Chapter IV. Monopolizing Conduct

• Pages: 85-133

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CHAPTER IV

MONOPOLIZING CONDUCT

This chapter and the next address one of the most challenging and

unsettled areas of antitrust law: the effort to identify monopolizing

conduct—that is, behavior that is illegal for a firmthat possesses or seeks

to acquire monopoly power. This chapter addresses, at a general level,

the meaning of Section 2’s conduct element and the policies and tests

that courts and commentators have considered in identifying unlawful

monopolizing conduct. Chapter V reviews how the courts have

addressed discrete types of conduct such as unilateral refusals to deal,

exclusive dealing, bundled discounts, and others. For purposes of

comparison, both chapters include limited discussion of the law in

jurisdictions other than the United States.

A. Lawful and Unlawful Monopoly: Statutory Coverage

Briefly set forth below is a description of settled parameters as to

Section 2’s scope. The chapter then addresses more unsettled questions

concerning what monopolizing conduct means.

1. Unlawful Conduct: A Question of Terminology

The controversy over Section 2’s conduct element begins with what

to call it. Many use “exclusionary” as a synonym for conduct that

unlawfully monopolizes,1although others use that term in a broader

sense to include activity that is not necessarily illegal.2Some cases and

1. See, e.g., Mark S. Popofsky, Defining Exclusionary Conduct: Section 2,

the Rule of Reason, and the Unifying Principle Underlying Antitrust

Rules,73A

NTITRUST L.J. 435, 438 n.16 (2006).

2. See HERBERT H. HOVENKAMP,FEDERAL ANTITRUST POLICY:THE LAW

OF COMPETITION AND ITS PRACTICE 271 (3d ed. 2005) (defining

“exclusionary” as “a practice that deters potential rivals from entering the

monopolist’s market, or existing rivals from increasing their output in

86 Monopolization and Dominance Handbook

commentators refer to illegal conduct as behavior that is “predatory or

exclusionary.”3In common antitrust parlance, a “predatory” practice is

one that involves a sacrifice of short-term profits in order to exclude a

competitor.4Many urge, however, that some serious violations of

Section 2 may involve (relatively) little cost to the monopolist, and may

be profitable immediately, not after some interval of predatory

investment.5Others argue that profit sacrifice ought to be a key

ingredient in a finding of monopolization.6

To avoid these semantic issues, this Handbook generally employs

“monopolizing” to mean conduct that, in violation of Section 2,

unlawfully allows a firm to gain, maintain, or extend monopoly power.7

2. Monopoly Power and Exploitation of Monopoly Power Not Per

Se Illegal in the United States

It has long been accepted in the United States that monopoly power,

no matter how it is acquired, can lead to undesirable effects: wealth

transfer from consumers to producers and allocative inefficiency (output

limitation).8Moreover, where monopolists face little competitive

response to the monopolist’s price increase” and recognizing that not all

exclusionary conduct, as so defined, should be condemned).

3. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585,

602 (1985) (using the two as synonyms); Susan A. Creighton, D. Bruce

Hoffman, Thomas G. Krattenmaker & Ernest A. Nagata, Cheap

Exclusion,72A

NTITRUST L.J. 975, 976 n.6 (2005) (“We generally use the

term ‘exclusion,’ but also use ‘predation’ interchangeably.”).

4. See Covad Commc’ns Co. v. Bell Atl. Corp., 398 F.3d 666, 676 (D.C.

Cir. 2005).

5. See, e.g., Creighton et al.,supra note 3.

6. See part C.3.d.(3) of this chapter for a further discussion.

7. Section 2 of the Sherman Act provides, in relevant part, “[e]very person

who shall monopolize, or attempt to monopolize, or combine or conspire

with any other person or persons, to monopolize any part of the trade or

commerce among the several states, or with foreign nations, shall be

deemed guilty of a felony . . . .” 15 U.S.C. § 2. Thus, liability turns on a

single statutory term, the verb “to monopolize.”

8. See, e.g., Standard Oil v. United States, 221 U.S. 1, 52 (1911) (“The evils

which led to the public outcry against monopolies and to the final denial

of the power to make them may be thus summarily stated: (1) The power

which the monopoly gave to the one who enjoyed it, to fix the price and

thereby injure the public; (2) The power which it engendered of enabling

a limitation on production; and (3) The danger of deterioration in quality

Monopolizing Conduct 87

pressure, monopoly power can lead to inefficiency in production, loss of

innovation, and passivity.9As the economist J.R. Hicks put it, “[t]he best

of all monopoly profits is a quiet life.”10

On the other hand, as modern cases recognize, in orderto “promote[]

the consumer interests that the Sherman Act aims to foster,” it is

important not to “dampen the competitive zeal of a single aggressive

entrepreneur.”11 Thus, “an efficient firm may capture unsatisfied

customers from an inefficient rival, whose own ability to compete may

suffer as a result,” without necessarily violating Section 2.12 Indeed,

monopoly power “is an important element of the free-market system.

The opportunity to charge monopoly prices—at least for a short period—

induces risk taking that produces innovation and economic growth.”13

Accordingly, it is fundamental that the mere “possession of

monopoly power will not be found unlawful unless it is accompanied by

an element of anticompetitive conduct.”14 U.S. courts and commentators

of the monopolized article which it was deemed was the inevitable

resultant of the monopolistic control over its production and sale.”). See

Chapter II for a discussion of the economic rationale behind

antimonopoly law and policy.

9. See, e.g., United States v. Aluminum Co. of Am. (Alcoa), 148 F.2d 416

(2d Cir. 1945):

Many people believe that possession of unchallenged economic

power deadens initiative, discourages thrift and depresses

energy; that immunity from competition is a narcotic, and

rivalry is a stimulant, to industrial progress; that the spur of

constant stress is necessary to counteract an inevitable

disposition to let well enough alone. Such people believe that

competitors, versed in the craft as no consumer can be, will be

quick to detect opportunities for saving and new shifts in

production, and be eager to profit by them.

Id. at 428. See Chapter II.C for further discussion of the welfare

effects of monopoly power.

10. J.R. Hicks, Annual Survey of Economic Theory: The Theory of Monopoly,

3E

CONOMETRICA 1, 8 (1935).

11. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767, 768

(1984).

12. Id. at 768.

13. Verizon Commc’ns v. Law Offices of Curtis V. Trinko, 540 U.S. 398,

407 (2004).

14. Id.;see also United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)

(recognizing that mere monopoly power, without more, is not a violation

of § 2); United States v. Int’l Harvester, 274 U.S. 693, 753-54 (1927)