Accounting for Regulation in Determining the Application of Antitrust Rules to Firms Subject to Public Utility Oversight

• Author: William E. Kovacic
• DOI: 10.1177/0003603X9504000302
• Published date: 01 September 1995
• Date: 01 September 1995
• Subject Matter: Vertical Integration by Local Telephone Companies: Economics, Law and Politics

The Antitrust Bulletin/Fall I995

Accounting for regulation

in

determining the application

of

antitrust rules to firms subject to

public

utility oversight

BY WILLIAM E. KOVACIC*

I.

Introduction

483

Firms subject to public utility regulation are common targets of

litigation under the federal antitrust laws. Telecommunications

carriers

and

electric

utilities,

for

example, routinely

confront

antitrust challenges to pricing practicesIand the terms

of

access to

*

Professor,

George

Mason

University

School

of

Law,

and

Of

Counsel to Bryan Cave, Washington, DC.

AUTHOR'S NOTE: The author gratefully acknowledges the financial sup-

port

of

the Center for Law and Economics

of

the George Mason Univer-

sity School

of

Law in the preparation

of

this article.

See Alexander C. Larson &William E. Kovacic, Predatory Pric-

ing Safeguards in Telecommunications Regulation: Removing Impedi-

ments to Competition, 35 ST. LOUIS U. L.J. 1 (1990).

©1995 by Federal Legal Publications. Inc.

484

The antitrust bulletin

utility-owned "essential facilities."> Over the past 25 years, few

significant

regulated firms have

not

spent

time

in an

antitrust

courtroom.

The operation

of

public utility regulatory controls often fig-

ures prominently in the resolution

of

antitrust claims against regu-

lated firms. Among other issues, defendants in these proceedings

often assert that far-reaching regulatory controls adequately check

efforts by regulated firms to respond to rival companies in ways

that reduce consumer welfare.' Antitrust courts traditionally have

defined

monopoly

power

as

the

ability

to

"control

prices

or

exclude

competitors."4 At least in principle,

public

regulatory

oversight

denies the regulated

firm

power

to

control

prices

or

exclude rivals." Thus, defendants argue, regulation renders impos-

sible the attainment or exploitation

of

monopoly power that the

Sherman Act's ban on monopolization and attempted monopol-

2See

William

E.

Kovacic,

The Antitrust Law

and

Economics

of

Essential Facilities in Public Utility Regulation, in

ECONOMIC

INNOVA-

TIONS

IN

PUBLIC

UTILITY

REGULATION

1

(Michael

A.

Crew,

ed.,

1992);

Alexander

C.

Larson,

William

E.

Kovacic

&

Douglas

R.

Mudd,

Competi-

tive Access Issues and Telecommunications Policy, 20 J.

CONTEMP.

L.

419

(1994).

The

constraining

influence

of

public

utility

regulation

was

acen-

tral

issue

in

private

challenges

to

AT&T's

pricing

and

interconnection

policies.

See

Southern

Pacific

Communications

Co. v.

AT&T

Co.,

740

F.2d

980

(D.C.

Cir.

1984),

cert. denied,

470

U.S.

1005

(1985);

MCI

Communications

Corp.

v,

AT&T

Co.,

708

F.2d

1081

(7th

Cir.),

cert.

denied,

464

U.S. 891 (1983).

4

United

States

v. E.!.

duPont

de

Nemours

&Co., 351 U.S.

377,

391

(1956).

For

discussions

of

the

tools

by

which

public

regulatory

bodies

pursue

these

ends,

see

Sanford

V.

Berg

&

John

Tschirhart,

NATURAL

MONOPOLY

REGULATION:

PRINCIPLES

AND

PRACTICE

(1988);

Ronald

R.

Braeutigam,

Optimal Policies for Natural Monopolies, in 1

HANDBOOK

OF

INDUSTRIAL

ORGANIZATION

ECONOMICS

1290

(Richard

Schmalensee

&

Robert

D.

Willig,

eds.,

1989);

Jean-Jacques

Laffont

&

Jean

Tirole,

A

THEORY

OF

INCENTIVES

IN

PROCUREMENT

AND

REGULATION

(1993).