American Tobacco Co. v. United States

Over a period of several years American Tobacco Company (American), Liggett & Myers Tobacco Company (Liggett), and R. J. Reynolds Tobacco Company (Reynolds) (collectively, the dominant cigarette companies) together held at least 68 percent and frequently over 75 percent of the national market share of cigarette production. The dominant cigarette companies sold their cigarettes in the same way: to “jobbers” at wholesale list prices, who in turn sold the cigarettes to dealers such as convenience stores. The dominant cigarette companies also sold cigarettes at identical prices. When one of the dominant cigarette companies changed its list price, the others changed their list prices to match. For example, in 1931, tobacco leaves were as inexpensive as they had been since 1905. However, despite this historically low cost of production, Reynolds raised the price of its most popular cigarette. The same day, American and Liggett also raised the prices of their most popular cigarettes to the same price as Reynolds. There was no economic rationale for a price increase by any of the dominant cigarette companies given the low costs of tobacco leaves. The defendants were charged with conspiring to monopolize and monopolizing in violation of the Sherman Act. The United States District Court for the Eastern District of Kentucky convicted the dominant cigarette companies. The court of appeals affirmed. The United States Supreme Court granted certiorari on the convictions for violating section 2 of the Sherman Act.