(CN) – A profit-sharing agreement among California grocery giants Albertson’s, Vons, Ralphs and Food 4 Less violates antitrust laws, the 9th Circuit ruled, even if it lowered prices for consumers by reducing labor costs.
On a 2-1 vote, the 9th Circuit panel reversed the federal court’s ruling for the grocers and remanded.
Three of the grocers agreed in 2003 to share profits in case one of them was singled out for a strike. They later decided to include Food 4 Less as a fourth party to the agreement.
The stores argued that the agreement was not anticompetitive, because it actually lowered consumer prices by reducing labor costs.
But the federal appeals court in Pasadena disagreed.
“Profit pooling or profit sharing arrangements eliminate incentives to compete for customers along every dimension: there is little purpose in attempting to attract another firm’s customers by lowering prices, improving quality or taking any other measure if the profits earned from those new customers would be placed in a common pool in which the other firm is a participant, and the proceeds distributed in the same way no matter which participant in the profit pool generated the underlying sales,” Judge Stephen Reinhardt wrote for the 2-1 majority.
In her dissenting opinion, Judge Kim Wardlaw saw little evidence of any anticompetitive effects.
“Although I share the majority’s skepticism about the legitimacy of the grocery chains’ contention that lowering labor costs by revenue-sharing to diminish any ‘whipsaw’ tactics by the union would ultimately benefit customers in the form of lower prices, the evidence of the actual anticompetitive effects of the agreement is, at best, in dispute,” she wrote.