South-Western Legal Studies in Business

Claim of Predatory Pricing by Dominant Airline May Proceed
Description Appeals court held that a new entrant into a market dominated by an existing airline may proceed with a claim that the dominant airline at an airport engaged in predatory pricing to drive the new entrant from the market in violation of the Sherman Act.
Topic Antitrust
Key Words Sherman Act; Predatory Pricing; Airlines
C A S E   S U M M A R Y
Facts Spirit Airlines began with four aircraft in 1992 and was based in Detroit. Because Northwest Airlines dominated the Detroit airport, Spirit could not obtain permanent gates. Consequently, they relied on short-term leases from other airlines. Spirit offered one-way flights to Philadelphia for $49 with no restrictions. Northwest charged between $125 and $355. Spirit added flights to Boston with prices between $69 and $109 each way, compared to Northwestís $189 to $411. Northwest soon matched Spiritís prices and Spirit lost customers and abandoned the routes. Northwest then raised its ticket prices. Spirit sued Northwest for violation of Section 2 of the Sherman Act, claiming predatory pricing in the leisure-passenger airline market. The district court granted Northwest summary judgment. Spirit appealed
Decision

Reversed and remanded. Market power exists whenever prices can be raised above levels that could be charged in competitive markets. The existence of monopoly power is inferred for a sellerís possession of a dominant share of a market. Northwest had 89% and 70% of the markets in question. When high barriers to entry exist, there is a greater incentive to engage in predatory pricing than in markets where entry is easy. There is a genuine issue of material fact as to whether, once Spirit exited the market, Northwest raised its prices on the Boston and Philadelphia routes to recoup losses it incurred during the time of alleged predatory pricing.

Citation Spirit Airlines v. Northwest Airlines, 431 F.3d 917 (6th Cir., 2005)

Back to Antitrust Listings

©1997-2003  SW Legal Studies in Business. All Rights Reserved.