In
United States antitrust law
In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherman ...
, monopolization is illegal
monopoly
A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
behavior. The main categories of prohibited behavior include
exclusive dealing
In Economics and Law, exclusive dealing arises when a supplier entails the buyer by placing limitations on the rights of the buyer to choose what, who and where they deal. This is against the law in most countries which include the USA, Austra ...
,
price discrimination
Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets. Price discrimination is distinguished from product different ...
, refusing to supply an
essential facility
The essential facilities doctrine (sometimes also referred to as the essential facility doctrine) is a legal doctrine which describes a particular type of claim of monopolization made under competition laws. In general, it refers to a type of an ...
,
product tying
Tying (informally, product tying) is the practice of selling one product or service as a mandatory addition to the purchase of a different product or service. In legal terms, a ''tying sale'' makes the sale of one good (the ''tying good'') to the ...
and
predatory pricing
Predatory pricing is a Pricing strategies, pricing strategy, using the method of undercutting on a larger scale, where a Article 102 of the Treaty on the Functioning of the European Union#Dominance, dominant firm in an industry will deliberately ...
. Monopolization is a
federal crime
In the United States, a federal crime or federal offense is an act that is made illegal by U.S. federal legislation enacted by both the United States Senate and United States House of Representatives and signed into law by the president. Prosec ...
under Section 2 of the
Sherman Antitrust Act of 1890
The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author.
T ...
. It has a specific legal meaning, which is parallel to the "abuse" of a dominant position in
EU competition law
European competition law is the competition law in use within the European Union. It promotes the maintenance of competition within the European Single Market by regulating anti-competitive conduct by companies to ensure that they do not crea ...
, under
TFEU article 102
The Treaty on the Functioning of the European Union (TFEU) is one of two treaties forming the Treaties of the European Union, constitutional basis of the European Union (EU), the other being the Treaty on European Union (TEU). It was previously ...
. Section 2 of the Sherman Act 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
A felony is traditionally considered a crime of high seriousness, whereas a misdemeanor is regarded as less serious. The term "felony" originated from English common law (from the French medieval word "félonie") to describe an offense that resu ...
." Section 2 also forbids "attempts to monopolize" and "conspiracies to monopolize". Generally this means that corporations may not act in ways that have been identified as contrary to precedent cases.
Jurisprudential meaning
Under long-established precedent, the offense of monopolization under Section 2 has two elements. First, that the defendant possesses
monopoly
A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
power in a properly-defined
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, an ...
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
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
, 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
In Economics and Law, exclusive dealing arises when a supplier entails the buyer by placing limitations on the rights of the buyer to choose what, who and where they deal. This is against the law in most countries which include the USA, Austra ...
, 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
Oliver Eaton Williamson (September 27, 1932 – May 21, 2020) was an American economist, a professor at the University of California, Berkeley, and recipient of the 2009 Nobel Memorial Prize in Economic Sciences, which he shared with Elinor Ostro ...
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.
Court and business justification
Monopolization is defined as the situation when a firm with durable and significant market power. For the court, it will evaluate the firm’s market share. Usually, a monopolized firm has more than 50% market share in a certain geographic area. Some state courts have higher market share requirements for this definition. In-depth analysis of the market and industry is needed for a court to judge whether the market is monopolized. If a company acquires its monopoly by using business acumen, innovation and superior products, it is regarded to be legal; if a firm achieves monopoly through predatory or exclusionary acts, then it leads to anti-trust concern. The typical predatory and exclusionary acts include things such as excessive purchase and supply, pricing, refusal to deal. Business can also justify if it is judged to be monopolized by the court (Federal Trade Commission, 2020). For example, business can defense that its business conducts bring merits for consumers. Its monopolist success is sourced from the maintenance and willful acquisition of its power. Its market power comes from historic accidence, business acumen and superior product. Therefore monopolization sometimes lead to debate and disputes.
Example: Microsoft
Microsoft was accused for its monopolization act over competitor IBM. IBM also provides compatible personal computer. While Microsoft used its super-market and market domination in the system to exclude its competitors. Therefore, the other operation system suppliers are prevented from installing their software. Microsoft maintains its dominating in operation system by using Microsoft Internet Explorer, Windows operation system and Internet Explorer. Furthermore, Microsoft granted its users with free license if they used it operating system. It also developed a number of add-on software to make sure that its market share is leading in the industry (Andrew, 2020).
[Andrew. B. (2020). Why did Microsoft face anti-trust charges in 1998. Investopedia. https://www.investopedia.com/ask/answers/08/microsoft-antitrust.asp] Therefore, the court judged that Microsoft acquired its market share by using monopolization.
Notes
References
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*{{Cite journal , last=Schrepel , first=Thibault , year=2017 , title=A New Structured Rule of Reason Approach for High-Tech Markets , journal=Suffolk Law Review , volume=50 , issue=1 , ssrn=2908838
Monopoly (economics)
Competition law
Commercial crimes