Conduct That Increases Market Power Without Lessening Competition: A Challenge for Antitrust Law

• Pages: 391-451
• Date: 01 January 2026
• Published date: 01 January 2026
• Author: Jonathan B. Baker
• Subject Matter: Derecho Público y Administrativo

CONDUCT THAT INCREASES MARKET POWER

WITHOUT LESSENING COMPETITION: A CHALLENGE

FOR ANTITRUST LAW

J B. B*

INTRODUCTION ......................................... 392

I. HOW CONDUCT CAN INCREASE MARKET POWER

WITHOUT LESSENING COMPETITION ................. 397

A. I M P .......................... 397

B. L C ............................. 402

1. An Economic Definition of Lessened Competition ...... 403

2. Applying the Definition of Lessened Competition ....... 405

3. Measuring Competitive Intensity with

Heterogeneous Buyers and Multiple

Competitive Dimensions .......................... 409

4. Focus on Buyer Opportunities Rather than Seller

Opportunities .................................. 411

C. C T I M P ............. 414

1. Increased Market Power Flowing from Lessened

Competition .................................... 414

2. Increased Market Power Without Lessened

Competition .................................... 417

II. INCREASED MARKET POWER DOES NOT

DETERMINE WHETHER CONDUCT VIOLATES

THE ANTITRUST LAWS ............................... 421

A. C T I M P

 L C W V

 A L ............................... 422

* Professor of Law Emeritus, American University Washington College of Law, and Fellow

& Senior Academic Advisor, Thurman Arnold Project, Yale University. The author is indebted to

Daniel Francis, Louis Kaplow, Doug Melamed, Dov Rothman, and Steve Salop.

391

B. C T V  A L

W I M P ................. 430

C. P C T U

C D ........................ 435

III. THE ANTITRUST ANALYSIS OF CONDUCT THAT

INCREASES MARKET POWER WITHOUT

LESSENING COMPETITION ........................... 436

A.

Rambus

,

FoRsyth

,  NyNEX ......................... 436

1. Rambus ....................................... 437

2. Forsyth, Antitrust Injury, and Causation.............. 439

3. NYNEX....................................... 442

B. A L A ..................... 444

1. Finding Violations with Exceptions .................. 445

2. Insulating the Conduct ........................... 450

CONCLUSION ........................................... 451

INTRODUCTION

To obtain market power or increase its exercise, firms often make the next-

best alternative less attractive to buyers. That is most obvious when firms

exclude rivals, for example through conduct that leads rival sellers to raise

their product’s price. It also happens when firms obtain or exercise market

power through coordinated (collusive) conduct with rivals, such as price fix-

ing. Buyers typically consider a product of another coordinating firm to be

their next-best alternative, so a price-fixing agreement usually raises the price

of the next-best alternative for most if not all buyers.

Conduct that lessens competition is defined below as conduct that raises the

next-best alternative product’s price or otherwise makes that alternative less

attractive to a buyer. This definition is appealing because it makes operational

the intuitive concept of relaxing a competitive constraint on prices or other

terms of trade. In addition, it is consistent with common economic under-

standings of the way lessened competition affects market outcomes and harms

the economy.

Lessened competition and increased market power are often connected. In

most antitrust cases, the seller’s exercise of market power (e.g., its higher

price) flows from facing lessened competition to serve many or most buyers

(e.g., because its rivals charge higher prices). Thus, the undesirable outcomes

that are found to violate the antitrust laws are usually the product of a familiar

mechanism: a reduction in the intensity of competition. Lessened competition

and increased market power do not invariably go together, however. They are

not two sides of the same coin.

This article is concerned with one way these concepts could diverge.

It focuses on conduct that increases the exercise of market power without

392 A L J [Vol. 87

lessening competition.1 That possibility is illustrated by five hypothetical

examples that are sketched here and described in more detail below.2 Some are

suggested by past enforcement agency investigations.

1. Learning about demand through merger. A tertiary care hospital

acquires a small community hospital. By reviewing the community hos-

pital’s contracts, the tertiary care hospital learns that large insurers are

less likely to walk away from higher prices than it previously thought.

The tertiary care hospital responds by acting tougher in negotiations

with insurers. Doing so allows the hospital to obtain higher prices for its

tertiary care services.

2. Acquiring firm has different incentives. One pharmaceutical firm con-

tracts with another to buy the rights to produce and sell a drug used

by hospitals to treat a life-threatening condition. To protect its patient-

oriented reputation, the first firm kept the price lower than what a

standalone firm would charge. The new owner is not concerned about

reputational harm and raises the price.

3. Contract for information that facilitates price discrimination. An air-

line with a dominant position serving many routes contracts with a

data broker for information that allows it to infer with more precision

than before the value its frequent flyers place on purchasing specific

flights. It uses that information primarily to increase the price it charges

customers that have a high valuation (willingness to pay), not to lower

the price it charges other customers.

4. Exogenous increase in seller patience in negotiating with buyers.

A seller experiences an unexpected increase in cash flow from other

sources, which reduces the costs of delaying the consummation of a

sale. Its greater patience in negotiating with buyers allows it to obtain

higher prices.

5. Exogenous increase in the ability of firms to price discriminate against

buyers with high willingness to pay. The introduction of security regu-

lations prevents airlines from making tickets transferable, thereby pre-

venting passengers from engaging in airline ticket arbitrage. An airline

responds to its increased ability to discriminate in price primarily by

raising prices to buyers with high willingness to pay.

1 These concepts would diverge in a different way if conduct lessens competition without

increasing market power. That could happen, for example, if a market remains competitive after

the exclusion of some rivals, as with a tariff on widget imports that compete with perfectly com-

petitive domestic widget producers. That possibility is also raised by a buyer cartel purchasing

from a monopoly seller, which is discussed infra, Section II.B. See also infra note 40 (explaining

why lessened competition does not automatically lead to increased market power).

2 Infra Section I.C.2.

2026] C  I M P 393