Assessing Market Power

• Pages: 157-179

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CHAPTER III

ASSESSING MARKET POWER

Antitrust law is principally concerned with conduct that poses a

sufficient threat to competition and consumer welfare. Absent some

material degree of market power, firms cannot adversely affect the

competitive process.1 Thus, before unilateral conduct, concerted action,

or a proposed merger can be condemned under antitrust law, the relevant

firms must be shown to possess sufficient market power such that their

conduct might harm, lessen or destroy competition.2

A. Market Power, Monopoly Power, and Market Definition

The standard for defining market power may differ depending on the

violation alleged. For cases alleging unlawful agreements under Section 1

of the Sherman Act, other than those to which the per se rule applies, the

market power requirement is generally defined as “the ability to raise

prices above those that would be charged in a competitive market.”3 A

similar standard applies in determining under Section 7 of the Clayton Act

whether a merger will “create, enhance, or entrench market power or to

facilitate its exercise.”4

1. See generally 1 JOHN MILES, HEALTH CARE AND ANTITRUST LAW § 5:3

(2008).

2. See, e.g., Walker Process Equip. v. Food Mach. & Chem., 382 U.S. 172,

177 (1965).

3. NCAA v. Board of Regents, 468 U.S. 85, 109 n.38 (1984); accord

Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 27 n.46 (1984)

(“market power exists whenever prices can be raised above the levels that

would be charged in a competitive market”). Section 1 cases, which

involve conduct, such a s price fixing, conde mned under per se stand ards

“are so plainly anticompetitive that no elaborate study of the industry is

needed to establish their illegality.” Nat’l Soc’y of Prof’l Eng’rs v. United

States, 435 U.S. 679, 692 (1978).

4. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER

GUIDELINES § 0.1 (2010) [hereinafter 2010 HORIZONTAL MERGER

GUIDELINES] (“A merger enhances market power if it is likely to encourage

one or more firms to raise price, re duce output, diminis h innovation, or

otherwise harm customers as a result of diminished competitive constraints

158 Pharmaceutical Industry Antitrust Handbook

To establish unlawful monopolization under Section 2 of the Sherman

Act, proof of “monopoly power” is required, which is “something greater

than market power under § 1.”5 A traditional formulation of the enhanced

requirement for Section 2 defines monopoly power as “the power to

control prices or exclude competition.”6 Put another way, monopoly

power can be viewed as “the power to charge a price higher than the

competitive price without inducing so rapid and great an expansion of

output from competing firms as to make the supracompetitive price

untenable.”7

The analysis of monopoly power and market definition is also context-

sensitive. As the First Circuit noted in U.S. Healthcare v. Healthsource,8

“the nature of the claim can affect the proper market definition,” and

“rational treatment is assisted by remembering to ask, in defining the

market, why we are doing so: that is, what is the antitrust question in this

case that market definition aims to answer?”9

The prescription drug industry has special characteristics that play an

important role in the analysis of market power. The interplay between

federal regulation, a unique patent protection scheme, the competitive

dynamics between prescription and generic drugs and the control over

purchasing decisions exercised by physicians and third-party payors

complicates the analysis of market power for these products. The

following discussion focuses on two broad categories in which the

or incentives. In eval uating how a merger will likely change a fir m’s

behavior, the Agencie s focus primarily on how the merger affects conduct

that would be most profitable for the firm.”).

5. It’s My Party v. Live Nation, 88 F. Supp. 475, 499 (D. Md. 2015); see also

Reazin v. Blue Cross & Blue Shield of Kan., 899 F.2d 951, 966 (10th Cir.

1990) (defining monopoly power as “substantial market power”);

Deauville Corp. v. Federated Dep’t Stores, 756 F.2d 1183, 1192 n.6 (5th

Cir 1985) (defining monopoly power as an “extreme degree of market

power”).

6. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956).

7. In re Lorazepam & Clorazepate Antitrust Litigation, 467 F. Supp. 2d 74,

86 (D.D.C. 2006) (“A firm is generally considered to have monopoly

power if it can profitably raise prices substantially above the competitive

level for a non-transitory period of time.”); Harrison Aire, Inc. v. Aerostar

Int’l, 423 F.3d 374, 380 (3d Cir. 2005) (citation omitted); United States v.

Microsoft, 253 F.3d 34, 51 (D.C. Cir. 2001) (en banc) (per curiam) (“[A]

firm is a monopolist if it can profitably raise prices s ubstantially above the

competitive level.”).

8. 986 F.2d 589 (1st Cir. 1993).

9. Id. at 598.