An antitrust lawsuit challenging New York Mayor Zohran Mamdani‘s (D) plan to open city-run grocery stores has vexed attorneys who say the case doesn’t meet the high bar set by the US Supreme Court for proving predatory pricing suits.
The National Supermarket Association‘s complaint said Mamdani’s plan to open stores where some goods will be 30% cheaper than at private grocers is a tax-subsidized gambit that gives the city stores a “massive and unfair advantage.”
But the trade group’s argument that taxpayer-supported stores can operate at a deficit indefinitely — something competitors can’t do — seems to inadvertently highlight the program’s strengths rather than its flaws, attorneys said.
“It’s a very weird complaint because a lot of it is very complimentary of the program,” said David Schwartz of Bryan Cave Leighton Paisner LLP.
The lawsuit faces a steep legal climb. The case runs headlong into decades of Supreme Court precedent requiring plaintiffs to show that consumers will ultimately be harmed, a difficult argument to make when the entire point of the program is to lower prices for New Yorkers.
“Consumers have to be harmed at some point and there’s no consumer harm here. In fact, consumers win,” said Sam Weinstein, co-director of the Cardozo School of Law’s Heyman Center on Corporate Law and Governance.
Taxpayer-Funded Competition
Supreme Court precedent and subsequent cases focused on private actors recouping losses from consumers are distinct from this case where the city program is funded and losses absorbed by taxpayers, the association said in court papers.
“Traditional antitrust concerns about rational private actors, the speculative nature of recoupment, and the risk of chilling legitimate price competition simply do not apply when the predator is funded by compulsory taxation,” it said.
The city’s first store will open by the end of 2027, and the remaining four by the end of Mamdani’s term, the mayor has said. Proposals for potential grocery store operators are due Oct. 16.
The association wants the court to enjoin the city from making a determination on the proposals until after the merits have been decided. The city will seek dismissal.
Predatory Pricing Hurdles
Legal observers doubt the association’s case can clear the high bar courts have set for predatory pricing claims.
Predatory pricing is one of the hardest types of claims to win in court, and people rarely if ever bring it, Schwartz said.
That’s because of the 1993 Supreme Court case Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp. that established a two-prong test to determine whether the pricing at issue harms competition. Courts must ask whether the prices are below production costs, and whether the company setting the prices has a dangerous probability of recouping its investment by raising prices later down the road.
“There’s decades of Supreme Court law saying, ‘We don’t want courts to be in the business of deciding when cutting prices is bad or good.’ It all looks a lot like competition on the merits, which is what antitrust laws are designed to create,” Schwartz said.
The association’s complaint admits that it can’t prove there’s a dangerous probability of the city recouping its losses from the discount, said Brian Shearer of Vanderbilt University’s Policy Accelerator for Political Economy and Regulation. The plaintiffs aren’t trying to hide that point, and instead “are trying to make new law by arguing they don’t need to prove recoupment because banning this wouldn’t chill any market ‘innovation,’” he said.
Judges don’t want to prohibit a practice that leaves consumers better off, Shearer added. “If the prices won’t be raised later, what’s the problem?”
Other Efforts
The NSA asserts there’s “almost no modern example of a municipal government entering the retail consumer-goods market,” but that isn’t true, Shearer said.
Libraries, public pharmacies, publicly run liquor stores, and state-run lotteries fall into a similar category, he said. “And of course, public provision of services as opposed to retail goods is even more common and wouldn’t be treated differently under the Sherman Act.”
Somerset, Ky., opened its city-run gas station, the Somerset Fuel Center, back in 2014. While it was criticized by local business owners at the time, there have been no suits filed to challenge it, Julie Nelson Harris, the city’s communications director, said.
Atlanta last year opened its first city-run grocery store, Azalea Market, without any significant pushback, Mayor Andre Dickens (D) told Bloomberg Law. That was in part because the idea was a public-private partnership that came “with a full package of support” for the store operator and other local grocers, including $50,000 in grants to 15 local stores.
The lack of legal challenges in those cities has led some attorneys to conclude that something other than legal principle is driving this lawsuit. The supermarket association’s co-lead counsel is the America First Policy Institute, a think tank led by President Donald Trump‘s former economic adviser, Lawrence Kudlow.
Vanderbilt’s Shearer contends the federal suit, and two others filed in state court, are politically motivated.
The association’s attorney pushed back on that characterization.
It’s up to “New Yorkers and pundits to draw whatever conclusions they like,” said the association’s co-counsel Eric R. Levine of Eiseman Levine Lehrhaupt & Kakoyiannis PC. “We believe that the facts and the law are with us and that we will ultimately prevail.”
‘Love to Sue’
Regardless the motivation behind the antitrust lawsuit, it’s not the only legal challenge against Mamdani’s grocery plan.
The Multicultural Business Coalition’s parallel state court lawsuits take a different tack, asserting the grocery plan discriminates against small and minority-owned businesses, which will be put out of business.
That suit raises questions about whether the city did its homework before “dropping an economic bomb” on other retailers in the area that already provide highly discounted goods, Columbia University business school professor Stephen Zagor said.
The city “should’ve expected a lot of these lawsuits,” Zagor said. “We love each other and we love to sue each other.”
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