Journal Article

Defining Better Monopolization Standards

Elhauge, Einer

2003

Overview

Monopolization doctrine currently uses vacuous standards and conclusory labels that provide no meaningful guidance about which conduct will be condemned as exclusionary. This problem is not solved by proposals to focus on whether the defendant sacrificed short-term profits in order to reap long-run monopoly returns by excluding rivals. Such proposals either implicitly exclude profits that were acquired undesirably-and thus give no meaningful guidance since they leave undefined the criteria for desirability-or include all actual profits-which provides guidance at the cost of condemning highly desirable conduct and failing to condemn highly undesirable conduct. The proper monopolization standard should instead focus on whether the alleged exclusionary conduct succeeds in furthering monopoly power (1) only if the monopolist has improved its own efficiency or (2) by impairing rival efficiency whether or not it enhances monopolist efficiency. Under this standard, which would permit the former conduct and prohibit the latter, a defendant that has increased its own efficiency by investing in its intellectual or physical property should not have a duty to share that property with rivals, but has no privilege to discriminate by offering worse terms to rivals or those who deal with rivals. Such discrimination on the basis of rivalry is not necessary to support optimal ex ante investment incentives, and its success may thus depend not on increasing the value of the property and the efficiency of the monopolist but rather on selectively impairing the efficiency of rivals. Currently vague standards for defining monopoly power can also be improved by realizing that, because monopoly power must be causally connected to exclusionary conduct: (a) the discretionary power that matters is not just a firm's power over its own prices but also a power to influence marketwide prices or impose significant marketwide foreclosure that impairs rival efficiency, and (b) courts demand proof of high market shares not because they provide a more administrable proxy for discretionary power but because shares have independent economic significance in assessing the causal connection. These improved standards for judging exclusionary conduct and monopoly power would not only provide more coherent guidance for lower courts and juries, but better fit and explain the actual pattern of Supreme Court case results.

• Publisher: Stanford University School of Law,Stanford Law School,Stanford University, Stanford Law School
• Subject: Antitrust / Antitrust issue / Antitrust law / Cost efficiency / Defendants / Discretionary power / Efficiency / Interpretation and construction / Market power / Market prices / Market share / Monopolies / Monopoly / Monopoly power / Price cutting / Property rights