Single Firm Conduct

The previous chapter provided an overview of the application of
Section 1 of the Sherman Act to horizontal agreements among
competitors. This chapter first explains how a single firm acting
unilaterally or with others may harm competition through exclusionary
conduct and then summarizes the proscription of price discrimination by
a single firm under the Robinson-Patman Act.
A. Monopolization
Monopolization is prohibited by Section 2 of the Sherman Act. Mere
size is not illegal, however. A violation requires (1) possession of
monopoly power in the relevant market and (2) the willful acquisition
and maintenance of that power as distinguished from growth or
development resulting from historical accident, business skill, or a
superior product or service. Determining whether a violation has
occurred generally requires a searching fact inquiry under the rule of
reason. Moreover, when private plaintiffs assert monopolization claims,
they must demonstrate that the anticompetitive conduct at issue resulted
in an “antitrust injury,” rather than some other type of harm to the
Energy utilities have been viewed traditionally as natural
monopolies, and thus granted the exclusive right to serve a defined
territory subject to regulatory oversight by state utility commissions. So
long as the utility was subject to active state supervision, its conduct
generally was immune from antitrust scrutiny under the state action
immunity doctrine. Deregulation, however, brings with it a
corresponding loss of this protective immunity. As deregulation
progresses, claims of abuse of monopoly power may become
increasingly common, both as a means for challenging efforts of
traditional suppliers to retain or expand market share, and for contesting
new arrangements to market energy and energy services.
. 15 U.S.C. § 13.
. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 48889
72 Energy Antitrust Handbook
Possession of Monopoly Power in the Relevant Market
Market share often is used as a proxy or first screen to determine if a
party possesses market power. The precise market share required has not
been specified by the Supreme Court, but “lower courts generally require
minimum market share of between 70 percent and 80 percent.”
market share below 50 percent generally is insufficient to establish
market power.
In regulated industries, in which an entity’s market share
may result from regulation, rather than conduct in the marketplace, some
courts have held that market share i s not as good an indicator of market
power as in other industries, and may overstate the ability of a party to
control prices and reduce output.
Market share is useful only as a first step in analyzing whether
market power exists. In determining the necessary market share, a court
will examine a series of market characteristics, including the size and
strength of competitors, barriers to entry, the degree of concentration,
profit l evels, and whether the market share of the challenged party has
increased in recent times.
In the coal industry, for example, to determine
. Colorado Interstate Gas Co. v. Natural Gas Pipeline Co., 885 F.2d 683,
694 n.18 (10th Cir. 1989); see also E.I. du Pont de Nemours & Co. v.
Kolon Indus., 637 F.3d 435, 45051 (4th Cir. 2011) (market share in
excess of 70 percent warrants inference of market power); Metronet
Servs. Corp. v. U.S. West Comm., 329 F.3d 986, 1003 (9th Cir. 2003)
(stating co urts ge nerally r equire a 65 percent o r greater market share to
establish prima facie market power), vacated on other grounds, 540 U.S.
1147 (2004); Majory Mart v. Mitchell Distributing Co., 46 F. Supp. 3d
639, 661 (S.D. Miss. 2014) (holding 70 percent market share combined
with high b arriers to entry create a question of fact as to the existence o f
monopoly power, which must be resolved by the trier of fact ); In re Educ.
Testing Serv., 429 F. Supp. 2d 752, 756 (E.D. La. 2005) (market share of
greater than 70 percent generally sufficient to establish market power).
. See, e.g., United States v. Dentsply Int’l, 399 F.3d 181, 187 (3d Cir.
2005) (absent other pertinent factors, a share significantly larger than 55
percent has been required to establish prima facie market power); United
States Anchor Mfg. v. Rule Indus., 7 F.3d 986, 1000 (11th Cir. 1993).
. Metronet, 329 F.3d at 1003-04; see also Consolidated Gas Co. v. City
Gas Co., 880 F.2d 297, 300 (11th Cir. 1989), reinstated on reh’g, 912
F.2d 1262 (11th Cir. 1990) (en banc) (per curiam), vacated as moot, 499
U.S. 915 (1991).
. Oahu Gas Serv. v. Pac. Res., 838 F.2d 360, 366 (9th Cir. 198 8);
Natsource LLC v. GFI Grp ., 332 F. Supp. 2d 626, 635 (S.D.N.Y. 200 4)
(even market shares of 50 percent are insufficient to determine market
Single Firm Conduct 73
market share and market concentration, courts have examined coal
reserves, load out, production, and practical capacities.
A static market
share analysis typically must be supplemented by looking at other factors
affecting the parties’ ability to collude or exercise market power. For
instance, in an order on rehearing in AEP Power Marketing Inc.,
Federal Energy Regulatory Commission (FERC) established two
indicative screens for assessing an electric generation supplier’s market
power when the supplier applies to be allowed to establish market-based
rates. The first, called a “pivotal supplier analysis,” focuses on the ability
to exercise market power unilaterally by measuring market power at peak
times. A seller is “pivotal” if demand cannot be met without some
contribution of supply by the seller or its affiliates.
The second screen,
called the “wholesale market share screen,” is an analysis of the seasonal
uncommitted market share of the seller and tests whether the applicant
has coordinated market power. The relevant market share is based on the
number of megawatts of uncommitted capacity in each season owned or
controlled by the seller as compared to the uncommitted capacity of the
entire relevant market for that season.
A seller owning 20 percent or
more of the market’s total uncommitted capacity in a given season fails
the screen.
Both analyses also consider a supplier’s native load
obligations and other commitments.
In 2007 FERC codified these two screens via Order No. 697, which
states: “Sellers that fail either screen will be rebuttably presumed to have
market power.”
Under the order, relevant sellers have the opportunity
to rebut a presumption of market power via a Delivered Price Test (DPT)
power where other factors such as lo w barriers to entry and strong
competition exist).
. FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109, 127-28 (D.D.C. 2004).
. 107 F.E.R.C. ¶ 61,018, 61,054-55 (2004).
. Id. at 61,061.
. Id.
. Id.
. Id. at 61,055; see also W isconsin Pub. Power Inc. v. FERC, 493 F.3d
239, 251 (D.C. Cir. 2007) (independent electricity transmission system
operator created market power mitigation measures that reduced seller
electricity generators bids if the y exceeded certain “conduct” and
“impact” thresholds that were defined in relation to an estimate of the
seller’s marginal costs).
. Order No. 697, Market-Based Rates for Wholesale Sales of Electric
Energy, Capacity and Ancillary S ervices by Public Utilities, 72 Fed. Reg.
39,904, 119 F.E.R.C. ¶ 61,295 (July 20, 2007).

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