The power to control price or exclude competition are factors that are intertwined and generally refer to the phenomenon that when an alleged monopolist is threatened by a competitor, the monopolist has the unilateral ability to exclude that competitor, and/or has the ability to maintain its prices and market shares in face of competitive forces. While not the subject of this entry, the second element of monopolization - the “wilful acquisition or maintenance of [monopoly] power as distinguished from growth or development as a consequence of a superior product, [legal rights such as a patent,] business acumen, or historic accident” - is applicable to an entity that allegedly has the ability to accomplish this end given the market structure and other factors.
Monopoly power can be shown through direct or indirect evidence, with the former being evidence illustrating control over price and/or the exclusion of competition from the relevant market at issue. Indirect evidence usually starts with a defendant’s share of a relevant market and the alleged existence of barriers to entry or expansion.
Courts generally accept market shares higher than 70% as an indication of monopoly power if pared with significant barriers to entry or expansion. Market shares between 50 and 70 percent have been considered supportive of monopoly power in similar circumstances, upon illustration of other factors regarding the size and ability of competitors to penetrate the market. While for a long time market shares below 50% were not considered prima facie evidence of monopoly power, in the Department of Justice’s latest antitrust case against American Express, the lower court found that AmEx’s 26% share of the general purpose card market was supportive of monopoly power given the alleged sustained ability to raise price without competitive consequence. The Second Circuit and Supreme Court reversed and the Judgment against AmEx respectively, based on the finding that the relevant market was improperly defined, but the Second Circuit did not directly overturn the lower court’s finding of monopoly power in a single-sided market (should it have found to been appropriate).
Barriers to entry and expansion play a significant role in determining monopoly power, because if meaningful entry or expansion can occur in response to a small, but significant price increase, that will likely defeat the ability to raise or maintain such prices for a sustained period of time. Courts have considered the context, success, frequency, and magnitude of entry and expansion to determine the ability to control price or exclude competition.
Market structure and competitor performance can also be relevant to a determination of monopoly power. While each market should be assessed on its own merits, the characteristics of competitors can be relevant, such as their size and strength over time, their production capacity, and their ability to price discriminate against certain purchasers. Overall market factors such as the likely development of the industry, the elasticity of consumer demand, potential substitution from outside the relevant market, and the pace of technological advances can also be considered as relevant to a market power inquiry.
The FTC’s case against Qualcomm highlights that definition of the relevant market for alleged monopoly power can be a critical determinant in whether an alleged practice can be found liable for monopolization. In Qualcomm, the FTC accused Qualcomm of monopolization by utilizing a “no license, no chips” policy with OEMs, in which Qualcomm allegedly would not sell critical chipsets for which it was a monopolist unless OEMs capitulated to certain royalty rates it requested for standard essential patents. After the lower court found for the FTC, the Ninth Circuit criticized the lower court for “fail[ing] to distinguish between Qualcomm’s licensing practices (which primarily impacted OEMs) and its practices relating to modem chip sales (the relevant antitrust market). This was, no doubt, intentional: the district court characterized Qualcomm’s various business practices as ‘interrelated’ and mutually reinforcing, and it described their anticompetitive effects as ‘compounding’ and ‘cyclical.’ But even if Qualcomm’s practices are interrelated, actual or alleged harms to customers and consumers outside the relevant markets are beyond the scope of antitrust law.” In other words, only relevant markets in which there is an alleged monopoly can be used to determine if there has been an anticompetitive effect resulting from the accused conduct.
While the term monopoly has both legal and economic implications, as a practical matter the determination is whether a firm’s conduct has the capacity to have market-wide consequences for a given consumer population. The Supreme Court’s opinion in AmEx found that the lower court had not correctly defined the relevant market to include both consumers of credit cards and the merchants who were accepting them, and thus the trial court’s analysis of competitive effects was misguided. This confirms that the market in which alleged monopolist has power is an important step in any inquiry.
Recent commentary and current US agency enforcement efforts are suggesting that monopoly power should be defined as something broader than that the ability to control price or exclude competition. By referencing allegedly critical data that may not have a direct price component, courts will likely have to find a suitable and reliable proxy for these standard inquiries to fit the realities of present day technology and other markets. The upcoming updated merger guidelines will likely provide insight as to how the government is considering other non-price factors to be relevant to an analysis of market power.