Monopolization. Moist snuff is a smokeless tobacco product sold in small round cans from racks, which include point-of-sale (POS) ads. POS ads are critical because tobacco adver-tising is restricted and the number of people who use smokeless tobacco

Question

products is relatively small. In the moist snuff market in the United States, there are only four competitors, including U.S. Tobacco Co and its affiliates (USTC) and Conwood Co In 1990, USTC, which held 87 percent of the market, began to convince major retailers, including Wal-Mart Stores, Inc, to use USTC's "exclusive racks" to display its products and those of all other snuff makers. USTC agents would then destroy competitors' racks. USTC also began to provide retailers with false sales data to convince them to maintain its poor-selling items and drop competitors' less expen-sive products. Conwood's Wal-Mart market share fell from 12 percent to 6.5 percent. In stores in which USTC did not have rack exclusivity, however, Conwood's market share increased to 25 percent. Conwood filed a suit in a federal district court against USTC, alleging in part that USTC used its monopoly power to exclude competitors from the moist snuff market. Should the court rule in Conwood's favor? What is USTC's best defense? Discuss.

Answer 1

Monopolization
The court ruled that "USTC's pervasive practice of destroying Conwood's racks and POS mate-rials . . . through exclusive agreements with and misrepresentations to retailers was exclusion-ary conduct without a sufficient justification, and that USTC maintained its monopoly power by engaging in such conduct." The court awarded Conwood damages of $350 million, which were trebled to $1.05 billion, and an injunction against USTC for unlawfully monopolizing the market. USTC appealed to the U.S. Court of Appeals for the Sixth Circuit, which affirmed the lower court's ruling. The appellate court noted that absent USTC's unlawful conduct, Conwood would have achieved a market share in the mid-20s, that the drop in Conwood's market share was largely due to USTC's tactics, and that in those stores where USTC practiced rack exclusivity, Conwood's market share was well below its national average. USTC did not dispute that it had monopoly power, but argued that its tactics were common marketing practices to enhance demand for its products, improve presentation of those products, and help retailers use their shelf space efficiently. The court agreed with Conwood, however, that in the "but for world of unimpeded competition, consumers and Conwood would have done substantially better." USTC argued that its acts were "no more than isolated sporadic torts." The court stated that "merely because a particular practice might be actionable under tort law does not preclude an action under the antitrust laws," characterizing USTC's acts as a "systematic effort to exclude competition from the moist snuff market . . . by numerous avenues."