Market Power: Ability to dictate price & Quantity in a relevant market.
§ 2: Need (1) Monopoly power, (2) monopoly conduct (anti-comp), (3) no legitimate business justification(s).
American Can (1921) Ds got large enough to start trying to buy up & close all their competitors with non-competition clauses (would threaten them “you can’t get tin…”, etc). Got huge machinery makers to sell only to them. Often ended up buying the patents for the machinery too. All this drove the prices up, and D tried to keep them up. But people were entering the market, etc.
CT: Technical violation but we don’t want to dissolve b/c its in the public interest
Prices roughly the same.
Can sizes standardized. Some margin btwn cost of tin/cans.
Customer svc/delivery good.
Now have a lab for studying why things go bad in cans.
D hasn’t recently done anything improper (only possible justification is anti-competitive) to retain market power.
ALCOA: ALCOA contracts w/ power companies not to sell to other people for purposes of extracting Alumina. Owns patents on extraction technique. Ges covenants with foreign Alumina Mfgs not to export to US, or to do so under restrictions. During relvant periods, produced btwn 80-90% of virgin ingot
CT: Violation of §2 Sherman. Remand so dist ct can consider whether to dissolve.
Market Share: 33% not monopoly, 64% uncertain, 90%+ monopoly
Market Power: ability to dictate price & quantity in the market
Don’t count secondary ingots made from remanufactured finished goods that were made from ALCOA ingots. Although it competes on substantially equal terms w/ virgin ingot for most purposes, it ultimately comes from ALCOA (& it always knew this).
Include ingot ALCOA fabricates for itself b/c it would otherwise be buying it on the market.
Don’t include foreign ingot b/c, due to tariffs & quotas, it can’t really compete in the same way.
Policy: View of Sherman Act as protecting small businesses & preventing great aggregations of wealth in a few people.
Inefficient production/distribution of goods & services: monopoly pricing steals consumer surplus & then spends most of it just trying to keep the monopoly.
Social cost of lost resources of competitors as they exist market, etc.
Book: One way to calculate market power is (P-MC)/P. Higher it is, more market power. Courts don’t do this b/c you can’t realistically calculated MC.
Note: Modern view tends to include secondary products.
So…inverse relationship between elasticity of demand/supply & market power: if supply is highly elastic, firms will enter upon price increase. If demand is, customers will leave mkt.
Merger Guidelines – Defining relevant market
FTC: Take a hypothetical monopolist what will happen in response to a small non-transitory price increase (say…5%). See what other products consumers would switch to (or what other geographic areas they’d be willing to go to) in response. Keep doing that until a hypothetical monopolist would find it unprofitable to increase prices. Include each product in the relevant market.
( Assumes no price discrim)
Geographic market is roughly the same, except it assumes that unaffected buyers won’t purchase product and resell to affected ones at a price lower than monopolist charges.
IF purchasers would go elsewhere, include that area in the region. Keep doing until monopolist would find price increase profitable.
Supply response: include in relevant market firms that aren’t currently producing in it as “uncommitted entrants” if supply response is: (1) likely to occur within 1 year, (2) occur without significant entry/exit costs, (3) in response to small/signif/untrans price increase.
DuPont: produces 75% of all cellophane. Cellophane is less than 20% of all flexible packaging material.
No monopoly power (based on relevant market)
Relevant market: all flexible packaging materials.
(1) purpose of product: All same general purpose.
(2) substitutes that serve same function:
Court focuses on cross-elasticity of demand. Commodities that are reasonably interchangeable make up the “part of the trade or commerce,” monopolization of which Sherman §2 makes unlawful.
Book/Prof: Cellphane fallacy: assumption that high-elasticity of demand at the current price means no monopoly power, without asking whether the current price is a monopoly price. This is b/c profit max price is always at an area of high elasticity.
Relevant product market: See what other products customers will turn to if price increase. Add those. Assume monopolist control over that market. Assume price increase. Add substitutes. Keep doing until none left à relevant market.
Don’t include complementary goods (goods whose price drops when price of the product you’re looking at raises).
IE: cars & oil
in film (CT: Monopoly), 64-90% of camera market. Also does color print paper, photofinishing/services/equiptment. Kodak introduces 110 film format & said it was better than others, and at the same time, produces camera for it.
P: Non-disclosure of the specifications of the film (prior to release), together with simultaneous release of film & camera, was an attempt to leverage its film monopoly into the camera market.
CT: (1) monopolist isn’t required to disclose advance innovations (you should be able to reap the reward for innovating), (2) no basis for liability that sale of new film encouraged purchase of new camera, (3) restriction of film to 110 form may have been unjustified, but there’s no evidence that P was injured by it.
Use of monopoly power in one market to gain competitive advantage in another can violate § 2 (rejected by S.Ct.). Here, can’t penalize for using a good marketing technique: ability to sell camera & film together was just an advantage of integration.
Assuming § 2 was violated, P will have to prove that some consumers who would have bought its cameras didn’t b/c the new film was only available in 110 format; failed to do that.
For monopoly conduct to occur, D’s competitive advantage has to come about through use of monopoly power.
It’s OK in most circumstances, for a monopolist to follow standard business practices.
Communications, Inc: For market leveraging claim under §2 to work ,you’d have to show that there’s a dangerous probability of success in monopolizing the second market.
CA Computer Products v. IBM Corp. P makes peripheral devices that attach to IBM CPUs. IBM begins integrating computers. P is saying this cut off the peripheral market.
CT: No. Firm can integrate products if it wants.
IBM can redesign to make its products more attractive & efficient, etc.
IBM has no duty to help peripheral mfgs suvive/expand.