Predatory Output Reduction?

Josh Wright —  20 June 2011

The conventional predation claim involves a monopolist reducing price and increasing output.  Here’s a creative theory involving a claim that a decision to close down factories injures competition:

A federal judge in Texas is hearing testimony from farmers who contend that poultry producer Pilgrim’s Pride closed plants and ran them out of business to manipulate commodity chicken prices.

Their lawsuit alleges violations of a Depression-era antitrust law enacted to limit big meatpackers’ power over farmers and ranchers.

Bob Depper is one of the attorneys for the 275 farmers from several states. He says the trial in East Texas could last weeks or months. Friday was the second day of testimony.

The lawsuit is being tried before a judge rather than a jury in Marshall, about 175 miles east of Fort Worth.

Pilgrim’s Pride declined to comment on the lawsuit. It has said it closed some plants to save costs before emerging from Chapter 11 bankruptcy protection in 2009.

HT: Businessweek.  More background on the plant closings here.

3 responses to Predatory Output Reduction?


    Perhaps what should be mocked is the Packers and Stockyard Act, under which this case appears from the article to have been brought and apparently provides sufficiently broad coverage that the allegations survived both a MTD and SJ.

    By the way, is there a meaningful economic difference between shutting the plant versus simply leaving its capacity unused? Is committed exit somehow a useful signalling device?

    Not quite what it seems 22 June 2011 at 5:07 am

    I have not read the complaint in this matter, but the impression I get from reading the linked WSJ story is that it’s not quite fair to call this a predatory output reduction claim.

    The key difference here is that the farmers are suppliers to Pilgrim’s Pride, not competitors of Pilgrim’s Pride.

    Thus, the farmers’ beef (pardon the pun) does’t seem to be that Pilgrim’s Pride is anticompetitively expanding output to temporarily lower price and drive out rivals. In fact, as upstream suppliers, they wouldn’t complain about a downstream output expansion — it would be an outward shift of their demand.

    Instead, their complaint seems to be that Pilgrim’s Pride has shut down (unilaterally) a processing plant in the hope of raising the market price of (processed) chicken.

    I don’t see a lot to mock there — it’s as traditional an antitrust claim as you can get — an allegation that someone is lowering output to raise price.

    The twist here is that it is upstream suppliers (who have suffered due to the resulting inward shift in their demand) bringing a complaint, rather than downstream consumers.

    I’ll say this — it is a somewhat odd claim. The WSJ story contains no allegations that Pilgrim’s Pride shut down the plant as part of a conspiracy betweeen chicken processors — i.e. this was a unilateral act.

    It’s *not* a violation of the antitrust laws for a firm to lower unilaterally its output (good thing too — imagine a court making the output decisions for every firm in the economy!).

    So maybe the case merits mocking. But if it does, it wouldn’t be because it is a predatory output reduction claim, but rather because it’s a claim that if upheld, could put the courts in the position of making output decisions for each firm in the economy.

    But again, I have not read the complaint, so the mocking in the OP may be spot on.