Summary: Ch 4: Economic Foundations: The Concept Of Market Power

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• 1 Ch 4: Economic Foundations: The Concept of Market Power

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• Why does it matter whether MP must be proved?

  The stakes are high in the debate over when a plaintiff should be required to prove MP because proof of market power is expensive and difficult--testimony by economic experts on both sides, etc

• Where plaintiff IS required to prove MP: 8 claims

  Plaintiff must show MP in the following cases:
  

  1. All Rule of Reason cases under SA 1
  2. Some boycott cases under SA 1. 
  3. All monopolization, attempted monopolization, and conspiracy to monopolize claims under SA 2.
  4. "Tying" and exclusive dealing claims under SA 1 or CA 3.
  5. Actions against M+A under CA 7. 
  6. Merger review under HSR. 
  7. Predatory-Pricing and price-discrimination claims under SA or Robinson-Patman Act. 

• Example of "Direct Evidence" - Indiana Federation of Dentists (US 1986)

  Court cited a before-and-after comparison of the market, in which an actual change was observable that could confidently be said to have been caused by the defendants' conduct.

• "Market Share Proxy" Test: The Basic Problem

  When direct proof of antitrust harm is unavailable, the plaintiff must prove harm circumstantially through evidence that the defendant held market power. The problem is that, in reality, it would be hard to directly measure MP (persuasively prove that a defendant is able to raise prices without losing market share) because prices fluctuate, etc. To avoid this problem, the courts have developed the Market Share Proxy Test.

• What does the Market Share Proxy (MSP) Test do?

  It estimate market power based on the defendant's "market share" (the % of sales in a given market that go to a particular seller).

• What is the underlying purpose of the MSP Test?

  What courts are really seeking to determine, in applying the MSP test, is just how much power a defendant has to raise his prices. Thus, the MSP test attempts to identify all the sources of competitive discipline that D would face if he tried to raise prices or reduce output.

• The MSP Test: 3 Prongs (Summary)

  1. First, the plaintiff must define the PRODUCT MARKET in which D competes: meaning, the collection of products to which the defendants' customers could turn if the defendants' tried to raise prices. 
  2. Second, the plaintiff must define the GEOGRAPHIC MARKET in which D competes: meaning, the collection of sellers and potential sellers in some geographic area to which the defendants' customers could turn if the defendants raised prices. 
  3. Third, the plaintiff must show that--given all the other characteristics of the market so defined---the Defendants' market share suggests that D could raise prices without losing business. 

• MSP Prong 1: Defining the Product Market - General Idea

  The plaintiff must identify the products that compete with the defendant(s)' product, and therefore constrain its ability to behave anti-competively. Note that, in most cases, the plaintiff will want to define the product market narrowly and the defendant will want to define it broadly (the more products that are competing in the market, the smaller the D's share of the product market will be).

• MSP Prong 1: Defining the Product Market - Rule

  The product market is made-up of (1) producers of identical products and (2) producers of products that are good SUBSTITUTES for D's product.

• MSP Prong 1: Defining the Product Market - Test for whether a product is a good Substitute?

  Reasonable Interchangeability Test. Du Point (US 1956).