Antitrust 1 Prof. E. Fox Fall 2004 1 I. Introduction to Antitrust Law 4 a. General Background 4

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Conspiracy to Monopolize

  • American Tobacco Company v. U.S.

  • Per Se Rule – π d/n have to show an actual attempt was made to monopolize b/c evidence of agreement is sufficient for conspiracy

  • Scope of the relevant market and the effect of the conspiracy d/n matter in a claim for conspiracy to monopolize b/c the agreement to commit the illegal act is the violation
    1. Structural Consensus – Early Definition of Monopolization

  1. General Analysis

  • Concentration of power reduces initiative, efficiency and innovation monopoly distorts allocation of resources; highly concentrated markets are likely to be susceptible to anticompetitive cheating

  • Explains importance of market share and market definitions in monopoly analysis

  • Alcoa – can find strong support for this interpretation in statutory history
      1. U.S. v. Aluminum Co. of America (Alcoa) (1945) – Paradigm of Monopolization

  • What is monopoly power = power to raise price above cost for a significant time period

  • Monopoly power assumed by structure? – 30% insufficient, 64% doubtful, 90% sufficient

  • Later cases find 66% as sufficient

  • Factors to ability to exercise monopoly power:

  • Power limited by expansion of small producers – small producers may come fill gaps left by monopoly firm, but monopoly firm will still have power to control such competition

  • Power limited by imports from foreign countries – foreign products are subject to tariffs and transportation costs, which facilitates monopoly profits

  • Level of profits – monopoly profit is not an important factor, cannot excuse monopolization in absence of monopolistic price b/c it is the monopoly that is still illegal

  • Thrust upon Defense – monopoly was “thrust upon” firm and firm did not actively monopolize

  • Conduct – cannot be a passive recipient of the monopoly and embrace each new opportunity (monopolist is assumed to have monopolized unless the monopoly was thrust upon you)

  • Intent – Δ d/n have to have an evil or exclusionary intent, intent d/n matter once a monopoly is found; presumption that monopolist intends to monopolize (d/n unconsciously monopolize)

  • Size – fact that a company is big d/n equal a violation of Sherman Act, must also take action that amounts to a monopoly

  • What is monopolization? = 1) possession of monopoly power and 2) the mere use of offensive conduct to obtain, protect, expand or exploit the monopoly  cf. Grinnell Principle

  • Today, gov’t can regulate firms w/monopoly structure or if monopoly is thrust upon a firm; but courts are limited to regulating monopolization through actual anticompetitive conduct
      1. U.S. v. E.I. Du Pont De Nemours (Cellophane) (1956) – Withdrawal from Structural Consensus

  • What is the relevant market for determining existence of monopoly power?

  • Interchangeability of use – do cellophane buyers have reasonable alternatives, these should be included in the market, since alternatives tend to push the price down to cost

  • Cross-elasticity of demand – when the price goes up, do buyers shift to other products?

  • Can analyze historically or through prediction

  • Cellophane Fallacy – defined market as flexible wrappings and inferred that Δ d/n have monopoly power b/c there are substitutes that prevent it from raising prices to the monopoly level

  • Fails to consider costs and whether or not Δ is selling at a monopoly price

  • There will always be factors that cap a monopolist’s price, d/n mean there is no monopoly power; possible to make monopoly price look competitive w/other wrapping

  • Reasonable market substitutes establish the limits of the market, but hard to know if Δ is pricing at a competitive or monopoly price; may need discovery to prove monopoly price

  • If Δ can raise price and exploit consumers that would stay in the market then that is the relevant market (i.e., true for cigarettes)

  • Cross-elasticity is a better means of determining the market!

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