How does a Court Address Illegal Monopoly Power? Once 123 Corp is defunct, ABC Corp will raises prices again. ABC can withstand the losses until 123 Corp is forced out of business. ABC's objective is to take all sales from 123 Corp. ABC Corp drops its price to below its average variable cost and thus takes a loss on each sale. Proving a predatory pricing case requires a demonstration of a competitors predatory pricing purpose and the dangerous probability that the competitor will recoup those loses by raising prices after other firms are driven out of the market.Įxample: ABC Corp sells the same product as 123 Corp. The Sherman Act 2 makes such conduct illegal per se. The low price is used to force competitors out of the market. Predatory pricing exists where one competitor prices a product arbitrarily low in an effort to monopolize a market. What is Monopoly Power through Predatory Pricing? In such a case, the court would employ the rule of reason to determine legality. If, however, ABC and 123 are the only sellers of smartphones in the US, failing to serve as a component supplier to 123 Corp may be anticompetitive. The refusal to deal with competitors is generally permissible. ABC refuses to sell components to 123 Corp, which sells cell phones. A plaintiff challenging the refusal must demonstrate the anticompetitive effects and the presence of monopoly power.Įxample: ABC Corp sells cell phones and electronic components. Note: There is a general presumption that a refusal to deal is legal. Generally, the refusal must be part of a scheme intended to result in increased market power for the company. There are, however, exceptions to this rule when a refusal to deal has no valid business justification and the refusal is economically harmful to market competition in the long run. Generally, there is no duty for a competitor to deal with other competitors. What is Monopoly Power through Refusing to Deal?Īcquiring monopoly power in a market may be illegal under Sherman Act 2 if such power is obtained through refusal to deal with competitors. This causes a lack of secondary market for this type of equipment and provides ABC with monopoly power in the market. Requiring long-term leases or foreclosing a secondary market by leasing and not selling a product are examples of exclusionary acts.Įxample: ABC Corp has proprietary machinery that it will only lease (rather than sell) to customers. What is Monopoly Power through Mandatory Leasing? What is Monopoly Power by Forced Acquisition?įorcing a competitor to sell its business to you to eliminate competition Įxample: Threatening a price war and market blacklisting if a company does not agree to be purchased. Note: This practice may also run afoul of 1. Tying the sale of one product to the purchase of a separate product What is Monopoly Power through Tying Relationships? What is Monopoly Power by Exclusive Sales Agreement?Įnforcing agreements with suppliers requiring them not to sell to your competitors: Note: This does not exclude material purchases that have an operational or financial objective that is not anticompetitive.Įxample: Buying up all raw material, particularly when a quantity is not needed or will go to waste, in an attempt to cause shortages with other competitors may be anticompetitive. Examples of anticompetitive, exclusionary acts may include: What is Monopoly Power by Closing Off Resources?īuying up raw materials (especially if you do not need them) to the exclusion of other competitors If a competitor undertakes an anticompetitive act that harms the competitive process in the market (not just a single competitor in the market), that act is illegal. Monopoly power obtained through an exclusionary act is prohibited. ![]() Next Article: What is the Clayton Act? Back to: ANTITRUST LAW Types of monopoly power that are Illegal under the Sherman Act?īelow are some common examples of monopoly power obtained through anticompetitive means: What is Monopoly Power through an Exclusionary Act? Obtaining such market power is illegal when it is the result of some act or series of actions that have an anticompetitive effect in the market. Simply possessing monopoly power is fine if such power results from a superior product, better processes, stronger business acumen, or other form of competitive advantage. ![]() The Sherman Act 2 makes illegal the willful acquisition or maintenance of monopoly power in a relevant market when such power is the result of something other than pure competition. ![]() What is a Monopoly under the Sherman Act?
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