SW Legal studies in Business

Selling Below-Cost Gas Allowed When Tied to Sale of Above-Cost Goods
Description

Appeals court held that it was legal for a grocery store to sell gasoline below cost as long as the sale was tied to the volume of groceries a customer purchased. The value of the bundle of groceries and gas together was above cost, so was not anticompetitive.

Topic Antitrust
Key Words

Below-cost sales; Bundling; Gasoline

C A S E   S U M M A R Y
Facts

Two full-service grocery stores, City Market, in Montrose, Colorado, had a “Grocery Discount Program” that gave customers a loyalty card that, based on grocery purchases, entitled them to a discount on gas they bought at the City Market gas pumps. The more groceries a customer bought, the more cents per gallon they got off a gasoline purchase. The owners of competing gas stations lost sales to City Market. They sued for violation of Colorado’s Unfair Practices Act (UPA), which is an antitrust statute prohibiting “unfair and discriminatory practices” such as below-cost sales or other practices that injure competitors and reduce competition. The jury found for the gas stations and, after damages were trebled, awarded one station $588,000 and the other $826,875. City Market appealed.

Decision

Reversed and remanded. Under the UPA, sales could not be below the cost of all the products. That is, the combined or bundled value of the groceries and the gas could not below cost. The total price charged for all items must meet or exceed the cost of the items. While it would be illegal to sell gas below cost by itself, when it was tied to the sale of other goods that were sold above cost, the bundle of goods, groceries and gas, were above cost, so were legal. The purpose of the program was not to injure competitors in the gasoline market; it was to bring more customers to the grocery stores. The UPA was not violated.

Citation

Parish Oil Co. v. Dillon Companies, 523 F.3d 1244 (10th Cir., 2008)

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