FORT WORTH, Texas - American Airlines this week filed its opposition to the Department of Justice`s (DOJ) appeal of the summary judgment in the federal government’s case alleging predatory pricing. American’s opposition brief clearly shows that the government, despite further attempts to redefine its case, fails to meet any legal test or precedent under which American’s competition with new entrant airlines could be found to be anything other than legal competition.
In its filing to the 10th Circuit Court of Appeals, American pointed out that the Justice Department’s original case failed on several counts, resulting in the summary judgment decision by Judge Thomas J. Marten in April 2001 that essentially dismissed the government’s entire case. American urged the court to focus on the antitrust principle that antitrust laws were enacted to protect competition, not competitors, as well as the U.S. Supreme Court’s deliberately strict tests that require a plaintiff to prove that prices were below an appropriate measure of costs in order to ensure that consumers are not deprived of the obvious benefits of price competition. American told the 10th Circuit that it is undisputed that on each route, American always realized revenues in excess of its variable costs and American at most matched, but never undercut the fares of competing airlines. Moreover, the government has effectively conceded that there was no probability of American recouping any losses once the low-cost carrier left the route - and the government’s claims are further rebutted by the fact that American had maintained high service levels and continued to face competition on all four routes in question (DFW-Kansas City, DFW-Wichita, DFW-Colorado Springs and DFW-Long Beach).
American urged the Appeals Court to affirm the earlier summary judgment ruling on several grounds:
American’s revenues were above average variable cost (AVC) on each route. The AVC standard is consistent with the law, and virtually every Circuit Court has found that the AVC test promotes competition and allows consumers to reap the benefits of lower prices, while not artificially shielding less efficient firms from legitimate competition. American said the Court should also reject the government’s approach of examining revenues and costs relating only to a portion of the service. In addition, DOJ’s proposed tests fail to prove what they claim to prove and are incapable of being administered without chilling price competition, a result that would harm consumers by discouraging price-cutting.
The Court should confirm that meeting, but not undercutting a rival’s prices, does not violate federal antitrust law. As Judge Marten observed in his ruling, “American’s conduct - meeting the competition’s prices - is precisely the sort of activity the antitrust laws are intended to encourage.” American said that the 10th Circuit should also reject the government’s argument that the meeting competition defense is not available to firms offering “superior” service. “Such a rule would require firms offering ‘superior’ service to forego matching their rivals’ lower prices or to degrade the quality of their own service, and would saddle the courts with the impossible task of adjudicating the relative value of competing products and services,” American wrote.
Finally, the Court should reject, both legally and factually, the government’s novel theory that the alleged existence of a “reputation for predation” is sufficient to prove a dangerous probability of recoupment of losses. American told the Court “the government’s theory is inconsistent with the law and sound public policy and would discourage firms from competing aggressively, lest their self-interested rivals claim to perceive them as predators.”
“It is no wonder, viewing this mish-mash of below-cost and recoupment tests, that the government refused (or was unable) to explain to the district court how it could craft a remedy that would draw a workable line between aggressive competition and an antitrust violation,” American wrote. “As Judge Learned Hand once cautioned, under antitrust laws, ‘(t)he successful competitor, having been urged to compete, must not be turned upon when he wins.”
Note: American’s complete filing can be accessed at www.aadoj.com.