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COMPETITION
AND
MONOPOLY:

SINGLE-FIRM CONDUCT UNDER
SECTION 2 OF THE SHERMAN ACT

U.S. Department of Justice

DOJ Seal

2008

COMPETITION AND MONOPOLY:

SINGLE-FIRM CONDUCT UNDER
SECTION 2 OF THE SHERMAN ACT

DOJ Seal Black and White

ISSUED BY THE
U.S. DEPARTMENT OF JUSTICE

SEPTEMBER 2008




This report should be cited as:

U.S. Dep't of Justice, Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act (2008).

This report can be accessed electronically at:

www.usdoj.gov/atr/public/reports/236681.htm

Table of Contents

EXECUTIVE SUMMARY

INTRODUCTION

Chapter 1: SINGLE-FIRM CONDUCT AND SECTION 2 OF THE SHERMAN ACT: AN OVERVIEW

  1. The Structure and Scope of Section 2
    2.

    1. Monopolization

    2. Attempted Monopolization

  2. The Purpose of Section 2 and Its Important Role in Sound Antitrust Enforcement

  3. Principles that Have Guided the Evolution of Section 2 Standards and Enforcement

    1. The Monopoly-Power Requirement

    2. The Anticompetitive-Conduct Requirement

    3. Assaults on the Competitive Process Should Be Condemned

    4. Protection of Competition, Not Competitors

    5. Distinguishing Competitive and Exclusionary Conduct Is Often Difficult

    6. Concern with Underdeterrence and Overdeterrence

    7. The Importance of Administrability when Crafting Liability Standards Under Section 2

  4. Conclusion

Chapter 2: MONOPOLY POWER

  1. Introduction
    2.

  2. Market Power and Monopoly Power

  3. Identifying Monopoly Power

    1. Market Shares

      1. Courts Typically Have Required a Dominant Market Share to Infer Monopoly Power
        2.

      2. Significance of a Dominant Market Share

      3. Market-Share Safe Harbor

    2. Durability of Market Power

  4. Market Definition and Monopoly Power

  5. Other Approaches to Identifying Monopoly Power

    1. Direct Evidence of High Profits, Price-Cost Margins, and Demand Elasticity

    2. Direct Evidence of Anticompetitive Effects

  6. Conclusion

Chapter 3: GENERAL STANDARDS FOR EXCLUSIONARY CONDUCT

  1. Introduction
    2.

  2. Allocation of Burdens of Production and Proof

  3. Proposed General Standards

    1. Effects-Balancing Test

    2. Profit-Sacrifice and No-Economic-Sense Tests

    3. Equally Efficient Competitor Test

    4. Disproportionality Test

  4. Conclusion

Chapter 4: PRICE PREDATION

  1. Predatory Pricing
    2.

    1. Introduction

    2. Background

    3. Analysis

      1. Frequency of Predatory Pricing

      2. Above-Cost Pricing

      3. Appropriate Measure of Cost

        1. Analytical Considerations

        2. Average Total Cost

        3. Measures of Incremental Cost

        4. Emerging Consensus Support for Average Avoidable Cost

      4. Recoupment

      5. Potential Defenses

        1. Meeting Competition

        2. Efficiency Defenses

      6. Equitable Remedies

    4. Conclusion

  2. Predatory Bidding

Chapter 5: TYING

  1. Introduction

  2. Background

  3. Analysis

    1. Potential Anticompetitive Effects

      1. Monopolizing the Tied-Product Market

      2. Maintaining a Monopoly in the Tying-Product Market

    2. Potential Procompetitive Effects

    3. Price Discrimination

    4. Technological Ties

    5. Tying Should Not Be Per Se Illegal

  4. Conclusion

Chapter 6: BUNDLED DISCOUNTS AND SINGLE-PRODUCT LOYALTY DISCOUNTS

  1. Bundled Discounts

    1. Introduction

    2. Background

    3. Analysis

      1. Theories of Competitive Harm

      2. Potential Procompetitive Benefits

      3. Safe Harbors

        1. The Total-Bundle Predation-Based Safe Harbor

        2. The Discount-Allocation Safe Harbor

      4. Analysis of Bundled Discounts Falling Outside a Safe Harbor

    4. Conclusion

  2. Single-Product Loyalty Discounts

    1. Introduction

    2. Background

    3. Analysis

      1. Predatory-Pricing Analysis

      2. Foreclosure Analysis

    4. Conclusion

Chapter 7: UNILATERAL, UNCONDITIONAL REFUSALS TO DEAL WITH RIVALS

  1. Introduction

  2. Background

  3. Analysis

    1. Using the Antitrust Laws to Require a Monopolist to Deal with a Rival

    2. The Essential-Facilities Doctrine

  4. Conclusion

Chapter 8: EXCLUSIVE DEALING

  1. Introduction

  2. Background

    1. Supreme Court

    2. Courts of Appeals

  3. Analysis

    1. Potential Anticompetitive Effects

    2. Potential Procompetitive Effects

  4. Conclusion

Chapter 9: REMEDIES

  1. Introduction

  2. Goals of Section 2 Remedies

  3. Considerations in Crafting Remedies

  4. Equitable Remedies

    1. Conduct Remedies

      1. Prohibitory Provisions

      2. Affirmative-Obligation Remedies

    2. Structural Remedies

    3. The Special Challenge of Remedies in Technologically Dynamic Industries

  5. Monetary Remedies

    1. Private Monetary Remedies--Treble Damages

    2. Civil Fines

  6. Conclusion

Chapter 10: AN INTERNATIONAL PERSPECTIVE

  1. Introduction

  2. Concerns Raised by the Diversity in Approaches to Single-Firm Conduct

    1. Concerns About Uncertainty, Chilling Procompetitive Conduct, and Forum Shopping

    2. Concern About Conflicting Remedies and Spillover Effects

  3. The Way Forward: Efforts to Encourage Convergence and Cooperation in the Area of Single-Firm Conduct

    1. Bilateral Cooperation

    2. Participation in International Organizations

    3. Provision of Technical Assistance

  4. Additional Steps: What Should Be Done?

  5. Conclusion

APPENDIX: Hearings and Participants

TABLE OF AUTHORITIES