Monopolization
Encyclopedia
The term monopolization refers to an offense under Section 2 of the American Sherman Antitrust Act
, passed in 1890. Section 2 states that any person "who shall monopolize . . . any part of the trade or commerce among the several states, or with foreign nations shall be deemed guilty of a felony
." Section 2 also forbids "attempts to monopolize" and "conspiracies to monopolize."
Under long-established precedent, the offense of monopolization under Section 2 has two elements. First, that the defendant possesses monopoly
power in a properly-defined market
and second that the defendant obtained or maintained that power through conduct deemed unlawfully exclusionary. The mere fact that conduct disadvantages rivals does not, without more, constitute the sort of exclusionary conduct that satisfies this second element. Instead, such conduct must exclude rivals on some basis other than efficiency.
For several decades courts drew the line between efficient and inefficient exclusion by asking whether the conduct under scrutiny was "competition on the merits." Courts equated such competition on the merits with unilateral conduct such as product improvement, the realization of economies of scale, innovation, and the like. Such conduct was lawful per se, since it constituted the normal operation of economic forces that a free economy should encourage. At the same time, courts condemned as "unlawful exclusion" tying
contracts, exclusive dealing
, and other agreements that disadvantaged rivals. This distinction reflected the economic theory of the time, which saw no beneficial purposes for what Professor Oliver Williamson has called non-standard contracts.
More recently, courts have retained the safe harbor for "competition on the merits." Moreover, the Supreme Court has clarified the standards governing claims of predatory pricing. At the same time, they have relaxed the standards governing other conduct by monopolists. For instance, non-standard contracts that exclude rivals are now lawful if supported by a "valid business reason," unless the plaintiff can establish that the defendant could achieve the same benefits by means of a less restrictive alternative.
Sherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
, passed in 1890. Section 2 states that any person "who shall monopolize . . . any part of the trade or commerce among the several states, or with foreign nations shall be deemed guilty of a felony
Felony
A felony is a serious crime in the common law countries. The term originates from English common law where felonies were originally crimes which involved the confiscation of a convicted person's land and goods; other crimes were called misdemeanors...
." Section 2 also forbids "attempts to monopolize" and "conspiracies to monopolize."
Under long-established precedent, the offense of monopolization under Section 2 has two elements. First, that the defendant possesses monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
power in a properly-defined market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
and second that the defendant obtained or maintained that power through conduct deemed unlawfully exclusionary. The mere fact that conduct disadvantages rivals does not, without more, constitute the sort of exclusionary conduct that satisfies this second element. Instead, such conduct must exclude rivals on some basis other than efficiency.
For several decades courts drew the line between efficient and inefficient exclusion by asking whether the conduct under scrutiny was "competition on the merits." Courts equated such competition on the merits with unilateral conduct such as product improvement, the realization of economies of scale, innovation, and the like. Such conduct was lawful per se, since it constituted the normal operation of economic forces that a free economy should encourage. At the same time, courts condemned as "unlawful exclusion" tying
Tying
Tying is the practice of making the sale of one good to the de facto or de jure customer conditional on the purchase of a second distinctive good . It is often illegal when the products are not naturally related, for example requiring a bookstore to stock up on an unpopular title before allowing...
contracts, exclusive dealing
Exclusive dealing
Exclusive dealing refers to when a retailer or wholesaler is ‘tied’ to purchase from a supplier on the understanding that no other distributor will be appointed or receive supplies in a given area...
, and other agreements that disadvantaged rivals. This distinction reflected the economic theory of the time, which saw no beneficial purposes for what Professor Oliver Williamson has called non-standard contracts.
More recently, courts have retained the safe harbor for "competition on the merits." Moreover, the Supreme Court has clarified the standards governing claims of predatory pricing. At the same time, they have relaxed the standards governing other conduct by monopolists. For instance, non-standard contracts that exclude rivals are now lawful if supported by a "valid business reason," unless the plaintiff can establish that the defendant could achieve the same benefits by means of a less restrictive alternative.