Brooke Group Research Articles

Wealth Creation and Destruction from Brooke Group's Tobacco Litigation Strategy

We examine value creation and destruction in the tobacco industry due to the radical litigation strategy pursued by Brooke Group and its CEO, Bennett LeBow. Brooke Group has a tiny market share, low margins, high leverage, and a high concentration of managment ownership. Beginning in 1996 the firm reached settlements in lawsuits brought against all cigarette companies by class action plaintiffs and U.S. state governmetns. Brooke Group's actions, which included promises to cooperate in litigation against its rivals, spurred other companies to reach settlements on less favorable terms. The settlements eventurally led to massive wealth destruction within the tobacco industry but impressive returns for sharehoders of Brooke Group.

Does Predatory Pricing Exist? Economic Theory and the Courts after Brooke Group

Does Predatory Pricing Exist? Economic Theory and the Courts after <i>Brooke Group</i>

Comment to Adams, Brock and Obst: ?Is predation rational? Is it profitable??

Adams, Brock and Obst (ABO) raise two questions about predatory pricing in the title of their short paper: Is predation rational? Is predation profitable? Their condition (2) indicates the answer to each question is yes if the expected value of post-predation gains is greater than the known cost of mounting a predatory campaign. ABO's contribution is the way they operationalize this condition. In judging whether a particular episode of low prices is predatory, ABO propose that exact measures of the alleged predator's costs and gains be combined to calculate a threshold level of the probability of "success." If this probability is not small in relation to a reasonable economic analyst's subjective judgement about the aggressor's true chance of bringing down a rival with below-cost prices, then the episode is judged to be one of rational and profitable predation. While the economic logic of ABO's test is sound, their application of the test to Brooke Group leaves much to be desired.1

Price Predation: Legal Limits and Antitrust Considerations

Competition centered strategies in the form of predatory pricing directed toward weakening or destroying a competitor are receiving increasing emphasis in the Courts and among antitrust theorists and policymakers. Recently, the Supreme Court found little evidence of antitrust injury extending from price predation in the case of Brooke Group v. Brown &amp; Williamson Tobacco Corporation (1993). The author examines the current legal standard for predatory pricing and juxtaposes it against emerging insights on this competitive practice.

The Supreme Court's Predation Odyssey: From Fruit Pies to Cigarettes

Brooke Group, Ltd. v Brown & Williamson Tobacco Corp.-the Supreme Court's first predatory pricing decision under the Robinson-Patman Act since Utah Pie in 1967-makes clear the Court's heightened skepticism toward claims of predatory pricing. Under Brooke, plaintiffs must show not only that a defendant had a genuine possibility of bankrupting or disciplining its prey, but also that the defendant had a strong prospect of recouping its predatory losses. While applauding the Court's decision, the authors question the Court's refusal to accept a rule of per se legality to govern price cutting by members of noncollusive oligopolies. For reasons the Court itself spelled out, price cutting by members of noncollusive oligopolies is so unlikely a means of successful monopolization that such pricing behavior ought to be governed by a rule of per se legality.