What’s up with the Sixth Circuit? In its December 15, 2005 Spirit Airlines v. Northwest Airlines decision, the court reversed the district court’s grant of summary judgment for Northwest in Spirit’s monopolization lawsuit alleging predatory pricing on the Detroit-Boston and Detroit-Philadelphia routes. So much for those who thought that the Tenth Circuit’s 2003 decision in AMR killed the possibility of predation claims in the airline industry.

There are some interesting and (apparently, to me, the outsider) close questions in Spirit about the right way of thinking about costs and revenues in airline predation cases, but those interesting and (apparently) close questions are overshadowed by a bizarre concluding section in which the Sixth Circuit purports to consider Spirit’s “Non-Price Predation Claims.” The “non-price predation” at issue is the expansion of output–i.e., the addition of flights. Of course, the expansion of output only occurred, and would only make sense, as a corollary of the Northwest’s price reductions. (If Northwest added flights without lowering its price, it would end up with empty planes, assuming demand remained constant). In most cases where the defendant has drastically lowered its price, the defendant will also have expanded its output, so it would be possible to describe virtually any predatory pricing case (including Brooke Group) as a “non-price predation” case not subject to the “below cost” test.

The “Non-Price Predation” section gets more bizarre when the Sixth Circuit announces that Brooke Group’s “below cost” test does not even apply “to a monopolist with its unconstrained market power.” The Sixth Circuit relies for this proposition on LePage’s (which I have roundly criticized elsewhere), but LePage’s at least had the fig leaf of making this claim in the context of bundled rebates and not traditional single-product price discounting. To suggest that the Supreme Court’s “below cost” rule does not apply to monopolists is ludicrous, both doctrinally and theoretically. None of the Supreme Court’s predation decisions articulating the below cost test have limited it to non-monopolists. In Trinko, the Court repeated (albeit in dicta) that “above-cost predatory pricing schemes [are] beyond the practical ability of a judicial tribunal to control.” The Supreme Court has now said four or five times, in categorical terms, that a price cannot be unlawful unless it is below cost.

Further, predation only makes sense, if ever, when the predator is a monopolist. Predation by a single oligopolist is inherently stupid behavior because the single oligopolist will be internalizing huge costs with the hope of producing a market-wide price increase that it will have to share with all of the other firms in the markets as it tries to recoup. So the idea that the “below cost” price test only applies to oligopolists is silly. We really don’t need any predatory pricing test for oligopolists.

Having thus slammed the Sixth Circuit’s decision, it’s a hard to feel too sorry for Northwest. Recall that Northwest (and Continental) sued American for predatory pricing in the summer of 1992 and lost. I have written elsewhere that the predatory pricing lawsuit itself may have been partly responsible for price increases in the airline industry in late 1992 and early 1993. Those who play with fire sometimes get burned.

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