Industry Structure and Market Power: The Relevance of the “Relevant Market”

• Author: James W. Brock
• Published date: 01 September 1984
• Date: 01 September 1984
• DOI: http://doi.org/10.1177/0003603X8402900305
• Subject Matter: Article

The Antitrust Bulletin/Fall 1984

Industry structure and

market power: the relevance

of

the "relevant market"

BY JAMES

W.

BROCK*

535

The goal

of

the Sherman Act's antimonopoly strictures is clear.

As articulated by the Supreme Court,

The Sherman Act was designed to be a comprehensive charter

of

economic liberty aimed at preserving free and unfettered competition

as the rule

of

trade.

It

rests on the premise that the unrestrained

interaction

of

competitive forces will yield the best allocation

of

our

economic resources, the lowest prices, the highest quality and the

greatest material progress, while at the same time providing an

environment conducive to the preservation

of

our

democratic politi-

cal and social institutions. I

The immediate objective

of

monopoly jurisprudence, then, is to

determine whether

and

to what extent monopoly power has

subverted impersonal

and

independent competition as

"the

mech-

anism for allocating resources, stimulating

and

determining the

rate

of

innovation, establishing price,

and

establishing the terms

and

conditions for entry

and

exit from markets."?

In carrying

out

this task, however, the courts had to resolve a

vexing technical problem: How were they to measure monopoly

power

and

assay its size

and

shape?

It

was perhaps natural

that,

•Associate Professor in Economics, Miami University, Oxford,

Ohio.

Northern Pac. R. Co. v. United States, 356 U.S.

1,4

(1957).

2J. Flynn, "Monopolization Under the Sherman Act: The Third

Wave and Beyond," 26 Antitrust Bulletin 1, 26 (1981).

©1984 by Federal Legal Publications. Inc.

536 The antitrust bulletin

with the growing pretensions

of

economics to the status

of

an

exact science, the courts eventually turned to economists for

technical assistance in resolving this problem.

It

was also perhaps

natural

that

economists were not reticent in responding to judicial

demands for their expertise. Given the precept

of

conventional

economic theory

that

"a

pure monopoly is said to exist if there is

one, and only one, seller in a well-defined market;") given the

admonition that "monopoly power can exist only in the context

of

arelevant market,":' the Supreme Court, in a landmark case,

declared

that

determination

of

the relevant market is

"a

necessary

predicate" to an evaluation

of

monopoly power,' The threshold

inquiry in monopolization cases thus came to focus on relevant

market analysis: the delineation

of

the product

and

geographic

boundaries

of

the "relevant" market; the computation

of

the

firm's share

of

that

market; and inferences

of

monopoly power

drawn largely on the basis

of

that

share." The outcome

of

C. Ferguson

and

J. Gould, Microeconomic Theory 259 (4th ed.

1975).

4M.

Handler

and

R. Steuer,

"Attempts

to Monopolize

and

No-

Fault

Monopolization," 129 U. Pa. L. Rev. 125, 187 (1980).

5United States v.

E.I.

du

Pont

de Nemours &

Co.,

353 U.S. 586,

593 (1957). This case involved the acquisition

of

General

Motors

stock

by du

Pont,

asupplier

of

fabrics, finishes,

and

paints to

GM.

As such,

it was brought

under

the

antimerger provisions

of

the

Clayton

Act. In

exonerating du

Pont

in the previous year

of

charges

that

the

firm

had

unlawfully monopolized the production

and

sale

of

cellophane, how-

ever, the

Court

had

made

it clear

that

the

relevant market was

of

equal,

and

primary, significance in Sherman Act monopolization cases as well.

See United States v.

E.I.

du

Pont

de Nemours &

Co.

(Cellophane),

351

U.S. 377 (1956).

6Section 2

of

the Sherman Act declares it unlawful to

"monopo-

lize, 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." 26 Stat. 209 (1890),

as amended, 15

U.S.C.A.

§2 (1980). As interpreted by

the

Supreme

Court,

"The

offense

of

monopoly under §2

of

the

Sherman

Act has two

elements:

(I)

the possession

of

monopoly power in the relevant

market

and

(2) the willful acquisition or maintenance

of

that

power as distin-

guished from growth or development as a consequence

of

superior