous price competition that would reduce the plaintiff's profits. We observed that nonpredatory price competition for increased market share, as reflected by prices that are below "market price" or even below the costs of a firm's rivals, "is not activity forbidden by the antitrust laws." 479 U. S., at 116. Because the prices charged were not predatory, we found no antitrust injury. Similarly, we determined that antitrust injury was absent in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., supra, even though the plaintiffs alleged that an illegal acquisition threatened to bring a " `deep pocket' parent into a market of `pygmies,' " id., at 487, a scenario that would cause the plaintiffs economic harm. We opined nevertheless that "if [the plaintiffs] were injured, it was not `by reason of anything forbidden in the antitrust laws': while [the plaintiffs'] loss occurred `by reason of' the unlawful acquisitions, it did not occur `by reason of' that which made the acquisitions unlawful." Id., at 488. To be sure, the source of the price competition in the instant case was an agreement allegedly unlawful under § 1 of the Sherman Act rather than a merger in violation of § 7 of the Clayton Act. But that difference is not salient. When prices are not predatory, any losses flowing from them cannot be said to stem from an anticompetitive aspect of the defendant's
We also reject respondent's suggestion that no antitrust injury need be shown where a per se violation is involved. The
The purpose of the antitrust injury requirement is different. It ensures that the harm claimed by the plaintiff corresponds to the rationale for finding a violation of the antitrust laws in the first place, and it prevents losses that stem from competition from supporting suits by private plaintiffs for either damages or equitable relief. Actions per se unlawful under the antitrust laws may nonetheless have some procompetitive effects, and private parties might suffer losses
For this reason, we have previously recognized that even in cases involving per se violations, the right of action under § 4 of the Clayton Act is available only to those private plaintiffs who have suffered antitrust injury. For example, in a case involving horizontal price fixing, "perhaps the paradigm of an unreasonable restraint of trade," National Collegiate Athletic Assn. v. Board of Regents of University of Oklahoma, 468 U.S. 85, 100 (1984), we observed that the plaintiffs were still required to "show that the conspiracy caused them an injury for which the antitrust laws provide relief." Matsushita, 475 U. S., at 584, n. 7 (citing Brunswick) (emphasis added). Similarly, in Associated General Contractors of California, Inc. v. Carpenters, 459 U.S. 519 (1983), we noted that a restraint of trade was illegal per se in the sense that it could "be condemned even without proof of its actual market effect," but we maintained that even if it "may have
We decline to dilute the antitrust injury requirement here because we find that there is no need to encourage private enforcement by competitors of the rule against vertical, maximum price fixing. If such a scheme causes the anticompetitive consequences detailed in Albrecht, consumers and the manufacturers' own dealers may bring suit. The "existence of an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest in antitrust enforcement diminishes the justification for allowing a more remote party . . . to perform the office of a private attorney general." Associated General Contractors, supra, at 542.
Respondent's injury, moreover, is not "inextricably intertwined" with the antitrust injury that a dealer would suffer, McCready, 457 U. S., at 484, and thus does not militate in favor of permitting respondent to sue on behalf of petitioner's dealers. A competitor is not injured by the anticompetitive effects of vertical, maximum price-fixing, see supra, at 336-337, and does not have any incentive to vindicate the legitimate interests of a rival's dealer. See Easterbrook, The Limits of Antitrust, 63 Texas L. Rev. 1, 33-39 (1984). A competitor will not bring suit to protect the dealer against a maximum price that is set too low, inasmuch as the competitor would benefit from such a situation. Instead, a competitor will be motivated to bring suit only when the vertical restraint promotes interbrand competition between the competitor and the dealer subject to the restraint. See n. 13, supra. In short, a competitor will be injured and hence motivated to sue only when a vertical, maximum-price-fixing arrangement has a procompetitive impact on the market. Therefore, providing
Respondent has failed to demonstrate that it has suffered any antitrust injury. The allegation of a per se violation does not obviate the need to satisfy this test. The judgment of the Court of Appeals is reversed, and the case is remanded for proceedings consistent with this opinion.
It is so ordered.
The Court today purportedly defines only the contours of antitrust injury that can result from a vertical, nonpredatory, maximum-price-fixing scheme. But much, if not all, of its reasoning about what constitutes injury actionable by a competitor would apply even if the alleged conspiracy had been joined by other major oil companies doing business in California, as well as their retail outlets.
Because so much of the Court's analysis turns on its characterization of USA's cause of action, it is appropriate to
USA's theory can be expressed in the following hypothetical example: In a free market ARCO's advertised gas might command a price of $1 per gallon while USA's unadvertised gas might sell for a penny less, with retailers of both brands making an adequate profit. If, however, the ARCO stations reduce their price by a penny or two, they might divert enough business from USA stations to force them gradually to withdraw from the market.
This theory rests on the premise that the resources of the conspirators, combined and coordinated, are sufficient to sustain below-normal profits in selected localities long enough to force USA to shift its capital to markets where it can receive a normal return on its investment.
ARCO's alleged conspiracy is a naked price restraint in violation of § 1 of the Sherman Act, 15 U. S. C. § 1.
Section 4 of the Clayton Act allows private enforcement of the antitrust laws by "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws." 15 U. S. C. § 15. See Simpson v. Union Oil Co. of California, 377 U.S. 13, 16 (1964) (quoting Radovich v. National Football League, 352 U.S. 445, 454 (1957) (laws allowing private enforcement of the antitrust laws by an aggrieved party "'protect the victims of the forbidden practices as well as the public' "). In order to invoke § 4, a plaintiff must prove that it suffered an injury that (1) is "of the type the antitrust laws were intended to prevent" and (2) "flows from that which makes defendants' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). In Brunswick, the plaintiff businesses claimed that they were deprived of the benefits of the increased concentration that would have resulted had failing businesses not been acquired by petitioner, allegedly in violation of § 7. In concluding that the plaintiffs had failed to prove "antitrust injury," we found that neither condition of § 4 standing was satisfied: First, the plaintiffs sought to recover damages because the mergers had preserved businesses and competition, which is not the type of injury that the antitrust laws are designed to prevent; and second, the plaintiffs had not been harmed by any potential change in the market structure
In this case, however, both conditions of standing are met. First, § 1 is intended to forbid price-fixing conspiracies that are designed to drive competitors out of the market. See Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 213 (1959) (illegal coordination "is not to be tolerated merely because the victim is just one merchant whose business is so small that his destruction makes little difference to the economy"). USA alleges that ARCO's pricing scheme aims at forcing independent refiners and marketers out of business and has created "an immediate and growing probability that the independent segment of the industry will be destroyed altogether."
In Brunswick, we recognized that requiring a competitor to show that its loss is "of the type" antitrust laws were intended to prevent
The pricing behavior in the Court's hypothetical example may cause actionable injury because it is "predatory." This is so because the Court assumes that a predatory price is illegal. The direct relationship between the illegality and the harm is what makes the competitor's short-term loss "antitrust injury." The fact that the illegality in the case before us today stems from the illegal conspiracy, rather than the predatory character of the price, does not change the analysis of "that which makes defendants' acts unlawful."
The Court accepts that, as alleged, the vertical price-fixing scheme by ARCO is per se illegal under § 1. Nevertheless, it denies USA standing to challenge the arrangement because it is neither a consumer nor a dealer in the vertical arrangement, but only a competitor of ARCO: The "antitrust laws were enacted for `the protection of competition, not competitors.' " Ante, at 338 (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). This proposition — which is often used as a test of whether a violation of law occurred — cannot be read to deny all remedial actions by competitors.
The Court limits its holding to cases in which the noncompetitive price is not "predatory," ante, at 331, 333, n. 3, 335, 339, 340, essentially assuming that any nonpredatory price set by an illegal conspiracy is lawful, see n. 1, supra. This is quite wrong. Unlike the prohibitions against monopolizing or underselling in violation of § 2 or § 13a, the gravamen of the price-fixing conspiracy condemned by § 1 is unrelated to the level of the administered price at any particular point in time. A price fixed by a single seller acting independently may be unlawful because it is predatory, but the reasonableness of the price set by an illegal conspiracy is wholly irrelevant to whether the conspirators' work product is illegal.
If any proposition is firmly settled in the law of antitrust, it is the rule that the reasonableness of the particular price agreed upon by defendants does not constitute a defense to a price-fixing charge.
See also United States v. Masonite Corp., 316 U.S. 265, 281-282 (1942). This reasoning applies with equal force to a rule that provides conspirators with a defense if their agreed upon prices are nonpredatory, but no defense if their prices fall below the elusive line that defines predatory pricing.
The Court is also careful to limit its holding to cases involving "vertical" price-fixing agreements. In a thinly veiled circumscription of the substantive reach of § 1, the Court simply interprets "antitrust injury" under § 4 so that it excludes challenges by any competitor alleging a vertical conspiracy: "[A] vertical price-fixing scheme may facilitate predatory pricing . . . [b]ut because a firm always is able to challenge directly a rival's pricing as predatory, there is no reason to dispense with the antitrust injury requirement in an action by a competitor against a vertical agreement." Ante, at 339, n. 9.
The characterization of ARCO's price-fixing arrangement as "vertical" does not limit its potential consequences to a neat category of injuries. A horizontal conspiracy among ARCO retailers administered by, for example, trade association executives instead of executives of their common supplier would generate exactly the same anticompetitive consequences. ARCO and its retail dealers all share an interest in excluding independents like USA from the market. The fact
Differences between vertical and horizontal agreements may support an argument that the former are more reasonable, and therefore more likely to be upheld as lawful, than the latter. But such differences provide no support for the Court's contradictory reasoning that the direct and intended consequences of one form of conspiracy do not constitute "antitrust injury," while precisely the same consequences of the other form do.
In a conspiracy case we should always ask ourselves why the defendants have elected to act in concert rather than independently.
Professor Sullivan recognized that producers fixing maximum prices "are not acting from undiluted altruism," but
In carving out this exception to the enforcement of § 1, the Court has chosen to second-guess the wisdom of our per se rules and to embark on the questionable enterprise of parsing illegal conspiracies. This approach fails to heed the prudence urged in United States v. Topco Associates, Inc., 405 U.S. 596 (1972):
The Court, in its haste to excuse illegal behavior in the name of efficiency,
I respectfully dissent.
Briefs of amici curiae urging affirmance were filed for the State of California et al. by John K. Van de Kamp, Attorney General of California, Andrea S. Ordin, Chief Assistant Attorney General, Sanford N. Gruskin, Assistant Attorney General, and Thomas P. Dove and Richard N. Light, Deputy Attorneys General, Douglas B. Baily, Attorney General of Alaska, and Richard D. Monkman, Assistant Attorney General, Warren Price III, Attorney General of Hawaii, Thomas J. Miller, Attorney General of Iowa, and Gordan E. Allen, Deputy Attorney General, William J. Guste, Jr., Attorney General of Louisiana, and Anne F. Benoit, Assistant Attorney General, Robert M. Spire, Attorney General of Nebraska, and Dale A. Comer, Assistant Attorney General, Brian McKay, Attorney General of Nevada, and J. Kenneth Creighton, Deputy Attorney General, Dave Frohnmayer, Attorney General of Oregon, Ernest D. Preate, Jr., Attorney General of Pennsylvania, Eugene F. Wayne, Chief Deputy Attorney General, and Carl S. Hisiro, Senior Deputy Attorney General, Charles W. Burson, Attorney General of Tennessee, and Terry Craft, Deputy Attorney General, R. Paul Van Dam, Attorney General of Utah, and Arthur M. Strong, Assistant Attorney General; for the Service Station Dealers of America by Dimitri G. Daskalopoulos; and for the Society of Independent Gasoline Marketers of America by William W. Scott and Christopher J. MacAroy.
Many commentators have identified procompetitive effects of vertical, maximum price fixing. See, e. g., P. Areeda & H. Hovenkamp, Antitrust Law ¶ 340.3b, p. 378, n. 24 (1988 Supp.); Blair & Harrison, Rethinking Antitrust Injury, 42 Vand. L. Rev. 1539, 1553 (1989); Blair & Schafer, Evolutionary Models of Legal Change and the Albrecht Rule, 32 Antitrust Bull. 989, 995-1000 (1987); Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, part 2, 75 Yale L. J. 373, 464 (1966); Easterbrook, Maximum Price Fixing, 48 U. Chi. L. Rev. 886, 887-890 (1981); Hovenkamp, Vertical Integration by the Newspaper Monopolist, 69 Iowa L. Rev. 451, 452-456 (1984); Polden, Antitrust Standing and the Rule Against Resale Price Maintenance, 37 Cleveland State L. Rev. 179, 216-217 (1989); Turner, The Durability, Relevance, and Future of American Antitrust Policy, 75 Calif. L. Rev. 797, 803-804 (1987).
"Low prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition. Hence, they cannot give rise to antitrust injury." Ante, at 340.
"When prices are not predatory, any losses flowing from them cannot be said to stem from an anticompetitive aspect of the defendant's conduct." Ante, at 340-341.
"39. As a direct and proximate result of the above-described combinations and conspiracy and of the acts taken in furtherance thereof:
"(a) the price of gasoline has been artificially fixed, maintained and stabilized;
"(b) independent refiners and marketers have suffered substantial losses of sales and profits and their ability to compete has been seriously impaired;
"(c) independent refiners and marketers have gone out of business or been taken over by Arco;
"(d) there is an immediate and growing probability that the independent segment of the industry will be destroyed altogether and that control of the discount market will be acquired by Arco." App. 20.
"The reason Congress treated concerted behavior more strictly than unilateral behavior is readily appreciated. Concerted activity inherently is fraught with anticompetitive risk. It deprives the marketplace of the independent centers of decisionmaking that competition assumes and demands. In any conspiracy, two or more entities that previously pursued their own interests separately are combining to act as one for their common benefit. This not only reduces the diverse directions in which economic power is aimed but suddenly increases the economic power moving in one particular direction. Of course, such mergings of resources may well lead to efficiencies that benefit consumers, but their anticompetitive potential is sufficient to warrant scrutiny even in the absence of incipient monopoly." Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768-769 (1984).
The Court of Appeals below observed that barring competitor standing leaves enforcement of the "vast majority of unlawful maximum resale price agreements" in the hands of "an unenthusiastic Department of Justice and, under certain circumstances, the dealers who are parties to the resale price maintenance agreement." 859 F.2d 687, 694, n. 5 (CA9 1988).