Caller-Times Publishing Co. v. Triad Communications, Inc.

826 S.W.2d 576, 35 Tex. Sup. Ct. J. 509, 1992 Tex. LEXIS 20, 1992 WL 34083

• Court: Texas Supreme Court
• Decided: February 26, 1992
• Docket: C-9979
• Status: Published

Opinions

OPINION ON MOTION FOR REHEARING

COOK, Justice.

Our opinion and judgment of November 18, 1991 are withdrawn. The motion for rehearing is granted in part and overruled in part. We grant the portion of the motion for rehearing requesting a remand to the trial court for a new trial on the antitrust claims.

This case presents a question of first impression requiring us to determine what constitutes predatory pricing for purposes of the Texas Free Enterprise and Antitrust Act of 1983. Tex.Bus. & Com.Code §§ 15.-01-15.51 (the “Texas Antitrust Act”). We hold that based on the record in the case, the Caller-Times did not engage in predatory pricing. Therefore, we reverse the portion of the court of appeals’ judgment holding that the Caller-Times violated the Texas Antitrust Act,¹ 791 S.W.2d 163, and remand to the court of appeals for consideration of the Caller-Times’ points of error on Triad’s alternative ground of recovery. Following consideration in the court of appeals, the court of appeals shall, if requested by Triad, remand to the trial court for a new trial on Triad’s antitrust claims.

I.

The Caller-Times Publishing Company’s market area is Corpus Christi and the surrounding eleven counties. The company publishes two daily newspapers (The Corpus Christi Caller and The Corpus Christi Times), an advertising circular called the “Pennysaver,” and other supplemental publications. The Caller-Times has a combined circulation rate of 82,000 for its daily newspapers.

In mid-1984, Triad Communications, Inc. purchased an advertising circular called “Wheels and Keels” for $10,000.00. Wheels and Keels was a circular which featured display and classified advertising primarily for automobiles and boats. Its market area was Corpus Christi and the surrounding cities, which placed it in direct competition with the Caller-Times over most of the Caller-Times’ market area.

In 1986, Triad filed suit in state court against the Caller-Times under the Texas Antitrust Act. Triad alleged the Caller-Times engaged in monopolistic activity and predatory pricing practices. Triad also alleged tortious interference with Triad’s contractual relationships.² Triad based its claims on the allegation that the Caller-Times “targeted” Wheels and Keels’ customers, offering them special deals and advertising rates if they would advertise in the Caller-Times’ publications. Triad alleged that these actions caused damages from lost sales, and eventually drove Wheels and Keels out of business.

The jury found that the Caller-Times had targeted Triad’s customers for special deals and that such targeting had proximately caused Triad damages of $364,-416.00. Pursuant to jury findings that require the court to treble damages under the Texas Antitrust Act, the trial court rendered judgment for Triad in the amount of $1,096,248.00, and ordered the payment of prejudgment interest and attorney’s fees. The trial court also rendered an order granting Triad injunctive relief.

The Caller-Times appealed the trial court’s judgment, arguing first that the trial court erred in overruling its motion for judgment non obstante veredicto. The Caller-Times contended that Triad failed to prove the Caller-Times’ advertising rates were set below its average variable cost. This failure, argued the Caller-Times, was fatal to a claim of predatory pricing. The Caller-Times also argued that the evidence was both legally and factually insufficient to support Triad’s tortious interference with contract claims. On rehearing, the court of appeals dissolved the injunction on the ground that it was overbroad and vague but affirmed the trial court’s judgment on the basis of a test the court of appeals promulgated for proving predatory pricing. 791 S.W.2d 163.

The test set out by the court of appeals, which is a hybrid test taken from opinions of the United States Courts of Appeals for the Ninth and Eleventh Circuits, mixes subjective and objective proof of predatory pricing. The test requires that to recover under a claim of predatory pricing, a plaintiff must prove that the defendant (1) set its prices below its average total costs, and (2) exhibited some subjective or objective characteristics of predatory conduct. The court of appeals found that the evidence was replete with proof of subjective intent of predatory conduct because the evidence showed that the Caller-Times had called on Wheels and Keels’ customers and offered them special deals.

The court of appeals determined that the testimony of Stephen Sullivan, the Caller-Times’ publisher, proved the Caller-Times set prices below its average total costs. Sullivan testified that the profit margin on both the Caller-Times and the Pennysaver was twelve percent, plus or minus five percent. Using this general figure, the court of appeals determined that the Caller-Times’ total costs were between eighty-three and ninety-three percent of its revenues. At trial, evidence was offered that the Caller-Times offered deals to Wheels and Keels’ customers of up to fifty percent off the Caller-Times’ regular advertising rates. The court of appeals determined that at fifty percent off its advertising prices, the Caller-Times was pricing its advertising thirty-three percent below its lowest break-even point of eighty-three percent. This, the court of appeals determined, was evidence that the Caller-Times set its advertising rates below its total costs; thus, the jury finding that the Caller-Times engaged in predatory pricing had support in the evidence.

II.

On appeal, the Caller-Times complains of the court of appeals’ judgment in several respects, most notably in regard to the predatory pricing test the court of appeals devised under the Texas Antitrust Act. That statute was a sweeping reform of the former Texas antitrust act originally passed in 1889, one year before Congress passed the Sherman Antitrust Act. Baron, Increasing Importance of State Antitrust Enforcement: The Texas Free Enterprise and Antitrust Act, in State Bar of Texas Institute: Antitrust in the 80’s C-l (1985); Comment, The Texas Free Enterprise and Antitrust Act — Analysis and Implications, 22 Hous.L.Rev. 1181, 1181-83 (1985). The 1983 Texas Antitrust Act was specifically designed to update Texas antitrust law and afford courts broader powers of protection than that provided by the “laundry list” of particular violations set out in the 1889 Texas antitrust act. See Baron, supra, at C-l; Comment, supra, at 1182-83. The powers of protection provided by the 1983 Texas Antitrust Act were considered broader because it provides the courts the flexibility to adapt legislative intent to evolving economic and business conditions. Comment, supra, at 1190-91.

The current Texas Antitrust Act is modeled on both the Sherman Antitrust Act and the Clayton Act. Comment, supra, at 1183 n. 9. Consistent with its foundation in federal law, the Texas Antitrust Act provides that it is to be interpreted in harmony with federal judicial interpretations of comparable federal laws. Tex.Bus. & Com.Code § 15.04.

Triad sued the Caller-Times for damages caused by its allegedly monopolistic conduct, seeking to invoke the protection of section 15.05(b) of the Texas Antitrust Act. That section provides: “It is unlawful for any person to monopolize, attempt to monopolize or conspire to monopolize any part of trade or commerce.” Tex.Bus. & Com. Code § 15.05(b). Section 2 of the Sherman Antitrust Act provides in relevant part: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of trade or commerce among the several States ... shall be deemed guilty of a felony_” 15 U.S.C. § 2 (1988). Because section 15.05(b) of the Texas Antitrust Act is comparable to section 2 of the Sherman Antitrust Act, we look to federal law interpreting section 2 of the Sherman Act for guidance in interpreting section 15.05(b) of the Texas Antitrust Act.

Initially, we note that both the Sherman Act and the Texas Antitrust Act cover monopoly and attempted monopoly. Triad alleges monopoly, which is established if two elements are proven: “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident.” United States v. I.T.T. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966). The first element, which is not an issue on appeal, was resolved in favor of Triad when the jury found that the Caller-Times had monopoly power in the relevant market. A plaintiff may establish the second element with a showing that the monopolist charged predatory prices.³ The second element was resolved in favor of Triad when the trial court found predatory pricing based on evidence of subjective intent. Triad presented no evidence on cost data. 791 S.W.2d at 167. The court of appeals held that Triad must show that the Caller-Times was charging below its average total cost and that a statement by the Caller-Times’ publisher on the profit margin of the Caller-Times was sufficient to show below average-total-cost pricing.

The issue on appeal is what constitutes proof of predatory pricing. This is a question of first impression under the Texas Antitrust Act. Federal courts, however, have addressed the question of predatory pricing on a number of occasions.

Section 15.04 of the Texas Antitrust Act allows Texas courts to draw from the law of any circuit in guiding their interpretation of the Act.⁴ This provision gives this Court wide latitude in developing an appropriate test. However, because the Supreme Court has not developed a test for predatory pricing, and the federal circuit courts take different approaches, this provision also requires determining which federal approach best guides our interpretation of the Texas Antitrust Act. Although we seek to harmonize our interpretation with federal law to the extent it is consistent with the purpose of the Texas Antitrust Act, we decline to follow any one circuit. Rather, we draw on the interpretations of several circuits as an aid in developing an appropriate test.

A test for predatory pricing cannot be developed in a vacuum. We note several policies which underlie an appropriate test. Section 15.04 of the Texas Antitrust Act provides that the Act’s purpose is to maintain and promote economic competition and to provide the benefits of that competition to consumers in the state. The Texas Antitrust Act seeks to provide a level playing field to benefit the consumers of the state. There is no statutory mandate as to who must win the competition. The purpose of the Act is to protect competition and not individual competitors. See Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 116, 107 S.Ct. 484, 492, 93 L.Ed.2d 427 (1986); Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521, 8 L.Ed.2d 510 (1962).

Further, a vague standard has a chilling effect on business.⁵ Business must be able to determine prospectively what price it may legally charge. See Henry v. Chloride, Inc., 809 F.2d 1334, 1346 (8th Cir. 1987); International Air Industries, Inc. v. American Excelsior Co., 517 F.2d 714, 722-23 (5th Cir.1975), cert. denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976). When a court focuses on subjective intent, a seller cannot predict where it may legally set a price. The test developed by the court of appeals focuses on subjective intent. This standard creates a lack of predictability in the law which punishes those who would engage in vigorous competition.

III.

The appropriate test for predatory pricing under the Texas Antitrust Act has two elements. The first element is whether the predatory pricing is economically feasible. See Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 598, 106 S.Ct. 1348, 1362, 89 L.Ed.2d 538 (1986) (rational economic motive is a threshold question); Henry v. Chloride, Inc., 809 F.2d at 1345. Unless predatory pricing is economically plausible, business has no motive to engage in that practice.⁶ See Matsushita, 475 U.S. at 595, 106 S.Ct. at 1360; United States v. Syufy Enterprises, 903 F.2d 659 (9th Cir.1990); A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1401 (7th Cir.1989), cert. denied, 494 U.S. 1019, 110 S.Ct. 1326, 108 L.Ed.2d 501 (1990); S. Breyer, Regulation and its Reform 32 (1982); F. Scherer, Industrial Market Structure and Economic Performance 335-340 (2nd ed. 1980). Predatory pricing is only economically feasible when a company has an objectively reasonable expectation of recouping its losses from predatory pricing by charging higher prices later. ' See Cargill, 479 U.S. at 117-19, 107 S.Ct. at 492-94; A.A. Poultry Farms, 881 F.2d at 1401; Henry v. Chloride, Inc., 809 F.2d at 1345; Adjusters Replace-A-Car v. Agency Rent-A-Car, Inc., 735 F.2d 884, 894 (5th Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985); Barry Wright Corp., 724 F.2d at 231; Northeastern Telephone, 651 F.2d at 89; William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014, 1034-35 (9th Cir.1981), cert. denied, 459 U.S. 825, 103 S.Ct. 57, 74 L.Ed.2d 61 (1982); R. Rapp, Predatory Pricing Analysis: A Practical Synthesis, 59 Antitrust L.J. 595, 598-603 (1991); F. Easterbrook, Predatory Strategies and Counterstrategies, 48 U.Chi. L.Rev. 263 (1981); P. Joskow & A. Klevorick, A Framework for Analyzing Predatory Pricing Policy, 89 Yale L.J. 213, 242-49 (1979); R. Posner, Antitrust Law: An Economic Perspective 184-92 (1976). Therefore, to meet its burden under this element, a plaintiff must prove that the alleged predator has an objectively reasonable expectation of recouping its losses from predatory pricing by charging higher prices later. The seller will not have an objectively reasonable expectation of recouping its losses unless the structure of the relevant market will permit the seller to recoup its losses from predatory pricing.⁷ When a company charges prices that are above a competitive price in a market that does not have significant barriers to entry, new competition enters the market and prices must be lowered to maintain market position. See Matsushita, 475 U.S. at 589, 106 S.Ct. at 1357. Therefore, market structure can make recoupment impossible. “Only if market structure makes recoupment feasible need a court inquire into the relation between price and cost.” A.A. Poultry Farms, 881 F.2d at 1401.

The requirement that predatory pricing be economically feasible is consistent with the goal of providing the benefits of competition to the consumers of the state. This standard helps create a rule that businesses can readily follow which allows them to cut prices as low as possible. Low prices for consumers are an ultimate goal of the Texas Antitrust Act. If the market structure does not allow recoupment later, then consumers benefit from a period of low prices. There is no down side because, by definition, if the market does not allow later recoupment the monopolist cannot charge higher prices later. Consumers cannot lose if the market does not allow recoupment. See A. A. Poultry Farms, 881 F.2d at 1401.

The dissent attributes this Court’s economic position to Robert H. Bork and his work The Antitrust Paradox (1978). The Court neither cites nor relies on The Antitrust Paradox. Rather, the Court relies on the decision of the United States Supreme Court in Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The Supreme Court’s economic analysis in Matsushita follows from a line of Supreme Court precedent starting with Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521, 8 L.Ed.2d 510 (1962). See, e.g., Brunswick Corp. v. Riegel Textile Corp., 752 F.2d 261, 266 (7th Cir.1984).⁸

The second part of the test for predatory pricing is established by proving the seller set its prices below “some appropriate measure of cost.” Matsushita, 475 U.S. at 584 n. 8, 106 S.Ct. at 1355 n. 8. The Matsushi-ta Court expressly declined to identify what constitutes an appropriate measure of cost. Id. Although the United States Supreme Court has not resolved the question of what constitutes an appropriate measure of cost, a number of federal circuit courts have addressed the issue.

The starting point for a predatory pricing analysis in the federal circuit courts is Ar-eeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697 (1975).⁹ Areeda and Turner argue that marginal cost¹⁰ is the ideal measure of predatory pricing. However, accountants generally cannot determine marginal cost from data kept by most companies.¹¹ Average variable cost is an effective substitute for marginal cost and may be readily determined from cost data that most companies keep.¹² Average variable cost is defined as the costs that vary with changes in output divided by the output.¹³ International Air Industries, Inc. v. American Excelsior Co., 517 F.2d 714, 724 n. 27 (5th Cir.1975), cert. denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976). Areeda and Turner argue that if a firm sets its prices above its average variable cost an irrebuttable presumption is created that there is no predatory pricing. If a firm sets its prices below its average variable cost then an irrebutta-ble presumption is created that there is predatory pricing. Areeda and Turner do not consider any evidence of subjective intent. Indeed, Areeda notes in a later work that: “Some courts almost seem to overlook the fact that predatory pricing is the evil, and write sometimes as if the conduct is important only because it is evidence of the firm’s evil intent.” Areeda & Hoven-kamp, Antitrust Law If 714.52b n. 5 (Supp. 1988). Although no circuit has adopted the test exactly as proposed by Areeda and Turner, average variable cost is commonly used as will be discussed below.¹⁴

The Ninth Circuit used the Areeda and Turner test as a starting point and then expanded the inquiry into a three-part analysis. The analysis creates different presumptions depending on whether the price charged is below average variable cost, between average variable cost and average total cost, or above average total cost. Inglis, 668 F.2d 1014, 1035-36 (creates the first two elements); Transamerica Computer Co., Inc. v. International Business Machines Corp., 698 F.2d 1377, 1388 (9th Cir.), cert. denied, 464 U.S. 955, 104 S.Ct. 370, 78 L.Ed.2d 329 (1983) (adds the third element). The In-glis/Transamerica test provides that: (1) when prices are above average total cost the plaintiff has the burden of proving by clear and convincing evidence that there was predatory pricing (Transamerica); (2) when prices are below average total cost but above average variable cost the plaintiff has the burden of proving by a preponderance of the evidence that there was predatory pricing {Inglis)', and (3) when prices are below average variable cost a prima facie case of predatory pricing is established and the defendant has the burden of proving by a preponderance of the evidence that its prices were justified without regard to any anticipated destructive effect they might have {Inglis).

The Inglis segments of the Ninth Circuit test for predatory pricing have been followed to varying degrees by the Sixth,¹⁵ Eighth,¹⁶ Tenth,¹⁷ and Eleventh¹⁸ Circuits. The Transamerica segment of the Ninth Circuit test which allows a plaintiff to show that prices above average total cost are predatory has not been followed by any other circuit. Further, all circuits but the Eleventh take a very limited view of what may be shown for a party to meet its burden of proof on predatory pricing. The element of proof that the Ninth Circuit test requires in addition to showing the relationship between price and cost is a showing “that the anticipated benefits of defendant’s price depended on its tendency to discipline or eliminate competition and thereby enhance the firm’s long-term ability to reap the benefits of monopoly power.” Inglis, 668 F.2d at 1035. Subjective evidence of a defendant’s intent to engage in predatory pricing does not meet the requirements of the Inglis/Transamerica test.

We decline to follow the Ninth Circuit approach to prices above average variable cost. The Ninth Circuit divides costs above average variable costs into two groups: (1) those above average total cost; and (2) those above average variable cost but below average total cost. Initially, the Ninth Circuit approach to prices above average total cost is clearly against the great weight of federal authority.¹⁹ Second, the Ninth Circuit approach to finding predatory pricing in prices that are above average variable cost is inconsistent with the stated objectives of the Texas Antitrust Act. The Ninth Circuit notes that “[pjrieing below average total cost may be a legitimate means of minimizing losses, particularly when the firm is ‘temporarily’ experiencing ‘excess capacity’ in its productive facilities.” Inglis, 668 F.2d at 1035. We can also foresee other situations where a firm may legitimately price below its average total cost. Start-up periods, periods of falling demand, loss-leaders and promotional activities are other examples of legitimate pricing below average total cost.²⁰ In the short-run, a firm maximizes its profits when its prices are above its average variable costs. Forcing a company to charge above its marginal cost is a waste of economic resources. See International Air, 517 F.2d at 724.

The Ninth Circuit notes that “[although pricing below average total cost and above average variable cost is not inherently predatory, it does not follow, however, that such prices are never predatory.” Inglis, 668 F.2d at 1035. The Ninth Circuit’s primary concern with prices that are above average variable price appears to be the practice of limit pricing.²¹ Inglis, 668 F.2d at 1033. Although we share the Ninth Circuit’s concern, we seek a solution that provides greater certainty for business and consequently increased competition and lower prices for consumers. See International Air, 517 F.2d at 721-23; Scherer, supra, at 332-43. Generally, prices between average variable cost and average total cost are competitive and socially optimal. See Henry v. Chloride, Inc., 809 F.2d at 1345-46. Therefore, we will not follow the Ninth Circuit approach of allowing proof that a price above average variable cost is predatory. However, we will consider other federal approaches to the problem of limit pricing.

The other widely used test for predatory pricing, besides that of the Ninth Circuit, focuses on average variable cost and is used by the First, Second, and Fifth Circuits. Like the Ninth Circuit approach, the First, Second, and Fifth Circuits start with the test proposed by Areeda and Turner. The Fifth Circuit addressed the Areeda and Turner approach first in International Air Industries, Inc. v. American Excelsior Co., 517 F.2d 714 (5th Cir.1975), cert. denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976). The International Air court adopted the basic Areeda and Turner formulation but carved out an exception for cases of limit pricing. 517 F.2d at 724. The First and Second Circuits independently developed tests based solely on pricing above or below average variable cost without following International Air. All three circuits have the presumption that prices above average variable cost are legal and prices below average variable cost are illegal.

The Second Circuit noted in Northeastern Telephone Co. v. American Telephone & Telegraph Co. that the appropriate inquiry for developing a price standard is to determine when prices become unremuner-ative. 651 F.2d 76, 87 (2nd Cir.1981), cert, denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982). Marginal cost pricing allows a firm to recover its cost of producing the last unit sold. If a seller cannot cover its marginal cost then it should normally discontinue production. The seller is not only losing its fixed costs but is losing its incremental costs as well. See Barry Wright, 724 F.2d at 232. Marginal cost pricing fosters competition on the basis of relative efficiency. See Northeastern Telephone, 651 F.2d at 87. This is consistent with the Texas Antitrust Act’s stated purpose of maintaining and promoting economic competition for the benefit of consumers. Marginal cost pricing is remunerative and should be permissible. As we have noted, average variable cost is the accountant’s surrogate for marginal cost. Therefore, a price above average variable cost will not support a charge of predatory pricing unless there are substantial barriers to entry into the relevant market.

The Fifth Circuit recognizes an exception to the general rule when there are substantial barriers to market entry. International Air, 517 F.2d at 724. This exception is supported by Matsushita, in which the Supreme Court stated that unless there were barriers to entry into a market it would presumably be impossible to maintain prices above a competitive level for an extended time. 475 U.S. at 591 n. 15, 106 S.Ct. at 1358. Prices above a competitive level are necessary for a predator to recoup the losses incurred in pricing below average variable cost and profit from its actions. Without the ability to price above a competitive level there is no economic motive to engage in predatory pricing.

The Fifth Circuit’s exception for when substantial barriers to market entry exist requires that the price charged be above the seller’s short-run profit-maximizing price. Adjusters Replace-A-Car v. Agency Rent-A-Car, Inc., 735 F.2d 884, 890-91 (5th Cir.1984), cert, denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985); International Air, 517 F.2d at 724. This exception addresses the limit pricing problem that appears to have been the driving force behind the Ninth Circuit’s treatment of prices above average variable cost. The Fifth Circuit approach allows a greater range of prices without the uncertainty that stifles competition to the detriment of consumers. However, this exception is unimportant for our purposes because there is no evidence that there were substantial barriers to entry into the advertising market in the Corpus Christi area.

The subjective intent of a seller should not be a factor in determining whether its prices are predatory. This is the approach taken by the First,²² Second,²³ Fifth,²⁴ Seventh,²⁵ and Eighth²⁶ Circuits. The danger of evidence of subjective intent is that “[pjredatory pricing is difficult to distinguish from vigorous price competition” and subjective evidence blurs the distinction. Northeastern Telephone, 651 F.2d at 88. This is because subjective evidence of predatory intent can be ambiguous and misleading. As a result, juries may “erroneously condemn competitive behavior.” Morgan v. Ponder, 892 F.2d 1355, 1359 (8th Cir.1989).

Claims of predatory pricing generally arise when a seller seeks to increase market share through price cutting. These efforts are permissible even if their result is to decrease the rivals’ share. See Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104,116,107 S.Ct. 484, 492, 93 L.Ed.2d 427 (1986). This is just recognition that the goal of all competition is to capture as much, if not all, of the business for yourself which will necessarily affect, if not destroy your competitors. Antitrust laws do not prohibit this activity.

Rivalry is harsh, and consumers gain the most when firms slash costs to the bone and pare price down to cost, all in pursuit of more business.... If courts use the vigorous, nasty pursuit of sales as evidence of forbidden ‘intent,’ they run the risk of penalizing the motivation forces of competition.

A. A. Poultry Farms, 881 F.2d at 1401-02. Not only is evidence of subjective intent misleading to the jury, but it also leaves a standard that is too vague for businesses to follow. Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 232 (1st Cir. 1983). In the absence of a clear standard, business will tend to err on the side of keeping prices high and consumers will be the ultimate losers. Id. This result is contrary to the purpose stated in section 15.04 of the Texas Antitrust Act.

The legal environment for small business is tough enough. An antitrust standard which focuses on whether a seller had improper thoughts about its competitors only makes the legal environment worse. A test focusing on conduct provides a much more certain guideline for business.

In addition to applying an incorrect standard, the court of appeals improperly combined a showing of predatory pricing with a showing of what is required to obtain treble damages. Section 15.21(b) of the Texas Antitrust Act provides that the trier of fact must award treble damages if the unlawful conduct was willful or flagrant. Tex.Bus. & Com.Code § 15.21(a)(1). The requirement of willful or flagrant conduct to treble damages is above and beyond what is required to prove predatory pricing. It is improper to combine the requirements of section 15.21(a)(1) into the elements of the test for predatory pricing under section 15.05(b). We are not presented with and do not address the question of what is appropriate proof of willful or flagrant conduct for purposes of section 15.21(a)(1).²⁷

We therefore adopt the following test for predatory pricing: (1) the seller has an objectively reasonable expectation of recouping its losses due to the alleged predatory pricing by charging higher prices later, that is, the predatory pricing is economically feasible; and (2)(a) the price charged is below average variable cost; or (b)(i) there are substantial barriers to market entry; (ii) the seller is charging a price below its short-run profit-maximizing price and its average total cost;²⁸ and (iii) the benefits of the seller’s price depended on its tendency to discipline or eliminate competition and thereby enhance the firm’s long-term ability to reap the benefits of monopoly power.

IV.

The appropriate measure of cost for establishing a claim of predatory pricing was the focus on appeal. Therefore, we address that element of the test before considering the other elements. The test provides that there is predatory pricing when the price charged is below average variable cost. When considering claims of predatory pricing, the trier of fact must have sufficiently precise cost information to allow it to determine average variable cost. See Clamp All Corp. v. Cast Iron Soil Pipe Institute, 851 F.2d 478, 483 (1st Cir.1988), cert. denied, 488 U.S. 1007, 109 S.Ct. 789, 102 L.Ed.2d 780 (1989). In the case at hand, Triad introduced no evidence that the Caller-Times priced its advertisements below the Caller-Times’ average variable cost, 791 S.W.2d at 169, or, indeed, below any measure of cost. The testimony of the Caller-Times’ publisher that the Caller-Times’ profit margin was twelve percent plus or minus five percent does not provide a basis for determining any relevant measure of cost. The evidence that Triad presented at trial shows only that the Caller-Times engaged in “vigorous competition.” This is clearly not prohibited under antitrust statutes. Absent any evidence that the Caller-Times set its prices below average variable cost, Triad’s monopolization claim fails under this element. Triad may not seek refuge in the exception to the second part of the test because there was no evidence of substantial barriers to entry to the relevant market.²⁹ Because Triad did not meet its burden on the second part of the test for predatory pricing, we need not consider the first part: whether the alleged predatory pricing was economically feasible.

V.

Having decided that Triad has not established an antitrust violation, we are left with the question whether to remand the antitrust issue for a new trial based on this decision or to render judgment for the Caller-Times. We may remand if the interest of justice demands a new trial. Tex. R.App.P. 180; Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 830 (Tex. 1990); Sanchez v. Schindler, 651 S.W.2d 249 (Tex.1983); Morrow v. Shotwell, 477 S.W.2d 538 (Tex.1972). Texas antitrust law is sufficiently unsettled that we remand for a new trial on the antitrust question.

VI.

Triad received a favorable jury verdict on the basis of its claims of tortious interference with its business relations in addition to the favorable verdict on the antitrust claims. The trial court rendered judgment on the antitrust claims, as those claims provided Triad with the greatest measure of recovery. See Boyce Iron Works, Inc. v. Southwestern Bell Telephone Co., 747 S.W.2d 785, 787 (Tex.1988); Hargrove v. Trinity Universal Ins. Co., 152 Tex. 243, 256 S.W.2d 73 (1953). Because we reverse the judgment of the court of appeals and the trial court on the more favorable ground of recovery, Triad is entitled to have its tortious interference with business relations theory considered. Boyce Iron Works, 747 S.W.2d at 787.

The court of appeals affirmed the trial court’s judgment on the basis of Triad’s antitrust claims and did not address the issues raised under the independent ground of tortious interference. We decline to address the issues raised by the tortious interference with business relations claims as they were not addressed by the court of appeals. We therefore reverse the portion of the court of appeals’ judgment holding that the Caller-Times violated the Texas Antitrust Act and remand the cause to the court of appeals for consideration of the Caller-Times’ points of error on Triad’s alternative ground of recovery. After the court of appeals considers the Caller-Times’ points of error on the alternative grounds of recovery, the court of appeals shall, if requested by Triad, remand to the trial court for a new trial on the antitrust claims. Of course Triad may only have judgment rendered on one of the alternative theories. However, Triad may elect the more favorable judgment after all of the proceedings we have set out.³⁰

The motion for rehearing is granted in part and overruled in part.

DOGGETT, J., dissents joined by MAUZY, J.

1 . The trial court granted Triad injunctive relief which restrained the Caller Times "from targeting Plaintiffs customers or potential customers for special deals or concessions.” The injunction was granted under the authority of section 15.21(b) of the Texas Business and Commerce Code. The Caller-Times challenged the injunction on the ground that it was overbroad and vague. Triad conceded that the injunction was overbroad and vague and the court of appeals dissolved the injunction. 791 S.W.2d 163, 174. The injunction was not an issue in this court.

2 . Prior to the filing of the instant suit in state court, the majority shareholders in Triad Communications, David Mock and George Magel, filed suit twice in federal district court against the parent corporation of the Caller-Times, Harte-Hanks Communications, Incorporated, seeking relief under the Sherman Act from the Caller-Times’ allegedly monopolistic conduct. The first time, the federal claims were dismissed without prejudice at the request of Mock and Magel. The federal claims were refiled and then dismissed with prejudice in November of 1985. Mock and Magel had requested a second dismissal without prejudice. However, the court granted dismissal with prejudice. In its order, the court stated that the dismissal was with prejudice because the cause had already been dismissed once without prejudice, because of the costs incurred by Harte-Hanks, and because the judge felt that Mock and Magel were only forum shopping.

3 . Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 696 n. 12, 702, 87 S.Ct. 1326, 1332-33 n. 12, 1336, 18 L.Ed.2d 406 (1967); International Air Industries, Inc. v. American Excelsior Co., 517 F.2d 714, 722 (5th Cir.1975), cert, denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976).

4 . Some testimony during hearings on the 1983 Texas Antitrust Act urged the legislature to incorporate language into the Act which would specifically direct Texas courts to follow the Court of Appeals for the Fifth Circuit as a matter of course when there is no Supreme Court precedent and there is a conflict between circuits. Comment, supra, at 1199. This suggestion was rejected. Instead, § 15.04 allows Texas courts to draw their interpretations from any of the federal circuits. Comment, supra, at 1199; see State Bar of Texas Antitrust Section, Monograph: Texas Free Enterprise and Antitrust Act 33 (1984).

5 . See, e.g., Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76, 88 (2nd Cir.1981); Barry Wright Corp. v. ITT Grin-nell Corp., 724 F.2d 227, 235 (1st Cir.1983).

6 . This element of the test is equally appropriate even if the seller acts irrationally. Whether a seller acts rationally or irrationally, predatory conduct will be marked by the same objective factors. The fact finder can determine whether" there was an objective rational economic motive even if the seller acted irrationally.

7 . We are not faced with the question of what factors a court should consider to determine whether a seller will have an objectively reasonable expectation of recouping its losses. Relevant factors must be determined on a case by case basis. While we neither endorse every factor on this list nor exclude any other factor, we anticipate that the following factors would be relevant: the type of goods or services in question; the economic condition of the predator; relative market strength of the seller; the number of competitors in the relevant market; nature of barriers to market entry; market demand; and the name recognition of the seller’s products.

We neither reject nor embrace the rule of reason as a tool for analysis of predatoiy pricing problems. However, by considering the objective factors peculiar to a particular business, the first part of this test is entirely consistent with the rule of reason. See The White Motor Co. v. United States, 372 U.S. 253, 261, 83 S.Ct. 696, 701, 9 L.Ed.2d 738 (1963). “[T]he Rule [of Reason] does not open the field of antitrust inquiry to any argument in favor of a challenged restraint that may fall within the realm of reason. Instead, it focuses directly on the challenged restraint’s impact on competitive conditions.” National Society of Professional Engineers v. United States, 435 U.S. 679, 688, 98 S.Ct. 1355, 1363, 55 L.Ed.2d 637 (1978). See generally P. Joskow & A. Klevorick, A Framework for Analyzing Predatory Pricing Policy, 89 Yale L.J. 213 (1979) (discussing the interaction of the rule of reason and per se rules in the context of predatory pricing analysis).

8 . The Seventh Circuit noted in Brunswick that ”[t]he purpose of the antitrust laws as it is understood in the modern cases is to preserve the health of the competitive process ... rather than to promote the welfare of particular competitors.” 752 F.2d at 266. (citing Brown Shoe). Perhaps one reason why the dissent takes such a different view of the purpose of the antitrust laws is that the dissent relies on the position of turn of the century writers. The business environment and the tools for analysis of the business environment in this country have changed since Louis D. Brandéis wrote on antitrust in 1914.

The dissent manages to infer from this opinion that it is predicated on the belief that predatory pricing is rare. The dissent argues that “predatory pricing is a real danger,” at 603, and cites commentators for the proposition that predatory pricing exists. At 603, n. 46. However, the dissent has not answered the Second Circuit’s challenge in Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76, 88 (2nd Cir.1981), cert, denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982). The Northeastern court noted that "nowhere in the recent outpouring of literature on the subject do commentators suggest that [predatory] pricing is either common or likely to increase.” Id. There is a difference between saying that predatory pricing exists and saying that it is a real danger.

9 . See, e.g., A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir.1989), cert, denied, 494 U.S. 1019, 110 S.Ct. 1326, 108 L.Ed.2d 501 (1990); Henry v. Chloride, Inc., 809 F.2d at 1345; Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc., 735 F.2d 884, 888-91 (5th Cir.1984), cert, denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 231-34 (1st Cir.1983); Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76, 86 (2nd Cir.1981), cert, denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982); William Inglis & Sons Baking Co. v. ITT Continental Baking Co., Inc., 668 F.2d 1014, 1038 (9th Cir. 1981), cert, denied, 459 U.S. 825, 103 S.Ct. 58, 74 L.Ed.2d 61 (1982).

10 . Marginal cost is the incremental cost of making and selling the last unit.

11 . Areeda & Turner, supra, at 716.

12 . Areeda & Turner, supra, at 717-18; Northeastern Telephone, 651 F.2d at 87.

13 . When determining whether a cost is fixed or variable

[t]he characterization of legitimately disputed costs is a question of fact for the jury. Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc., 735 F.2d 884, 891 n. 6 (5th Cir.1984), cert, denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985); see William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014, 1036-38 (9th Cir.1981), cert, denied, 459 U.S. 825, 103 S.Ct. 58, 74 L.Ed.2d 61 (1982). The jury may consider, but obviously cannot be bound by, a party’s characterization of its own costs.

Kelco Disposal v. Browning-Ferris Industries, 845 F.2d 404, 408 (2nd Cir.1988), aff’d on other grounds, 492 U.S. 257, 109 S.Ct. 2909, 106 L.Ed.2d 219 (1989). Average variable cost must be determined for the relevant product market. Analysis of a monopoly claim begins with consideration of what is the relevant market. See, e.g., Kintner, 2 Federal Antitrust Law § 12.2 (1980); Areeda & Turner, 2 Antitrust Law ¶ 525 (1978); Kaiser Aluminum & Chemical Corp. v. FTC, 652 F.2d 1324 (7th Cir.1981). The relevant market consists of both the geographic market area as well as the product market. See, e.g., Kintner, supra; 2 Antitrust Law ¶ 525; Oahu Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360 (9th Cir.), cert, denied, 488 U.S. 870, 109 S.Ct. 180, 102 L.Ed.2d 149 (1988); C.E. Services, Inc. v. Control Data Corp., 759 F.2d 1241 (5th Cir.), cert, denied, 474 U.S. 1037, 106 S.Ct. 604, 88 L.Ed.2d 583 (1985). Products are generally in the same market if they are reasonably interchangeable. See, e.g., United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956); Kintner, supra, at § 12.3.

14 . See Henry v. Chloride, Inc., 809 F.2d 1334, 1345 (8th Cir.1987); Adjusters Replacer-A-Car v. Agency Rent-A-Car, Inc., 735 F.2d 884, 890 n. 5 (5th Cir.1984), cert, denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985).

15 . D.E. Rogers Associates, Inc. v. Gardner-Denver Co., 718 F.2d 1431, 1437 (6th Cir.1983), cert, denied, 467 U.S. 1242, 104 S.Ct. 3513, 82 L.Ed.2d 822 (1984) (adopts without analysis the Inglis portion of the Ninth Circuit test; plaintiff did not show that prices were below average variable cost so the area between average variable cost and average total cost was not an issue); Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d 1050 (6th Cir.), cert, denied, 469 U.S. 1036, 105 S.Ct. 511, 83 L.Ed.2d 401 (1984) (adopts the Inglis segments but expressly rejects the Transamerica segment in case that involved pricing above average total cost).

16 . Henry v. Chloride, Inc., 809 F.2d 1334 (8th Cir.1987) (prices above average total cost are presumptively legal; uses average variable cost as a dividing line for burden of proof — plaintiff has the burden of proof above average variable cost and defendant has the burden of proof on predatory pricing below average variable cost; prices were below average variable cost); Morgan v. Ponder, 892 F.2d 1355, 1360 (8th Cir. 1989) (“At prices above average variable cost the plaintiff must overcome a strong presumption of legality....”; evidence was insufficient to show pricing below average total cost).

17 . Instructional Systems Development Corp. v. Aetna Casualty and Surety Co., 817 F.2d 639, 648 (10th Cir.1987) (sales above average variable cost do not preclude a finding of predatory pricing if other factors are present indicating unreasonably anti-competitive behavior; the court relied on objective evidence of pricing patterns to establish predatory pricing when prices were above average variable cost); Pacific Engineering & Production Co. v. Kerr McGee Corp., 551 F.2d 790, 797 (10th Cir.), cert, denied, 434 U.S. 879, 98 S.Ct. 234, 54 L.Ed.2d 160 (1977) (used Areeda and Turner test based on average variable cost but declined to adopt a rule based only on cost).

18 . McGahee v. Northern Propane Gas, Co., 858 F.2d 1487 (11th Cir.1988), cert, denied, 490 U.S. 1084, 109 S.Ct. 2110, 104 L.Ed.2d 670 (1989) (uses the Inglis test and expressly allows a showing of subjective intent to engage in predatory pricing).

19 .See McGahee v. Northern Propane Gas Co., 858 F.2d 1487, 1496 (11th Cir.1988), cert, denied, 490 U.S. 1084, 109 S.Ct. 2110, 104 L.Ed.2d 670 (1989) (cannot infer predatory intent when the price charged is above average total cost); Henry v. Chloride, Inc., 809 F.2d 1334 (8th Cir.1987) (prices above average total cost are conclusively legal); Adjusters Replace-A-Car v. Agency Rent-A-Car, Inc., 735 F.2d 884 (5th Cir. 1984), cert, denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985) (the appropriate test for predatory pricing is average variable cost); Arthur S. Lan-genderfer, Inc. v. S.E. lohnson Co., 729 F.2d 1050, 1056 (6th Cir.), cert, denied, 469 U.S. 1036, 105 S.Ct. 511, 83 L.Ed.2d 401 (1984) (follows Ninth Circuit Test but expressly rejects the Transamerica segment that considers prices that are set above average total cost; forcing firms to price above their average total cost would prevent procompetitive price cuts which are beneficial to consumers and other purchasers); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 234-36 (1st Cir.1983) (any test that considers prices above average total cost to be predatory "would more likely interfere with the procompetitive aims of the antitrust laws than further them”); MCI Communications Corp. v. American Telephone & Telegraph Co., 708 F.2d 1081, 1122-23 (7th Cir.), cert, denied, 464 U.S. 891, 104 S.Ct. 234, 78 L.Ed.2d 226 (1983); Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76 (2nd Cir.1981), cert, denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982) (the appropriate test for predatory pricing is average variable cost).

20 . See, e.g., H. Hovenkamp, Economics and Federal Antitrust Law § 1.1 (1985).

21 . Limit pricing is the monopolist’s practice of pricing below its profit-maximizing price but above the price at which competitors may economically enter the market. See, e.g., Scherer, Industrial Market Structure and Economic Performance 332-43 (2nd ed. 1980); Areeda & Turner, 3 Antitrust Law ¶ 714b (1978). An oversimplified example is when

the monopolist’s profit-maximizing price is $100 per unit, but a $100 price would attract entry while a $90 price would not. Average total costs (including a normal return on investment) at an efficient scale of output might be $80 to the monopolist but $91 for newcomers. In that event, the monopolist will have to choose between inducing entry at the profit-maximizing price of $100 and retaining the entire market at the $90 price. If the discounted income stream at the lower price exceeds that from sharing the market at the higher price, the monopolist will charge the lower price. Although the lower price would thus be the long-run, profit maximizing price, it is usually called a ‘limit price'_

3 Antitrust Law ¶ 714b.

22 . Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227 (1st Cir.1983) (adopts a cost based test and declines to consider intent).

23 . Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76, 88 (2nd Cir.1981), cert, denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982) (adopts a straight Areeda and Turner test; the Eighth Circuit noted in Henry v. Chloride, 809 F.2d 1355, 1358 (8th Cir.1987), that the presumptions created in Northeastern Telephone were conclusive).

24 . Adjusters Replace-A-Car v. Agency Rent-A-Car, Inc., 735 F.2d 884, 890 (5th Cir.1984), cert, denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985) (“The objective economic approach to predation that we adopted in American Excelsior is still the law of this circuit.” “[W]here barriers to entry are not pronounced predatory pricing is not established unless the defendant has set his prices below his average variable cost.” 735 F.2d at 891.); International Air Industries, Inc. v. American Excelsior Co., 517 F.2d 714 (5th Cir.1975), cert, denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976).

25 . A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1402 (7th Cir.1989), cert, denied, 494 U.S. 1019, 110 S.Ct. 1326, 108 L.Ed.2d 501 (1990) (“Following the First Circuit's decision in Barry Wright, we now hold that intent is not a basis of liability (or a ground for inferring the existence of such a basis) in a predatory pricing case under the Sherman Act.").

26 . Morgan v. Ponder, 892 F.2d 1355, 1359-60 (8th Cir.1989) (“objective cost analysis is the crucial component in a prima facie case of predatory pricing;” prices above average total cost are per se legal; "[A]s our cases have made clear, evidence of statements [of subjective intent] will not relieve a plaintiff of the burden of proving predation through a separate showing of predatory conduct.”).

27 .This opinion does not address the requirements of a criminal violation under section 15.22 of the Texas Business and Commerce Code. This Court does not have jurisdiction over criminal matters. Tex. Const, art. V, §§ 3, 5.

28 . See supra note 19 and accompanying text.

29 . The record indicates that Triad entered the Corpus Christi and surrounding area advertising market for an investment of $10,000.

30 . Triad is entitled to have judgment rendered on the tortious interference claims, if those claims are affirmed, and forego a new trial on the antitrust claims.