CARGILL, INC. AND EXCEL CORPORATION, PETITIONERS V. MONFORT OF COLORADO, INC. No. 85-473 In the Supreme Court of the United States October Term, 1985 On writ of certiorari to the United States Court of Appeals for the Tenth Circuit Brief for the United States and the Federal Trade Commission as amici curiae supporting petitioners TABLE OF CONTENTS Questions Presented Interest of the United States Statement Summary of argument Argument: I. The court of appeals erred in concluding that responents had standing to seek injunctive relief under Section 16 of the Clayton Act A. A private plaintiff seeking relief under the antitrust laws must allege that it will suffer antitrust injury B. Respondent did not allege that it would suffer antitrust injury C. The possibility of future predatory pricing should not afford standing to a competitor to challenge an acquisition II. The lower courts erred in determining that the acquisition would violate Section 7 of the Clayton Act A. A "deep pocket" parent does not increase the likelihood of predatory pricing B. The lower courts failed to evaluate properly the possibility of market entry Conclusion QUESTIONS PRESENTED 1. Whether the court of appeals properly applied the test for "antitrust injury" established in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), when it concluded that the respondent had standing under Sections 7 and 16 of the Clayton Act, 15 U.S.C. 18 and 26, to seek to enjoin an acquisition by one of its competitors. 2. Whether the court of appeals properly analyzed the likely anticompetitive effects of the acquisition. INTEREST OF THE UNITED STATES The Department of Justice and the Federal Trade Commission enforce the federal antitrust laws, including Section 7 of the Clayton Act, 15 U.S.C. 18, which prohibits anticompetitive acquisitions. In light of these enforcement responsibilities, the United States has a substantial interest in ensuring that private efforts to supplement public antitrust enforcement with respect to mergers and acquisitions are governed by legal standards that are likely to enhance, rather than to frustrate, the competitive policies underlying the antitrust laws. STATEMENT 1. Petitioners are Cargill, Inc. (Cargill), a large food products company, and Cargill's wholly owned subsidiary Excel Corporation (Excel) (Pet. App. 26a). In June 1983, Excel agreed to buy the Spencer Beef Division of Land O'Lakes, Inc. (Spencer), an agricultural cooperative that owned three beef-packing and fabrication facilities (id. at 26a-27a). At the time of the agreement, Excel was the second largest integrated beef packer and fabricator in the United States while, in terms of total productive capacity, Spencer was the third largest producer (id. at 2a). /1/ Excel's acquisition of Spencer's productive capacity would have left it the second largest integrated producer in the market found by the district court. Excel and Spencer notified the government of the proposed acquisition pursuant to Section 7A of the Clayton Act, 15 U.S.C. 18a. The Antitrust Division of the Department of Justice opened an investigation. While that investigation was pending, respondent Monfort of Colorado, Inc. (Monfort), /2/ another large beef packer, filed a federal antitrust suit in the United States District Court for the District of Colorado seeking to enjoin the acquisition on the ground that it would violate Section 7 of the Clayton Act by lessening competition in the purchase of fed cattle /3/ in certain regional markets and in the sale of boxed beef nationwide (Pet. App. 27a). /4/ The complaint alleged that the increased concentration in these markets would impair Monfort's ability to purchase fed cattle and to compete with Excel and the industry leader, IBP, Inc. (IBP), a subsidiary of Occidental Petroleum Corporation (ibid.). /5/ Thereafter, the Department of Justice closed its investigation and advised the petitioner that it did not intend to challenge the acquisition. /6/ 2.a. At a consolidated preliminary injunction hearing and trial on the merits in the private action, Monfort argued that it could be injured because the acquisition would lead to a period of heightened price competition between Excel and IBP (Pet. App. 31a). Specifically, Monfort contended that aggressive competition between Excel and IBP in the boxed beef market would subject Monfort and other producers to a "price-cost squeeze" as the price of boxed beef decreased and the cost of fed-cattle increased. Monfort maintained that this "squeeze" would tend to reduce profit margins for all beef packers and that smaller firms lacking the "vast financial resources" of Excel and IBP would be driven from the market. Id. at 32a-33a. Monfort did not allege in its complaint, or argue at trial, that this "price-cost squeeze" would occur as a result of collusion between Excel and IBP. /7/ In fact, Monfort acknowledged that the boxed beef industry was very competitive and that a "price-cost squeeze" had existed throughout the industry for the last 20 years" (Tr. 132). /8/ Monfort, however, contended that, after Excel and IBP had increased their market shares, the prices charged customers for boxed beef would rise, while the prices paid for fed cattle would fall (Pet. App. 32a-33a). Monfort did not claim that this would occur as a result of predatory practices by, or collusion between, IBP and Excel. /9/ Excel responded that Monfort lacked standing because the only injury it could suffer as a result of the acquisition -- being driven from the market as a result of an accentuated "price-cost squeeze" -- was, on Monfort's own allegation, injury that would flow from increased competition between IBP and Excel. Excel also contested Monfort's claim that the acquisition violated Section 7 of the Clayton Act (Pet. App. 33a). b. The district court permanently enjoined Excel from acquiring Spencer (Pet. App. 23a-73a). In finding that Monfort had standing to challenge the acquisition, the district court considered it irrelevant that Monfort did not "contend that predatory practices would be engaged in by Excel or IBP * * * (or) assert that Excel and IBP would act in collusion with each other in an effort to drive others out of the market" (id. at 32a, 71a). The court found that Monfort had satisfied the tests for standing this Court set forth in Associated General Contractors of California, Inc. v. California State Council, 459 U.S. 519 (1983), because "the harm alleged by Monfort has a causal connection" and "is directly related to" the planned acquisition by Excel. The district court reasoned that the injury Monfort alleged would occur only if one of the two industry leaders, Excel or IBP, acquired Spencer (Pet. App. 34a) and concluded that the injury to Monfort was "of the type that the antitrust laws were intended to prevent" (id. at 38a). In concluding that Monfort had standing, the court noted that, at least in the short-term, neither buyers of boxed beef nor sellers of fed cattle would have any incentive to challenge the acquisition because a "price-cost squeeze" would be to their advantage. The court said that denying Monfort standing "might leave a significant antitrust violation unremedied." Pet. App. 35a. Moreover, although the court stated that the "harm alleged by Monfort might be considered speculative" (ibid.), it held that in cases involving "only injunctive relief, the question of standing becomes less of an issue" and "court(s) may consider more freely other purposes behind giving private litigants an injunctive remedy to prevent or end antitrust violations" (id. at 36a). Finally, notwithstanding the fact that Monfort did "not allege that IBP and Excel will in fact engage in predatory activities" (id. at 71a), the court held that the acquisition would "make such practices a distinct possibility" and that Monfort was therefore "realistically threatened with a significant injury personal to itself" (ibid.). Turning to the merits, the court concluded that the merger violated Section 7 of the Clayton Act. It found that two relevant markets affected by the acquisition, a regional "fed cattle" input market, and a nationwide "boxed beef" output market (Pet. App. 41a-60a), were both highly concentrated and that concentration would increase as a result of the acquisition. Id. at 60a-64a. /10/ The court also found (id. at 64a-67a) that there were capital, temporal, and "psychological" difficulties associated with the acquisition of new or existing facilities that, taken together, amounted to "significant entry barriers" facing any "potential entrants" (id. at 64a). /11/ In addition, the court concluded that the fact that "enormous financial resources (are) available to" Cargill and Occidental Petroleum, IBP's parent, "lends further support to the conclusion that the proposed acquisition would tend to harm competition in both" markets. Id. at 69a. 3. The court of appeals affirmed (Pet. App. 1a-22a). The court recognized that for Monfort to have standing to seek an injunction under Section 16, 15 U.S.C. 26, it was required to allege more than that the acquisition would violate Section 7. The court agreed with the district court, however, that "it is much easier for a plaintiff to show causation of its hypothetical antitrust injury by a putative antitrust violation" in a Section 16 injunction case than to show actual injury in a damage action. Pet. App. 4a. It concluded that in a suit seeking injunctive relief this Court's holding in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), "mandates only an injury into the causal connection between the threatened injury and the putative antitrust violation." Pet. App. 5a. The court of appeals acknowledged that if, as Monfort claimed, the acquisition ultimately led to higher beef prices and lower cattle prices, Monfort "would surely benefit" (Pet. App. 7a). Turning to Monfort's specific claim of injury, i.e., that the "price-cost squeeze" facing the industry would be intensified for a time immediately after the acquisition, the court reasoned that because a "price-cost squeeze" was "what we consider to be a form of predatory pricing," Monfort's claim of injury was "directly tied to the putative Clayton Act section 7 violation" (id. at 7a-8a). The court acknowledged that because any such predatory pricing was "only threatened," "(w)e lack the ordinary guideposts such as marginal cost and average variable cost that might otherwise highlight a (predatory pricing) violation," and that it was "impossible to tell" whether Monfort would in fact be injured by the alleged Section 7 violation (Pet. App. 9a). It concluded, however, that Monfort had "alleged a plausible theory for how it may be injured" by the acquisition (ibid.), and that, even though Monfort "will only suffer antitrust injury if Excel abuses its market power, the causal connection will exist if the ultimate injury materialized" (id. at 13a). Accordingly, the court held that Monfort had standing to seek to block the acquisition. The court also affirmed the district court's holding that the acquisition violated Section 7. The court stated that the record did not warrant the conclusion that the district court's definitions of relevant markets were clearly erroneous. Pet. App. 15a. The court of appeals rejected as "speculative" petitioners' contention that the district court's analysis of entry barriers was legally flawed because the district court had assessed the likelihood of entry at the time of the acquisition, rather than the likelihood of entry at a later date when, as a result of the acquisition, Excel and IBP might attempt to charge supracompetitive prices (id. at 17a). Similarly, the court dismissed petitioners' argument that the district court "should have considered a variety of other factors" that they claimed made collusion "difficult or impossible" (ibid.). The court held that the district court "properly confined its analysis to market share statistics plus limited information on industry structure, history and probable future" (id. at 18a). Finally, "(a)lthough the district court conceded (that) the predatory conduct was not certain to occur" (id. at 19a), the court of appeals found it appropriate for the district court to rely on Cargill's "deep pocket" because Cargill's "financial resources would likely be used in an anticompetitive fashion if Excel acquired Spencer Beef and then engaged in a period of predatory pricing" (id. at 20). SUMMARY OF ARGUMENT 1. A private party has standing to challenge an alleged antitrust violation only if two conditions are satisfied. It must allege that it will suffer actual or threatened injury as a result of the violation. Allen v. Wright, No. 81-757 (July 3, 1984), slip op. 11-14; Warth v. Seldin, 422 U.S. 490, 499 (1975). In addition, it must allege "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." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977) (emphasis in original). The rationale of Brunswick, ensuring that the remedies available under the antitrust laws are not "divorce(d) * * * from the purposes of" those laws (id. at 487), is fully applicable to suits for injunctive relief under Section 16 of the Clayton Act. Respondent Monfort did not allege antitrust injury to itself. It alleged that the acquisition would violate Section 7 of the Clayton Act by increasing concentration in the relevant markets, but -- and the court of appeals recognized this key point -- as a competitor Monfort would be helped, not hurt, if increased concentration led to supracompetitive pricing. Monfort also alleged that IBP and the defendants would (by "simply increas(ing) their production by working Saturdays" and "without them ever talking to each other" (Tr. 120)) subject Monfort to a "price-cost squeeze," but it is elementary that injury resulting from lawful intensified competition is not antitrust injury. The court of appeals, however, stated that it considered the alleged price-cost squeeze to be "a form of predatory pricing." This was error both because Monfort had disclaimed any contention that Excel or IBP would engage in predatory pricing (i.e., pricing below cost with the intent to destroy competitors and later raise prices), and also because the facts alleged fell far short of supporting any contention of a threat of predatory pricing. Competitors' challenges to acquisitions should be viewed with great skepticism. Competitors stand to benefit from, and have no incentive to challenge, acquisitions that may lead to supracompetitive pricing. On the other hand, competitors have a substantial incentive to challenge acquisitions that will make their rivals more efficient, make their industry more competitive, and reduce the prices they can charge their customers. Rigorous insistence on allegations of antitrust injury to the plaintiff is therefore necessary if competitors are to be prevented from using the antitrust laws for anticompetitive purposes. An allegation of antitrust injury based on a fear of post-acquisition predatory pricing by the resulting firm is clearly insufficient where that firm would not have a dominant market share. It is all too easy for a competitor who fears intense competition (precisely what the antitrust laws seek to encourage) to characterize that competition as "predatory pricing." Accordingly, plaintiffs alleging actual predatory pricing must generally establish, inter alia, that the defendant has a dominant position in the market. Where a plaintiff challenges an acquisition on the ground that it creates a possibility of future predatory pricing, he does not allege a "real and immediate threat" of antitrust injury to himself unless, at a minimum, he alleges that the defendant will dominate the post-acquisition market. Cf. City of Los Angeles v. Lyons, 461 U.S. 95, 110 (1983)). Thus, the court of appeals' holding here was clearly unjustified since, according to the district court's findings, Excel's post-acquisition share of the market would have been less than 21%, which would not even make it the largest firm in the market. While the foregoing considerations are sufficient to decide this case, there are important reasons why the Court should take the further step of ruling that an allegation of threatened future predatory pricing is never sufficient to give a competitor standing to challenge an acquisition. Injunctive actions brought by competitors on a "predatory pricing" theory will often stifle procompetitive acquisitions, and they are likely to do so before the matter can reach this Court; such anticipatory lawsuits are not necessary to combat predatory behavior, which can be remedied if and when it actually occurs. In light of (1) a competitor's strong incentive to seek to scuttle a procompetitive acquisition and the high risk that a court challenge will do so, (2) the remoteness of the possibility that an acquisition will lead to predatory pricing, and (3) the ability of any competitor later faced with the actual predatory pricing to invoke the prohibitions of the Sherman Act, the purposes of the antitrust laws would be best served by denying competitors standing to challenge acquisitions on the basis of predatory pricing theories. 2. Because respondent lacked standing, this Court need not reach the merits of its claim that the acquisition violated Section 7 of the Clayton Act. If the Court reaches this issue, however, the decision below should be reversed because the lower courts did not properly evaluate factors other than market share. The court of appeals' conclusion that the acquisition was anticompetitive because it would increase the likelihood of predatory pricing was defective because it was unsupported by any evidence indicating that Excel could successfully pursue such a strategy. The court of appeals erroneously relied on the "deep pocket" of Excel's parent, Cargill, although nothing in Monfort's complaint or the record in this case suggested that, as a result of the acquisition, Excel was likely to engage in predatory pricing. Accordingly, Cargill's resources were irrelevant to the question whether the acquisition was likely substantially to lessen competition and therefore violated Section 7. The lower courts also failed to take proper account of ease of entry, a factor critical to their conclusions that the acquisition would increase the likelihood of predatory pricing followed by supracompetitive pricing. The district court evaluated only the likelihood of entry at current profit margins, failing to appreciate that ease of entry constrains the exercise of market power. The court of appeals did not address that error, or the district court's errors in relying on absolute cost figures and ignoring evidence of recent entry into the market. Accordingly, if this Court reaches the merits of respondent's suit, the case should be remanded to consider whether entry would be likely in the face of a significant post-acquisition price increase. ARGUMENT I. THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENTS HAD STANDING TO SEEK INJUNCTIVE RELIEF UNDER SECTION 16 OF THE CLAYTON ACT A. A Private Plaintiff Seeking Relief Under The Antitrust Laws Must Allege That It Will Suffer Antitrust Injury A plaintiff in an antitrust case, as in any other case, must of course allege that "'he personally has suffered some actual or threatened injury' * * * (i)t is not enough that the conduct of which the plaintiff complains will injure someone." Blum v. Yaretsky, 457 U.S. 991, 999 (1982) (emphasis in original) (quoting Gladstone v. Village of Bellwood, 441 U.S. 91, 99 (1979)); /12/ see, e.g., Allen v. Wright, No. 81-757 (July 3, 1984), slip op. 16-17; Warth v. Seldin, 422 U.S. 490, 499 (1975). /13/ An antitrust plaintiff must also satisfy a second, and distinct, requirement: it must allege "antitrust injury." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 535 n.31 (1983). /14/ The requirement of antitrust injury, established in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), serves to ensure that the remedies available under the antitrust laws are not "divorce(d) * * * from the purposes of" those laws (id. at 487). In Brunswick, a group of bowling center owners sought damages for the defendant's acquisition of several of their competitors, claiming that they had been injured by the acquisitions because, absent the acquisitions, the competitors would have gone out of business. This Court held that plaintiffs lacked standing to bring such a claim because their complaint was in essense that they had been deprived of the benefits of decreased competition, a claim "inimical to the purposes" of the antitrust laws. Id. at 488. Noting that "(e)very merger * * * has the potential for producing economic readjustments that adversely affect some persons" (id. at 487), and that the antitrust laws "were enacted for 'the protection of competition, not competitors'" (id. at 488) (emphasis in original)), the Court rejected the contention that every injury, "causally linked to an illegal presence in the market" (id. at 489) is sufficient to support recovery. Instead, a plantiff is required to establish "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)). See also Blue Shield v. McCready, 457 U.S. 465, 478 (1982); Associated General Contractors, 459 U.S. at 540. A plaintiff seeking an injunction under Section 16 need only allege threatened, not actual, antitrust injury. But it must still be injury "of a sort personal to the plaintiff" (United states v. Borden, 347 U.S. 514, 518 (1954)). And the rationale of Brunswick /15/ requires a plaintiff seeking relief under Section 16, perhaps even more than a plaintiff seeking relief under Section 4 (15 U.S.C. 15), to allege "antitrust injury" personal to it: in the absence of such a requirement, the danger would be particularly acute in injunction cases that the antitrust laws are being invoked not to enhance and protect competition, but to shield competitors from it. /16/ See Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 1986-1 Trade Cas. (CCH) Paragraph 66,974, at 62,001 (7th Cir. Mar. 4, 1986) ("the 'antitrust injury' rule applies to requests for damages and injunctions alike"); Midwest Communications, Inc. v. Minnesota Twins, Inc., 779 F.2d 444, 452-453 (8th Cir. 1985) (plaintiff "must demonstrate threatened antitrust injury to receive injunctive relief") (emphasis in original); Schoenkopf v. Brown & Williamson Tobacco Corp., 637 F.2d 205, 210-211 (3d Cir. 1980); Central National Bank v. Rainbolt, 720 F.2d 1183, 1186 (10th Cir. 1983); Easterbrook & Fischel, Antitrust Suits By Targets of Tender Offers, 80 Mich. L. Rev. 1155, 1165-1166 & n.27 (1982); cf. Brunswick Corp. v. Riegel Textile Corp., 752 F.2d 261, 266-268 (7th Cir. 1985), cert. denied, No. 84-1593 (June 17, 1985) (injunctive relief in the form of transferring ownership of patent inappropriate where injury alleged does not constitute antitrust injury); Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., 753 F.2d 1354, 1357 (6th Cir. 1985). Accordingly, the court of appeals was fundamentally wrong in concluding that "(i)n a section 16 case, Brunswick mandates only an injury into the causal connection between the threatened injury and the putative antitrust violation" (Pet. App. 5a). Indeed, because the quantum of proof necessary for securing injunctive relief is less than is required for damages but the effect of an injunction will often be greater, it is particularly important that courts adhere strictly to the requirement of antitrust injury in suits seeking injunctive relief under Section 16 if the antitrust laws are to serve their procompetitive purpose. B. Respondent Did Not Allege That It Would Suffer Antitrust Injury 1. Monfort alleged that the acquisition would violate Section 7 of the Clayton Act by increasing concentration in the markets for fed cattle and boxed beef. /17/ Increased concentration in a market may make it more likely that firms in the market will be able to charge supracompetitive prices, and thus threaten "antitrust injury" to customers, but no customer felt sufficiently threatened to sue here. As the court of appeals recognized, Monfort, unlike petitioners' customers, would be helped, not hurt, if prices rose above a competitive level. See Pet. App. 7a, 9a. The threat (if any) that the acquisition would lead to supracompetitive pricing was not a threat to Monfort, which therefore could not assert standing on that basis. Matsushita Electric Industrial Co. v. Zenith Radio Corp., No. 83-2004 (Mar. 26, 1986), slip op. 19; see Allen v. Wright, supra; Warth v. Seldin, supra. 2. Monfort also alleged that after the acquistion the defendants would subject it to a "price-cost squeeze," in which the margin between the cost of the input (fed cattle) and the price of the output (boxed beef) would be insufficient to allow it to operate profitably. Monfort, like the plaintiff in Brunswick, was in essence alleging that it would be the victim not of antitrust violations but of competition. Monfort expressly disclaimed any allegation that the acquisition would increase the likelihood of collusion between IBP and Excel or intensify the squeeze for that reason. /18/ On the contrary, Monfort's president acknowledged that any post-acquisition pressure on other firms in the market would occur because Excel and IBP would compete vigorously against each other by "increas(ing) their production by working Saturdays, by being very aggressive in the marketplace" (Tr. 120). Nor did Monfort allege that IBP or Excel would price below their costs or engage in any other conduct that could properly be viewed as predatory. /19/ Thus, on Monfort's own allegations, the "price-cost squeeze" on which its claim was based reflected only vigorous competition in the purchase of fed-cattle and the sale of boxed-beef. In sum, Monfort alleged no injury to itself except the effects of vigorous competition. The objective of the antitrust laws is to protect competition, enhancing consumer welfare. E.g., Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979). Even if the injury to Monfort hypothesized in the complaint were eventually to materialize, it would, as in Brunswick, flow not from any diminution of competition, but from competition itself. Such an injury is not antitrust injury. 3. The court of appeals ignored the allegations that Monfort actually made and ruled that Monfort had standing to challenge the acquisition because, in the court's view, the allegedly threatened price-cost squeeze constituted "a form of predatory pricing" (Pet. App. 7a). This was error for two reasons. First, Monfort did not allege in its complaint or at trial that Excel or IBP would engage in below-cost pricing, either unilaterally or as the result of collusion. /20/ See Associated General Contractors, 459 U.S. at 526 (footnote omitted) (court may not, in determining standing, "assume that (plaintiff) can prove facts that it has not alleged or that the defendants have violated the antitrust laws in ways that have not been alleged"). Second, and more fundamentally, there was no reason to infer a threat of predatory pricing on the facts alleged by Monfort. Even if an allegation of a threat of future predatory pricing had been made in this case, such allegations, made by competitors seeking to block acquisitions, should be viewed with extreme skepticism, for precisely the reason stated in Brunswick, i.e., to avoid use of the antitrust laws to achieve "results inimical to their purposes." Competitors have a strong incentive to seek to block acquisitions that are likely to create more efficient rivals and so increase competition. Injunctive actions by competitors can easily delay and frustrate acquisitions that will increase competition. /21/ The threat of increased competition following an acquisition, however, is not antitrust injury. See Baumol & Ordover, Use of Antitrust to Subvert Competition, 28 J.L. & Econ. 247, 254 (1985). /22/ Except in the rarest of cases, price reductions following an acquisition represent the results of intensified competition, and while they may disturb the slumber of rivals who prefer not to "work Saturdays," they are good, not bad. /23/ Competitors will understandably tend to characterize any price with which they cannot compete as "predatory." /24/ But "cutting price in order to increase business often is the very essence of competition" (Matsushita Electric Industrial Co. v. Zenith Radio Corp., slip op. 19), even if, as is usually the case, it promises to increase one seller's market share at the expense of its rivals. /25/ The courts should therefore be careful to avoid mistakenly condemning lawful price cuts, which are evidence of competition at work, on the ground that they constitute unlawful predatory pricing: predatory pricing occurs only when a firm sets prices below cost in an attempt to destroy its rivals so that it can later raise prices. /26/ As the Court has recently indicated, "mistaken inferences" in cases involving claims of predatory pricing "chill the very conduct the antitrust laws are designed to protect" (ibid.). Since a dominant share of the market is generally a necessary (although not a sufficient) precondition to a finding of actual predatory pricing, /27/ a plaintiff challenging a rival's acquisition on the theory that there is "real (and) immediate" threat of future predatory pricing plainly should be required, at a minimum, to allege that the acquisition will create a firm with a dominant market share. When the defendant lacks a dominant position, the possibility that it will successfully undertake predatory pricing and succeed in driving out its rivals and later raising prices to a supracompetitive level is highly speculative, /28/ whereas the likelihood that the plaintiff is in fact seeking to inhibit vigorous competition is extremely high. Cf. Matsushita Electric Industrical Co. v. Zenith Radio Corp., slip op. 18-19. The frequent result of allowing such cases to proceed will be to stifle procompetitive acquisitions. /29/ Under the district court's findings, Excel's post-acquisition share of the output market would have been less than 21%, making it clearly not a dominant firm. Indeed, its main rival and the largest firm in the industry, IBP, possessed a much larger share of the market. Monfort's president acknowledged that the beef industry is highly competitive, and there was no allegation by Monfort that Excel or IBP had in the past engaged in either unilateral or collusive predatory pricing. /30/ In these circumstances, there was no basis for a conclusion that the merger here would create a "real (and) immediate threat" of predatory pricing. Accordingly, the court of appeals erred in concluding that Monfort had standing because the price-cost squeeze might constitute a predatory strategy. C. The Possibility Of Future Predatory Pricing Should Not Afford Standing To A Competitor To Challenge An Acquisition Because respondent failed even to allege that petitioners would engage in post-acquisition conduct that could properly be viewed as predatory, the Court could await another case before deciding whether an alleged threat of post-acquisition predatory pricing is ever sufficient to afford a competitor standing to challenge an acquisition. There are, however, sound practical reasons for the Court to consider the issue now: an antitrust complaint that can withstand a motion to dismiss is often not hard to frame, /31/ and the mere pendency of lawsuits will often be fatal to future procompetitive acquisitions before they can reach this Court. /32/ Allowing competitors' suits to proceed on a predatory pricing theory thus invites competitor suits that will frustrate procompetitive acquisitions and "chill the very conduct the antitrust laws are designed to protect." Matsushita, slip op. 19. Since post-acquisition price-cuting is unlikely to constitute predatory pricing, and other remedies are available if and when it does, there is much to be gained from a ruling in this case that competitors may not challenge acquisitions on the ground that there is a threat of post-acquisition predatory pricing. 1. As this Court has observed, "there is a consensus among commentators that predatory pricing schemes are rarely tried and even more rarely successful." Matsushita, slip op. 17. /33/ At least two essential conditions must be met before a predatory pricing strategy will be successful. First, in order to have the ability to engage in predatory pricing, the would-be predator must be capable of rapidly expanding its output to provide the additional quantity of the product demanded as a result of its price reduction and to make up for any resulting reduction in the quantity supplied by its competitors. /34/ Second, barriers to entry must be sufficiently high that new firms cannot profitably enter, or old firms profitably reenter, the market when predatory pricing has driven out competitors and the predator seeks to raise prices to supracompetitive levels. If firms can easily enter and exit a market, predatory pricing will not succeed because the predator will be unable to recoup the losses resulting from its earlier, below-cost pricing. /35/ Even if these minimum conditions are met, however, a firm may well have no incentive to engage in predatory pricing. For example, the larger a firm's market share, the more expensive it will be for that firm to undertake a predatory pricing strategy. Matsushita, slip op. 17. The costs of predatory pricing are immediate, while the rewards are delayed and uncertain. Id. at 13-14; Easterbrook, Predatory Strategies and Counterstrategies, 48 U. Chi. L. Rev. 263, 273-275 (1981). Thus, even a firm with a dominant share of the market will generally find it more profitable to exercise the market power resulting from its dominant position by simply raising prices and allowing competitors to price under its "umbrella." /36/ 2. An acquisition will not necessarily increase a firm's ability or incentive to engage in predatory pricing. An increase in concentration does not raise entry barriers. Nor does the increase in market share resulting from an acquisition have any necessary bearing on a firm's incentive to engage in predatory pricing: although acquiring market share by acquisition may move a firm closer to a point where it will be able to exercise market power to raise prices, increased market share increases the losses it will incur if it engages in below-cost pricing. Finally, although it is conceivable that an acquisition might be aimed at providing a would-be predator with the unused productive capacity necessary to expand output as part of a predatory pricing scheme, there is no predictable relationship between making an acquisition that increases a firm's market share and acquiring the unused capacity necessary to implement such a scheme. 3. Given the strong incentive of competitors to challenge procompetitive acquisitions, the rarity of predatory pricing, and the absence of any predictable relationship between increased market share and the likelihood of successful predatory pricing, it is inconsistent with the purpose of the antitrust laws to afford competitors standing to challenge acquisitions under such a theory. Granting competitors standing will inevitably frustrate many acquisitions that promise to increase consumer welfare. /37/ Denying competitors standing, on the other hand, would not leave them or the public without a remedy for anticompetitive mergers. The government, or private parties threatened with the antitrust injury that Section 7 seeks to prevent, i.e., supracompetitive pricing, will be able to seek an injunction. And competitors that are actually injured as a result of predatory pricing following an acquisition will be able to invoke the prohibitions of the Sherman Act. Under such circumstances, we submit that the danger of allowing a competitor to challenge an acquisition on the basis of necessarily speculative claims of post-acquisition predatory pricing far outweighs the danger that any anticompetitive merger will go unchallenged. II. THE LOWER COURTS ERRED IN DETERMINING THAT THE ACQUISITION WOULD VIOLATE SECTION 7 OF THE CLAYTON ACT Because the respondent lacked standing to sue under Section 16, it is unnecessary for this Court to consider whether the court of appeals erred in upholding the district court's finding that the acquisition would violate Section 7. However, should this Court determine that the standing issue is not dispositive of this case, the decision below should be reversed because the lower courts' analysis of the key issue under Section 7 -- the likelihood that the proposed acquisition might tend "substantially to lessen competition" -- was seriously defective. In deciding to enjoin the acquisition, the district court did not properly evaluate any factors other than the increase in market share in the narrowly defined markets it found. The court of appeals repeated this error in holding that the district court was not required to engage in anything more than a "limited inquiry" into factors other than market share in evaluating the legality of the acquisition. A. A "Deep Pocket" Parent Does Not Increase The Likelihood Of Predatory Pricing The court of appeals not only based Monfort's standing on the supposed threat of predatory pricing but also based its conclusion that the acquisition was illegal on the same supposed threat (Pet. App. 19a-20a). But nothing in the record suggests that the acquisition was likely to lead to predatory pricing. /38/ The court of appeals relied primarily on its view that the "deep pocket" of Cargill, Excel's parent, "would likely be used in an anticompetitive fashion if Excel acquired Spencer Beef and then engaged in a period of predatory pricing." Pet. App. 20a. In analyzing this issue, however, the court of appeals simply assumed its conclusion, i.e., that Excel would engage in predatory pricing. If the post-acquisition structure of the industry made it impossible or irrational for Excel to engage in predatory pricing, a "deep pocket" would only enable Excel to lose more money. /39/ The financial resources of Excel's parent are thus beside the point. Indeed, Excel, with its "deep pocket" parent, was in this market before the acquisition, and there is no claim that it had engaged in predatory pricing, /40/ or had unsuccessfully sought the capital with which to finance such predatory pricing. Accordingly, the likelihood that the acquisition would lessen competition by increasing the probability of predatory pricing amounted to nothing more than an "ephemeral possibilit(y)" that could not suffice to establish a violation of Section 7. Brown Shoe v. United States, 370 U.S. 294, 323 (1962). B. The Lower Courts Failed To Evaluate Properly The Possibility Of Market Entry In determining that the acquisition was anticompetitive, the lower courts relied primarily on its effect on concentration in the relevant markets. Monfort's claim of threatened injury is inconsistent, however, with a conclusion that the acquisition would increase the likelihood of supracompetitive pricing. Even accepting the district court's findings as to the relevant markets, /41/ the lower courts' findings form an insufficient basis for a conclusion that there is a "reasonable probability" that this acquisition will substantially lessen competition. A merger's effect on concentration within an industry provides an important starting point for merger analysis. But market share statistics cannot alone be determinative of the legality of an acquisition. /42/ Because Section 7 proscribed transactions creating a "reasonable probability" of an adverse effect on competition, /43/ courts must necessarily consider relevant factors other than market share statistics in deciding whether a merger would violate Section 7. United States v. General Dynamics Corp., 415 U.S. 486, 498 (1974); Brown Shoe, 370 U.S. at 322 n.38. Although both lower courts acknowledged this responsibility, the district court erroneously discounted a critical factor -- ease of entry -- and the court of appeals failed to correct that error. /44/ The district court determined that there were significant barriers to entry in the relevant markets on the basis of findings that it would cost $20 to $40 million and take 12 to 18 months to construct new slaughter and fabrication facilities with a minimally viable capacity (Pet. App. 65a). /43/ The court found that these costs and delays constituted "formidable barriers to new entrants" when "combined with the previously discussed low profit margins in the beef industry" (Pet. App. 65a). The district court erred by focusing solely on current profit margins. Ease of entry is relevant because if an incumbent firm attempts to raise prices and reduce output, new entry may occur, lowering prices. See United States v. Waste Management, Inc., 743 F.2d 976, 982-984 (2d Cir. 1984); see also United States v. Marine Bancorporation, Inc., 418 U.S. 602, 629-630 (1974) (noting that regulatory barriers to entry reduce the extent to which firms outside the market are perceived as potential entrants). The key question, therefore, is whether new firms would be induced to enter the market in response to a small but significant, non-transistory increase in price. /46/ The district court, however, gauged the likelihood of entry solely with reference to current profit margins, even though it was conceded throughout the trial that the low profit margins within the industry reflected the highly competitive nature of the market. Similarly flawed was the court's reliance on the absolute size -- in dollar terms -- of the investment required to enter the market. Absolute cost figures have little or no meaning in assessing whether entry is likely; /47/ if the return on an investment, adjusted for risk, is at or above market levels, well functioning capital markets such as ours will provide the funds. Nor does the time period for entry cited by the district court constitute a significant barrier to entry in a market such as this. /48/ Finally, in concluding that entry barriers were prohibitively high, the district court simply dismissed the most probative evidence on this point -- the recent entry of Val-Agri, a firm that the respondent itself testified was a strong competitor (Tr. 126). Nor did the district court consider whether a post-acquisition increase in prices would elicit increased production on the part of firms already in the industry, although the evidence indicated that production by existing firms could be rapidly increased without significant additional capital investment. /49/ The court of appeals uncritically accepted the district court's finding that there were significant barriers to entry without addressing petitioners' contention that the district court's analysis of this issue was flawed. At a minimum, the court of appeals should have remanded this case for the district court to consider whether entry was likely in the face of a significant, post-acquisition price increase. Without such a finding, there is no basis for a conclusion that the acquisition would permit supracompetitive pricing, and thus no basis for the lower court's holding that the acquisition violates Section 7 of the Clayton Act. CONCLUSION The judgment of the court of appeals should be reversed. Respectfully submitted. CHARLES FRIED Solicitor General DOUGLAS H. GINSBURG Assistant Attorney General LOUIS R. COHEN Deputy Solicitor General W. STEPHEN CANNON Deputy Assistant Attorney General JERROLD J. GANZFRIED Assistant to the Solicitor General CATHERINE G. O'SULLIVAN STEVE MACISAAC ANDREA LIMMER Attorneys MARCY J. K. TIFFANY Acting General Counsel WINSTON S. MOORE NOLAN E. CLARK Attorneys Federal Trade Commission APRIL 1986 /1/ One of Spencer's plants, located in Schuyler, Nebraska, approximately 60 miles from one of respondent's plants, accounted for approximately half of Spencer's capacity (Tr. 160). Spencer apparently found it unprofitable to operate this plant because of high labor costs and had closed it in December of 1982 (id. at 147). At the time of the proposed acquisition, Monfort's output was roughly equal to Spencer's (id. at 129-130). /2/ At the time Monfort filed suit, it produced approximately 6-7% of all boxed beef sold nationwide (Tr. 160). In terms of output, Monfort, Spencer, and another boxed beef producer, SIPCO, were all approximately tied for the rank of third largest firm in the industry (id. at 129). /3/ "Fed cattle" are steers and heifers that are fattened in commercial feedlots for 100 to 140 days prior to slaughter (Tr. 40-41). Fed cattle generally yield a higher quality of beef than cows or bulls (id. at 86) or "non-fed" cattle, i.e., cattle that are not fattened on feedlots. /4/ "Boxed beef" is beef that has been cut, vacuum packed, and boxed for shipment (Pet. App. 29a-30a). B. Marion, The Organization and Performance of the U.S. Food System 127 (1986). It accounted for approximately 60% of all beef sold in 1982 (ibid.). /5/ See Complaint Paragraph 34. /6/ In a letter informing counsel that it did not intend to challenge the acquisition, the Antitrust Division noted that the pendency of the private suit was a factor in its decision "not to take an enforcement action at this time." Letter from Alan L. Marx to James D. Moe, Cargill, Inc. (Oct. 25, 1983). As in all cases where it states a present intention not to take enforcement action, the Department reserved the right to take action based on information that might subsequently come to its attention, whether from the private suit or elsewhere. It would be contrary to the policy of the Department of Justice to refrain from instituting an appropriate enforcement action simply because a private party had filed suit. /7/ Indeed, Kenneth Monfort, Monfort's president and principal witness, testified that Monfort's injury, if any, would be caused by IBP's and Excel's efforts to increase their market share, efforts that he conceded need "(n)ot (be) collusive" (Tr. 118-119). He testified that in vying for market share, Excel and IBP would "simply increase their production by working Saturdays, by being very aggressive in the marketplace, and the happening occurs without them ever talking to each other" (id. at 120). /8/ Although Mr. Monfort testified that he had "severe question(s) whether in this kind of scenario * * * Monfort * * * could compete with Excel/Spencer * * * or IBP" (Tr. 119), and that he believed that the acquisition "would adversely affect (Monfort's) margins, perhaps to such a degree that we would be forced out of business" (id. at 122), he conceded that the "price-cost squeeze" was a function of the competitive nature of the beef industry, and that Monfort had since its creation been successful in its efforts to compete (id. at 133-134). /9/ Mr. Monfort testified that he thought it was "very unlikely" that IBP and Excel would collude to depress the price they paid for fed cattle; he stated that "I do not feel that they would collude with each other" (Tr. 130). /10/ In the input market, the court found that the four-firm concentration ratio would increase from 52% to 57.5%, with the top two firms, IBP and Excel, having a combined share of 44.8% (Pet. App. 62a). In the output market, the court found that the four-firm concentration ratio would increase from 53.8% to 59.5%, with IBP and Excell controlling 47.7% (id. at 63a). /11/ The estimates offered at trial as to the cost of constructing a new facility ranged from $20 to $40 million (Pet. App. 65a). The district court made no explicit finding as to which estimate was correct but instead simply held that the "large capital costs needed for entry" amounted to "formidable barriers to new entrants" (ibid.). The court also discounted the fact that a new competitor had entered the market as recently as 1981. Although Mr. Monfort himself testified that this recent entrant -- Val-Agri -- was an example of significant recent entry (Tr. 110) and that Val-Agri was currently a competitor of Monfort's and would "be a better one" in the future (id. at 126), the district court held that because Val-Agri "has yet to commence full operations * * * it is difficult to assess its impact" (Pet. App. 67a). The court also noted that Val-Agri had acquired an existing facility, and observed that the evidence indicated that there were very few remaining facilities suitable for acquisition (ibid.). /12/ See also Central National Bank v. Rainbolt, 720 F.2d 1183, 1187 (10th Cir. 1983) ("A violation of the (Sherman) Act without resultant injury to the party bringing the claim is insufficient to confer standing."); 3 Penny Theater Corp. v. Plitt Theaters, Inc., 1986-1 Trade Cas. (CCH) Paragraph 66,920, at 61,723 (N.D. Ill. Nov. 22, 1985) (plaintiff that suffered no injury as a result of illegal "split" agreements between motion picture distributors had no standing to challenge agreements). /13/ Section 16 itself commands courts to head the "same conditions and principles" as govern "courts of equity" in granting injunctive relief (15 U.S.C. 26). As this Court held recently in City of Los Angeles v. Lyons, 461 U.S. 95, 110 (1983), faithful adherence to those principles requires a plaintiff to allege a "real (and) immediate threat" of actionable injury before it has standing to pursue an injunction, even if the injury amounts to a constitutional violation and would support an action for damages (id. at 111). See also Allen v. Wright, slip op. 18) ("Despite the constitutional importance of curing the injury alleged by respondents * * * the federal judiciary may not redress it unless standing requirements are met."). /14/ The fact that standing in an antitrust context involves elements in addition to those required by Article III, and different from elements recognized in other contexts, is not unusual. Standing doctrine comprises both constitutional and prudential components (Allen v. Wright, slip op. 12-13), and this Court's standing decisions have long reflected a sensitivity to the nature of the particular claim being asserted. Thus, the standing requirements applicable to taxpayer suits (see, e.g., Valley Forge Christian College v. Americans United For Separation of Church & State, Inc., 454 U.S. 464 (1982)) differ from those applicable to suits challenging state criminal law enforcement policies (see, e.g., O'Shea v. Littleton, 414 U.S. 488 (1974)). /15/ Because the petitioner in Brunswick did not contest the respondents' standing to seek an injunction (429 U.S. at 491), the Court had no occasion specifically to address the question of Section 16 standing. /16/ The court of appeals in this case suggested that the standing requirements under Section 16 were less stringent than those under Section 4 because the "threshold of proof beyond the section 7 violation remains lower than it would be in a section 4 case" (Pet. App. 4a). The court of appeals cited (ibid.) two cases for this proposition, Board of Regents v. National Collegiate Athletic Association, 707 F.2d 1147, 1151-1152 (10th Cir. 1983), aff'd, 468 U.S. 85 (1984), and Schoenkopf v. Brown & Williamson Tobacco Corp., 637 F.2d 205, 210-211 (3d Cir. 1980). Neither case, however, held that Brunswick's requirement of antitrust injury is inapplicable to injunctive actions. In Board of Regents the court stated that "Brunswick does not apply with full rigor" to an injunctive action (707 F.2d at 1151), but it did not hold that any form of injury related to an antitrust violation was sufficient to establish standing. In Schoenkopf, the court specifically held that Brunswick's antitrust injury requirement is applicable to injunctive actions and, in fact, held that the plaintiff lacked standing because the injury it alleged was not antitrust injury (637 F.2d at 211). /17/ Complaint Paragraph 34(a) and (c). /18/ Monfort also conceded that the "price-cost squeeze" it complained of had been a characteristic of the market for almost twenty years (Tr. 132) and further acknowledged that this squeeze was a consequence of the highly competitive nature of the beef industry (ibid.). See generally B. Marion, supra, at 123-124 (noting that the "1970's were particularly difficult for the beef subsector" because of a sharp rise in feed grain prices and stable demand for beef). /19/ Indeed, Monfort admitted that given the intensely competitive nature of the industry, Excel would seek to gain market share regardless of whether the acquisition went forward (Tr. 152). Monfort simply objected to what it viewed as Excel's attempt to "leap-frog in size" (id. at 159). /20/ As the district court correctly noted (Pet. App. 71a), "Monfort does not allege that IBP and Excel will in fact engage in predatory activities as part of the price-cost squeeze." /21/ In giving the Justice Department and the Federal Trade Commission broad powers to review mergers and acquisitions prior to consummation under Section 7A of the Clayton Act, 15 U.S.C. 18a, Congress recognized that these procedures inevitably create delay that may jeopardize socially beneficial mergers, and therefore imposed strict deadlines on government agencies (15 U.S.C. 18a(b) and (e)(2)), provided for maximum judicial expedition in the event the government elects to file suit (15 U.S.C. 18a(f)), and established an "early release" procedure for transactions determined by the government agencies not to impose any risk of anticompetitive effects (15 U.S.C. 18a(b)(2)). Allowing private competitors routinely to file suit to block transactions cleared by the Antitrust Division or the Federal Trade Commission creates some tension with the government's unique, albeit not exclusive (see 15 U.S.C. 18a(i)(1)), antitrust enforcement role. Cf. United States v. Borden, 347 U.S. 514, 518 (1954) (a private plaintiff "may be expected to (seek injunctive relief) only when his personal interest will be served"); Buckeye Coal Co. v. Hocking Valley Co., 269 U.S. 42, 48-49 (1925). These provisions suggest that the courts should recognize the congressional intention to permit procompetitive or competitively neutral transactions to proceed without undue delay and should be sensitive to the possibility that a competitor may have a strong incentive to use the antitrust laws to block or delay a merger precisely because the transactions promises to enhance competition. /22/ See also Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d 851, 859-860 & n.12 (2d Cir.) (Friendly, J.), cert. denied, 419 U.S. 883 (1974); 4 P. Areeda & D. Turner, Antitrust Law Paragraph 901 (1978). In contrast, if a merger seems likely to change market structure so as to enable remaining firms to restrict output and raise prices, competitors will stand to benefit and will therefore have little incentive to sue. Ibid. Yet it is precisely these mergers that Section 7 proscribes. See 4 P. Areeda & D. Turner, supra, Paragraph 901b (1980). /23/ Cf. A. Smith, The Wealth of Nations 461 (E. Canaan ed. 1937) ("it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is * * * manifest (and) could * * * (never) have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people."). /24/ See 3 P. Areeda & D. Turner, supra, Paragraph 711a, at 151 (1978) ("Unhappy rivals may automatically assume predation when a competitor's price is below their costs, disregarding the possibility that the alleged predator's cost is well below theirs and more than covered by his price."); R. Posner & F. Easterbrook, Antitrust: Cases, Economic Notes and Other Materials 682 (2d ed. 1981) ("allegations of predatory pricing should be understood as attempts by inefficient firms to obtain protection from their lower-cost (and hence lower-price) rivals"). For example, in this case Mr. Monfort testified that the "price-cost squeeze" that had existed for 20 years in the beef industry resulted from competition (Tr. 133), while claiming simultaneously that "some efficient producers have been squeezed out, too" (id. at 134). If -- as Mr. Monfort readily conceded -- the industry was competitive, only the least efficient firms would be driven from the market. /25/ 3 P. Areeda & D. Turner, supra, Paragraph 711a; Kartell v. Blue Shield of Massachusetts, Inc., 749 F.2d 922, 927 (1st Cir. 1984), cert. denied, No. 84-1353 (Apr. 15, 1985); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 297 (2d Cir. 1979), cert. denied, 444 U.S. 1093 (1980). /26/ Southern Pacific Communications Co. v. AT&T, 740 F.2d 980, 1003 & n.27 (D.C. Cir. 1984), cert. denied, No. 84-1080 (Feb. 25, 1985); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 231 (1st Cir. 1983); R. Posner & F. Easterbrook, supra, at 683; 3 P. Areeda & D. Turner, supra, Paragraph 711a; R. Bork, The Antitrust Paradox 154-155 (1978). /27/ See Broadway Delivery Corp. v. United Parcel Service, 651 F.2d 122, 130 (2d Cir.), cert. denied, 454 U.S. 968 (1981) (sound analysis permits examination of a defendant's pricing behavior only after evidence of monopoly power is shown). Because predatory pricing is rational only where the predator expects to recoup its losses when it attains sufficient market power to increase price, claims of unilateral predatory pricing arise in the context of Section 2 of the Sherman Act in cases alleging actual or attempted monopolization. To establish the offense of monopolization under Section 2, a plaintiff must demonstrate, inter alia, that the defendant possessed monopoly power. United States v. Grinnell Corp., 384 U.S. 563, 570-571 (1966). A necessary element of an attempted monopolization case is a showing that there is a dangerous probability that the defendant would succeed in monopolizing the relevant market. See, e.g., 3 P. Areeda & D. Turner, supra, Paragraph 820; D.E. Rogers Associates, Inc. v. Gardner-Denver Co., 718 F.2d 1431, 1435 (6th Cir. 1983), cert. denied, 467 U.S. 1242 (1984). "Dangerous probability" of success in monopolizing a market does not, of course, require that a firm already have monopoly power, but it does generally require at least that it have sufficient market power, typically reflected in a high market share, to dominate the market. See Richter Concrete Corp. v. Hilltop Concrete Corp., 691 F.2d 818, 826 (6th Cir. 1982) (dangerous probability of success element of Section 2 attempt offense requires a finding that the defendant possesses "market strength that approaches monopoly power"; 30% share of relevant market insufficient); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 271 (7th Cir. 1981), cert. denied, 455 U.S. 921 (1982) ("numerous courts have found a market share of 30% or higher to be insufficient, by itself, to prove a dangerous probability of monopolization"). But see Dimmitt Agri Industries, Inc. v. CPC International, Inc., 679 F.2d 516, 533 & n.18 (5th Cir. 1982), cert. denied, 460 U.S. 1082 (1983). /28/ See Joskow & Klevorick, A Framework for Analyzing Predatory Pricing Policy, 89 Yale L.J. 213, 220-221 (1979). /29/ See Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d at 870 (noting that "grant of a temporary injunction" "spells the almost certain doom of a tender offer"); Kaplan, Antitrust Tactics In Contested Takeover Bids (Oct. 19, 1982), reprinted in Practicing Law Institute, Twenty-Second Annual Advanced Antitrust Seminar 759-760 (1982) ("A preliminary injunction restraining the bid on antitrust grounds is almost always a 'showstopper' * * * . (T)here is usually no quick and easy means to solve the antitrust problem."). /30/ Mr. Monfort conceded that there was "(g)ood tough competition" in the industry (Tr. 127), and that he thought it was "unlikely" and had "no reason to think" that IBP and Excel would enter into a collusive agreement to depress prices after the acquisition (id. at 130). /31/ Even if plaintiffs are required to allege that an acquisition will create a firm with a dominant market position, complaints will be subject to prompt dismissal only in those cases where the plaintiff cannot, consistent with the requirements of Rule 11, Fed. R. Civ. P., contrive an alleged market in which the merged firms will have such a position. /32/ As pointed out in our brief in support of the petition (at 15), it is unlikely that another case raising this issue will be pursued to this Court. This case has reached this Court because of an unusual feature of the acquisition agreement: it failed to give the purchaser the right to back out if the acquisition was enjoined. /33/ Cases where predatory pricing has been successfully proven are very rare. See Koller, The Myth of Predatory Pricing: An Empirical Study, 4 Antitrust L. & Econ. Rev. 105, 111-112 (1971) (concluding that of 26 cases where liability was imposed for predatory pricing, in only seven was predation actually attempted, and in only three or four was the attempt successful); Hurwitz & Kovacic, Judical Analysis of Predation: The Emerging Trends, 35 Vand. L. Rev. 63, 140-143 & nn. 294-295, 156-157 (1982); Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697, 699 (1975) (footnote omitted) ("proven cases of predatory pricing have been extremely rare"); Miller & Pautler, Predation: The Changing View in Economics and the Law, 28 J.L. & Econ. 495 (1985); cf. R. Bork, supra, at 154 (noting that predatory pricing is rare, and that "(i)t seems unwise, therefore, to construct rules about a phenomenon that probably does not exist or which, should it exist in very rare cases, the courts would have grave difficulty distinguishing from competitive price behavior"). /34/ Cf. R. Bork, supra, at 147, 149 "(p)redation is a war of attrition, with its outcome determined by the combatant's relative losses and reserves" and "(t)he losses during the war will be proportionally higher for the predator than for the victim" because the predator must satisfy all of the increased demand at predatory prices. /35/ See Ordover & Willig, An Economic Definition Of Predatory Product Innovation (undated), reprinted in Federal Trade Commission, Strategy, Predation, and Antitrust Analysis 301, 304-307 (1981); 3 P. Areeda & D. Turner, supra, Paragraph 711b; R. Bork, supra, at 149-154; Northeastern Tel. Co. v. AT&T, 651 F.2d 76, 89 (2d Cir. 1981), cert. denied, 455 U.S. 943 (1982). /36/ Regardless of a firm's market share, predatory pricing is not a rational strategy unless the expected future payoff, adjusted for the possibility that the strategy will fail and discounted to the present at the appropriate rate, exceeds the present value of the sum of (1) the immediate and substantial expenses of sustained below-cost pricing, (2) the forgone profits from an alternative strategy of raising prices immediately, and (3) the expected value of the damage liability if the predatory pricing is successfully challenged under the Sherman Act. /37/ See note 2, supra; see also Baumol & Ordover, supra, 28 J.L. & Econ. at 254 ("Harassment by lawsuit or even the threat of harassment can be a marvelous stimulus to timidity on the part of competitors * * * intimida(ting a potential defendant) into the sort of gentlemanly competitive behavior that is the antithesis of true competition."); Schneiderman, Preliminary Relief in Clayton Act Section 7 Cases, 42 Antitrust L.J. 587, 588-590 (1973). /38/ Because certain portions of the record in this case are subject to a protective order, we have not been able to review the entire record. The respondent, however, specifically disclaimed any reliance on such a theory in the district court (Pet. App. 71a) and did not attempt to justify the district court's holding on this basis in the court of appeals. /39/ See 5 P. Areeda & D. Turner, supra, Paragraph 1136c (1980) (reviewing cases expressing concern with effect of "deep pocket" on possible predation, concluding that cases "fear predation too much * * * . Predation cannot be considered a significant likelihood where the market circumstances preclude a payoff substantially exceeding the losses suffered in the course of destroying rivals"). See also Emhart Corp. v. USM Corp., 527 F.2d 177, 181 (1st Cir. 1975); Missouri Portland Cement Co. v. Cargill, 498 F.2d at 865-866. /40/ See R. Bork, supra, at 251 (noting that "the law certainly cannot sensibly apply a presumption that the mere possession of capital will probably lead to * * * predation"). /41/ Petitioners do not challenge these specific findings in this Court (Pet. 25-26). They contend, however, that the district court failed to take account of the evidence as to potential increases in supply on the input side of the market (id. at 26), and the ability of producers of non-boxed beef to shift to boxed-beef production on the output side of the market (ibid.). /42/ Even in cases involving highly concentrated markets, the Department of Justice and the FTC do not challenge a merger without considering other relevant factors. U.S. Dep't of Justice, Merger Guidelines Section 3.11(c) (June 14, 1984); Federal Trade Commission, FTC Statement Concerning Horizontal Mergers 2 Trade Reg. Rep. (CCH) Paragraph 4516 (1982). /43/ See Brown Shoe, 370 U.S. at 294 n.39 (citation omitted) (noting that although Congress sought to arrest anticompetitive tendencies without an industry in their incipiency, the legislative history is "explicit" that the Clayton Act "'would not apply to the mere possibility but only to the reasonable probability of the proscribed * * * effect'"). /44/ The lower courts' failure to analyze properly the evidence as to each of entry also undercuts their conclusions with respect to the likelihood of predatory pricing resulting from the acquisition. /45/ The court found that it also would be difficult to find and costly to acquire and refurbish existing facilities (Pet. App. 66a). The court's conclusion in this regard was based on Excel's internal reports noting that there were few fully integrated beef packing facilities available for acquisition (ibid.). But the evidence indicated that non-integrated facilities were available (Tr. 398, 402-403). Indeed, Val-Agri's entry involved the purchase of existing facilities that were modernized and expanded (id. at 282-283). The district court, however, without citing any evidence, stated that it was "persuaded that * * * the cost associated with refurbishing old facilities constitute(s a) significant barrier() to (entry)" (Pet. App. 66a). /46/ The Department of Justice Merger Guidelines, supra, Sections 2.11, 3.3, posit a 5% increase lasting two years as a general rule. /47/ See 2 P. Areeda & D. Turner, supra, Paragraph 409e (1978). If, as the district court concluded, $20 to $40 million ipso facto constitutes a significant entry barrier, it would necessarily follow that the law must presume that entry barriers are high in even modestly capital intensive industries. But as the record in this very case makes clear (Tr. 111), a $20 to $40 million investment is not beyond the capacity of even individual investors. /48/ See Merger Guidelines, supra, Section 3.3 (positing a two-year period for entry). /49/ Tr. 143 (production doubled by adding second shift). See also Tr. 128, 160; Declaration of D. Neubauer at 11-12.