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2014 | OriginalPaper | Buchkapitel

Chapter 8 The Operational Definition of a Firm’s Monopoly, Oligopoly, and Total Economic (Market) Power in a Given ARDEPPS

verfasst von : Richard S. Markovits

Erschienen in: Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law

Verlag: Springer Berlin Heidelberg

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Abstract

Economists, legislators, antitrust lawyers, judges, and legal scholars often refer to a firm’s monopoly power, oligopoly power, and total economic (sometimes called “market”) power. However, there is no consensus about the way in which these terms should be operationalized, and discussions of these concepts tend to be rudimentary if not simplistic. This chapter executes tediously-detailed analyses of the concepts of a firm’s monopoly, oligopoly, and total economic (market) power.

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Vorheriges Kapitel Chapter 7 Economic (Classical) and Antitrust Markets: Official and Scholarly Proposals

Nächstes Kapitel Chapter 9 The Need to Analyze Separately the Monopolizing Character, “Abusiveness,” Competitive Impact, and Economic Efficiency of Business Choices

All these points will be discussed in considerable detail at appropriate junctures of Part II of this study.

Some U.S. experts argue that the market-power assessments that courts should use when executing antitrust-law analyses should ignore the contrived oligopolistic margins that relevant firms would find it profitable to secure if the law did not prohibit such contrivance. In conversations with me, these scholars have made two arguments to justify this conclusion: (1) firms that value obeying the law in itself or that disvalue engaging in price-fixing independent of its illegality (because they find it immoral) may not on that account take advantage of any opportunity they have to profit by engaging in contrived oligopolistic pricing, and (2) it will always be both feasible and more cost-effective to prevent contrivance by prosecuting and penalizing contrivers than by prohibiting firms that have the opportunity to profit by price-fixing from maintaining or increasing their power to do so by engaging in conduct whose profitability is not critically affected by this effect or by breaking up companies that would find contrivance profitable into component parts that are less able to profit by contriving oligopolistic prices. I am not persuaded by either of these arguments. As to the first, although I grant that some managements would not engage in price-fixing even if it were ex ante profitable, I suspect that price-fixing is an important economic phenomenon and doubt the ability of a trier-of-fact to determine whether a particular firm was or was not likely to take advantage of any opportunity to profit by contriving an oligopolistic margin: of course, one might want to discount estimates of the COMs a firm could profitably secure on this moral account. As to the second argument, as Chapter 10 will explain, it will almost always be difficult and expensive and will often be impossible to prove contrived oligopolistic pricing. I would therefore be disposed to count the COMs a firm could profitably obtain if price-fixing were not prohibited as part of its market power when deciding whether it has a dominant position in the course of applying an “abuse of a dominant position” statute or whether it has a legally-significant amount of market power when applying some kindred U.S. legal doctrine or precedent or a deconcentration statute.

I should add that, although no-one has ever argued that a firm’s NOMs should not be counted as part of its total market power over price when executing antitrust-law analyses that assume that a firm’s pre-conduct possession of market power is relevant to the legality of its conduct or position (because no-one has recognized the difference between natural and contrived oligopolistic pricing), in my view, the argument that might be made for ignoring in this context the NOMs a firm can obtain when measuring its market power in an antitrust-legal-analysis context are weaker than the arguments that have been made for ignoring the COMs that a firm would find profitable to contrive if the law did not prohibit its doing so. Since natural oligopolistic pricing is not prohibited by the antitrust laws of the United States and is prohibited by E.C./E.U. competition law only if it is deemed to constitute a concertation or is practiced by a dominant firm or set of collectively-dominant firms in circumstances in which its practice constitutes an exploitative abuse of a dominant position (a finding that the EC and E.C./E.U. courts rarely make, regardless of the type of conduct under consideration), the only argument for ignoring the NOMs a firm could obtain would have to be based on a claim that managers will be deterred from securing NOMs by a sense that such conduct is immoral. I reject this argument because I doubt that such inhibitions are common. Natural oligopolistic pricing involves no anticompetitive threats or promises and, although I find it socially undesirable, I doubt that managers (who have a duty to serve their company’s owners in all lawful ways) would suffer any qualms on this account. Of course, if antitrust law were reformed (as I believe it should be) or Article 101 were interpreted (as I believe it should be) to prohibit natural oligopolistic pricing, one would have to subject the question “Should one count the NOMs a firm could realize if natural oligopolistic pricing were not condemned by law to be part of the firm’s total market power over price?” to the same type of enquiry that we just executed in relation to the COMs a firm could profitably obtain if the law did not prohibit its attempting to do so.

United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956).

See, e.g., Eastman Kodak Co. v. Image Technical Services, Inc. 504 U.S. 451, 481 (1992) and United States v. Grinnell Corp., 384 U.S. 563, 571 (1966).

Id.

American Tobacco Co. v. United States, 328 U.S. 781, 797 (1946).

See Eastman Kodak Co. v. Image Technical Services, Inc. 504 U.S. 451, 481 (1992) and American Tobacco Co. v. United States, 328 U.S. 781, 797 (1946). The Eastman-Kodak Court also cited United States v. Grinnell Corp., 384 U.S. 563, 571 (1966) for the proposition that a firm’s possession of an 87 % market share made it a monopoly.

United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 379 (1956).

elhauge and geradin 266–67, citing Einer Elhauge, Defining Better Monopolization Standards, 56 stanford l. rev. 253, 336 (2003). In a famous, relatively-early case—United States v. Aluminum Co. of American (Alcoa), 148 F.2d 416, 424 (2d Cir. 1945), Judge Learned Hand stated that proof that a firm had a 90 % market share would establish it to be a monopolist, proof that a firm had a 33 % market share would imply that it was not a monopolist, and proof that a firm’s market share was 50 % or 64 % would render “doubtful” its characterization as a monopolist.

For a horizontal-merger case in which this possibility was salient, see United States v. General Dynamics Corp., 415 U.S. 486 (1974).

See Boeing-McDonnell Douglas (FTC 1997) as reported in U.S. DOJ/FTC Commentary on the Horizontal Merger Guidelines 16 (2006).

See, e.g., United States v. Microsoft, 253 F.3d 34, 51 (D.C. Cir. 2001) (en banc); Eastman Kodak Co. v. Image Technical Services, Inc. 504 U.S. 451, 469 n.15 (1992); Jefferson Parish Hospital District #2 v. Hyde, 466 U.S. 2, 17 (1984); and United States v. Grinnell Corp., 384 U.S. 563, 571 (1966).

Continental Can—Re Continental Can Company, Inc. and Europemballage, Inc. 1972, OJ L 7/25, CMLR D11, para II.3 (1972).

Director General (DG) Competition Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses, Section 4 (December 2005).

Id. at Section 4.1. At Section 4.3, the Discussion Paper attempts to clarify how a set of rivals may operate in a collectively-dominant way. Unfortunately, its efforts are not very informative. It begins by stating that the necessary “togetherness” can be achieved through “explicit agreement,” “concerted practice,” or in some other way, which (unfortunately) it does not define. It points out correctly, that togetherness can be achieved by fixing prices, fixing outputs, or dividing the market, but its efforts to analyze the factors that affect the ability of rivals to achieve togetherness are limited—in particular, are restricted to stating that coordination will be more feasible when the economic environment is “stable” and monitoring participant-behavior is easy.

Id.

Id. at Section 4.2.1.

Id.

Id. at Section 4.2.2.

Id.

Id. at Section 4.23.

Michelin I, Nederlandsche Bandeu-Industrie Michelin v. Commission, 322/81, E.U.R. 3461 (1985)

Michelin II, Case T-203/01, E.U.R. II-4071 (2003).

Director General (DG) Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses at Section 4.1 (December 2005).

United Brands Company and United Brands Continental BV v. Commission, 27/76, E.U.R. 207, p. 65 (1978)

See korah at 106.

Gencor v. Commission, Case T-102/96, E.U.R. II-753 (1999).

Hoffman-LaRoche & Co. AG v. Commission, E.U.R. 461 (1979).

Akzo Chemie BV v. Commission, Case C-62/86, E.U.R. I-3359 (1991).

Metro v. Commission, Case 75/84, E.U.R. 3021 (1986).

See Damien Geradin, Paul Hofer, Frédéric Louis, Nicholas Petit, and Mike Walker, The Concept of Dominance, GOLC Research Paper on Article 82 (2005).

Because I have defined a firm’s oligopoly power over price in terms of the COMs it could profitably contrive as opposed to those it would choose to contrive, the text’s list does not include the attitude of the firm’s managers to breaking the law by engaging in contrived oligopolistic pricing (which is virtually always relevant in the U.S. [where contrived oligopolistic pricing is virtually always illegal] and frequently relevant in the E.C./E.U. [where contrived oligopolistic pricing violates now-Article 101 if it is arranged through an agreement rather than being effectuated solely through its practitioner’s threats and violates now-Article 102 if it is perpetuated by an individually-dominant firm or a set of rivals that would be deemed to be collectively dominant]). However, I do want to point out that there is no reason to believe that a firm’s managers’ dispreference for breaking the law by engaging in contrived oligopolistic pricing will be correlated in any way with its market share.

Admittedly, this correlation may not be present if the average OCA that other QV investors enjoy when they are best-placed is higher than the average OCA that the firm in question enjoys when it is best-placed, but there is no reason to believe that the frequency with which the product created by a QV investment is best-placed will be negatively correlated with the average amount by which it is best-placed when it is best-placed.

Titel: Chapter 8 The Operational Definition of a Firm’s Monopoly, Oligopoly, and Total Economic (Market) Power in a Given ARDEPPS
verfasst von: Richard S. Markovits
Verlag: Springer Berlin Heidelberg
Buch: Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law
Print ISBN: 978-3-642-24306-6

Electronic ISBN: 978-3-642-24307-3

Copyright-Jahr: 2014
DOI: https://doi.org/10.1007/978-3-642-24307-3_8