The Role of Market Power in Statutory Antitrust Offenses

• Pages: 13-34

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CHAPTER II

THE ROLE OF MARKET POWER IN

STATUTORY ANTITRUST OFFENSES

The economic concept of market power plays a significant role in the

analysis of potentially anticompetitive conduct under the antitrust laws.

Courts have tailored the analysis of market power to fit the differing

demands of various antitrust statutes. This Chapter explores the

fundamental role that market power plays under each of the primary

federal antitrust laws.

A. Market Power Under Section 1 of the Sherman Act

Sherman Act Section 1 provides that “[e]very contract, combination

in the form of trust or otherwise, or conspiracy, in restraint of trade or

commerce among the several States . . . is declared to be illegal.”1

However, because every agreement restrains trade to some degree, the

Supreme Court has interpreted Section 1 to reach only concerted activity

between separate entities that unreasonably restrains competition.2 As

explained more fully below, the analysis of market power in Section 1

cases is often integral to the court’s assessment of whether a defendant’s

conduct unreasonably restrains trade by, for example, raising prices,

restricting output, or impairing consumer choice.3 However, the role of

market power varies significantly between per se and rule of reason

cases.

1. 15 U.S.C. § 1.

2. In Standard Oil Co. v. United States, 221 U.S. 1, 58-60 (1911), the Court

concluded that it was not Congress’ intention to prohibit contracts that

impose insignificant restraints of trade, but only those that

“unreasonably” restrain competition.

3. See, e.g., United States v. Visa U.S.A., Inc., 344 F.3d 229, 238 (2d Cir.

2003) (holding that a plaintiff “must demonstrate that the defendant

conspirators have ‘market power’ in a particular market for goods or

services”); Sullivan v. NFL, 34 F.3d 1091, 1096-97 (1st Cir. 1994)

(“Anticompetitive effects . . . are usually measured by a reduction in

output and an increase in prices in the relevant market.”).

14 Market Power Handbook

1.

The Role of Market Power in Per Se Cases

The per se rule applies to those practices that are “so plainly

anticompetitive” that they are deemed illegal without analysis of market

power and market effects.4 The most commonly recognized of these per

se offenses are horizontal price fixing, 5 bid rigging, 6 and horizontal

market allocation.7 Although these per se offenses under Sherman Act

Section 1 do not require proof of market power,8 they are nonetheless

strongly influenced by the concept. Both anticompetitive effects and

procompetitive justifications are defined and identified by reference to

actual or expected price and output effects.9 In this way, the economic

4. See Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 692

(1978). In Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49-51,

58-59 (1977), the Supreme Court made it clear that the per se rule is a

“demanding standard” and that any departure from the rule of reason

must be based on “demonstrable economic effect rather than . . . upon

formalistic line drawing.” However, historically, courts have found per se

violations even for conduct that may benefit consumers. For example,

maximum price restraints may limit the prices consumers pay, yet were at

one time viewed as per se illegal. See, e.g., Albrecht v. Herald Co., 390

U.S. 145 (1968) (finding vertical maximum price fixing per se illegal).

Courts have moved away from this in more recent cases. See, e.g., Leegin

Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (holding

all vertical price restraints are judged by the rule of reason and

overturning the former per se treatment from Dr. Miles Med. Co. v. John

D. Park & Sons Co., 220 U.S. 373 (1911)); State Oil Co. v. Khan, 522

U.S. 3, 10 (1997) (finding “most antitrust claims are analyzed under a

rule of ‘reason’” and overturning the holding from Albrecht v. Herald Co.,

390 U.S. 145 (1968), that maximum resale price maintenance was per se

illegal).

5. See, e.g., United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223

(1940).

6. See, e.g., United States v. Heffernan, 43 F.3d 1144, 1145-46 (7th Cir.

1994); United States v. Reicher, 983 F.2d 168, 170 (10th Cir. 1992);

United States v. Koppers Co., 652 F.2d 290, 294 (2d Cir. 1981); United

States v. Bensinger Co., 430 F.2d 584, 589 (8th Cir. 1970).

7. See, e.g., Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49-50 (1990).

8. See NCAA v. Bd. of Regents, 468 U.S. 85, 109-10 (1984).

9. See NCAA, 468 U.S. at 114-15 (finding that many more games would be

televised in a free market than under the NCAA plan); Jefferson Parish

Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 31 (1984) (finding “no evidence

that the price, the quality, or the supply or demand . . . has been adversely