Section 2 Violations
Section 2 of the Sherman Act, 15 U.S.C. § 2, makes it unlawful to monopolize any part of interstate commerce. An unlawful monopoly exists when one firm controls the market for a product or service, and it has obtained that market power, not because its product or service is superior to others, but by suppressing competition with anticompetitive conduct. Corporations may dominate a given industry to such an extent that they are not subject to natural competition from new market participants. Monopolies are able to set the price on their products and services as high as the market allows. The law is violated only if the company tries to maintain or acquire a monopoly through unreasonable methods. For the courts, a key factor in determining what is unreasonable is whether the practice has a legitimate business justification.
Monopolies are not in and of themselves illegal, but certain actions that are unique to monopolies, and may bring rise to a violation of the antitrust laws include:
- Exclusive Supply or Purchase Contracts within the vertical chain of a monopoly may keep other companies from entering the market. Exclusive contracts can benefit competition in the market by ensuring supply sources or sales outlets, reducing contracting costs, or creating dealer loyalty. Exclusive contracts between manufacturers and suppliers, or between manufacturers and dealers, are generally lawful because they improve competition among the brands of different manufacturers (interbrand competition). However, when the firm using exclusive contracts is a monopolist, the legal focus shifts to whether those contracts halt efforts of new entities to break into the market or of smaller existing entities to expand their presence into the market. A monopolist might try to impede the entry or expansion of new competitors because that competition would erode its market position. The antitrust laws condemn certain actions of a monopolist that keep rivals out of the market or prevent new products from reaching consumers. Exclusive supply contracts prevent a supplier from selling inputs to another buyer. If, under an exclusive supply contract, one buyer has a monopoly position and uses its contracts so that a newcomer may not be able to gain what it needs to compete with the monopolist, the contracts can be seen as being in violation of Section 2 of the Sherman Act. Exclusive purchase agreements, requiring a dealer to sell the products of only one manufacturer, can have similar effects on a new manufacturer, preventing it from getting its products into enough outlets so that consumers can compare its new products to those of the leading manufacturer. Exclusive purchase agreements may violate the antitrust laws if they prevent newcomers from competing for sales. Consumers are harmed by the activities of a monopolist because the monopolist has prevented the market from becoming more competitive, which could result in lower pricing, or better products or services.
- Unlawful Tying which forces customers to purchase a less desirable product as a condition of purchasing the product they want, which has the effect of driving sales in markets the monopolist does not dominate. Offering products together as part of a package deal can benefit consumers who like the convenience of buying several items at the same time. Offering products together can also reduce the manufacturer's costs for packaging, shipping, and promoting the products. Of course, some consumers might prefer to buy products separately, and when they are offered only as part of a package, it can be more difficult for consumers to buy only what they want. For competitive purposes, a monopolist may use forced buying, or "tie-in" sales, to tie the sale of a product in which it is market dominant to the sale of a product in which it is not market dominant to gain greater sales in other markets where it is not dominant and to make it more difficult for rivals in those markets to obtain sales. This has the tendency to limit consumer choice for buyers wanting to purchase one product by forcing them to also buy a second product as well. In certain circumstances, the "tying" of products can violate the antitrust laws.
- Predatory or Below Cost Pricing occurs when the company charges below-cost pricing to drive out competition, which ultimately results in higher prices to consumers. An entity engages in predatory pricing when below-cost pricing allows a dominant competitor to keep its competitors out of the market and then raise prices to above-market levels once the competitors are no longer in business in the market.
- Refusal to Deal. Under certain circumstances, an entity’s refusal to deal with customers or suppliers if the customers or suppliers also do business with a competitor of that entity can violate antitrust laws. There may be limits on this freedom for a firm with market power. The focus of the inquiry here is whether the refusal allows the monopolist to maintain its monopoly or allows the monopolist to use its monopoly in one market to attempt to monopolize another market.
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