The Current Approach to Unlawful Monopolization

Antitrust policy has long been plagued by the problem of continued dominance1 of an industry by a single firm which has obtained its position bylawful means. Traditional judicial interpretations of the offense of mono- polization under section 2 of the Sherman Act2 have focused on the presence or absence of predatory or exclusionary tactics in obtaining or retaining monopoly power.5 To be sure, it has been argued that Judge Hand’s opinion in Alcoa4 comes very close to suggesting that a firm may be found to have monopolized unlawfully a market simply by maintaining monopoly power for a period of time substantial enough to indicate that market forces by themselves will be unable to undo the firm’s dominant position.5 But the most recent U.S. Supreme Court definition of the offense appears to reject this purely structural approach and to continue to require the presence of abusive conduct before finding unlawful monopolization.

As the law is currently interpreted, dominance does not constitute a sec- tion 2 violation if the structure of the industry is attributable to “a superior product, business acumen, or historic accident.”142 143 A superior product presumably implies a patent monopoly or a cost advantage attributable to scale economies. These are not matters of principal concern here. That dominance due to business acumen or historic accidents should be outside the ambit of section 2 is, however, open to dispute. Indeed, it will be argued that to regard these cases as exempt from section 2 scrutiny is not only unwarranted, but has had the effect of obfuscating legitimate issues and perversely constraining the enforcement agencies to rely on conduct offenses in dealing with the dominant firm industries. Since it is widely felt that dominance ought not to be permitted to continue indefinitely,6 this has frequently resulted in antitrust suits being brought against these firms on grounds which bear little relation to the structural condition in question.

The implicit assumption in the conduct approach to unlawful mono- polization is that competition works —at least in the limited sense that, absent deliberate impairment of competition, actual and potential business competitors can be relied upon to perform self-policing functions by re- sponding appropriately to opportunities for private gain. Except for cir- cumstances in which economies of scale are large in relation to the market (the “natural monopoly” situation) or where the government itself protects a monopoly through the patent system, persistent dominance of an industry by a single firm is not to be expected.

The position taken here is that while considerations of fair play are not to be neglected, the conclusion that structure will take care of itself relies too greatly on average tendencies. That strong competitive instincts normally obtain and that concatenations of chance events do not ordinarily result in dominance are both conceded. But aberrations can and will appear and the implied time horizon for self-policing to be efficacious may be unacceptably long.10 Indeed, the concession by the Court that business acumen and historic accident may contribute to dominance suggests that competition may not operate smoothly and reveals a possible contradiction between the actual market factors responsible for dominance and the alleged conduct offenses on which dominant firm complaints rest.

Source: Williamson Oliver E. (1975), Markets and hierarchies: Analysis and antitrust implications, A Study in the Economics of Internal Organization, The Free Press.

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