[FN41]. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 27 n.46 (1984). Landes and Posner define market power as „the ability of a firm (or group of firms acting together) to raise the price above competitive levels without losing so many sales so quickly that the price increase is not profitable and must be reversed.” Landes & Posner, supra note 40, p. 937. Landes and Posner do not distinguish between market power and monopoly power, but refer only to the „judicial definition of market power in the Cellophane case”. Id., p.
977 (emphasis added). We have argued that antitrust law would be rationally clarified if courts recognized that anti-competitive economic power can be exercised in two ways: by restricting its own output or by restricting the output of competitors. In other words, we should understand the classic formulation of the Bridge of Monopoly (or Market) Power as meaning that a plaintiff must prove that the defendant has classic, Stiglerian or exclusive Bainian power. [FN64] In this sense, anti-competitive economic power, as du Pont explains, is „the power to control prices or exclude competition.” [FN65] As the increase in the cost of producing gadgets causes gadget manufacturers to reduce their production, the price of widgets will increase. Widget makers will benefit as their bottom line and market share increases. Their overall profits increase, while consumers lose the ability to buy at the lower and competitive price. In this example, gadget companies exercised Baïni market power even though they could not exercise Stiglerian market power. Consumer welfare and allocation efficiency are reduced. [FN44]. This type of market power was extensively analyzed in G. STIGLER, THE ORGANIZATION OF INDUSTRY (1968). A well-known example of monopoly market power is Microsoft`s market share in PC operating systems.
United States v. The Microsoft case concerned the allegation that Microsoft had unlawfully exercised its market power by bundling its web browser with its operating system. In that regard, the concept of dominance and dominance in EU antitrust law is closely linked. [21] The Department believes that a safe haven for monopoly market share – as opposed to market power – merits serious consideration by the courts. In the many decades of application of Article 2, we know of no court that has found monopoly power when the defendant`s share was less than fifty per cent, suggesting that cases of monopoly power below such a share, although theoretically possible, are extremely rare in practice. It is therefore plausible that the cost of researching such cases outweighs the benefits. On the other hand, the undertaking or group of undertakings may raise the price above the level of competition or prevent it from falling to a lower level of competition by increasing the costs of its competitors and thereby causing them to reduce their output („exclude competition”). Such allegations underlie most cartel cases in which an undertaking or group of undertakings is accused of harming competition by foreclosing or excluding its competitors. [FN45] We call this power exclusive market power or „bainian”. [FN46] Consumer welfare is reduced by the exercise of Stiglerian or Bainian market power. [FN47] [FN79]. Of course, a similar problem arises with fusion analysis.
See footnote 78 (Lack of Market Power Analysis and Merger Analysis). Using the current price as the benchmark for its „five percent test” of market definition and market power, the Justice Department has implicitly made the policy decision that it will only prohibit mergers that raise prices above current levels. It will not preserve the likelihood of future price declines by blocking mergers that could prevent the market from becoming more competitive in the future. [FN10]. In fact, the Supreme Court explicitly established this link in Hyde, when it concluded that the links are illegal per se, but only if the seller has market power over the writer`s product. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 16-17 (1984).
The Department of Justice Merger Guidelines [FN71] begin by taking the proceeds of one of the merging companies and consider whether a coordinated and significant increase in prices from current levels by all companies producing that product would be cost-effective. The hypothetical increase is usually a five percent price increase that lasts for one year. If the hypothetical increase were profitable, these companies would constitute a relevant market. [FN72] Fourth, the Sherman Act should prevent corporate groups from acquiring Stiglerian or Bainian market power through collusion, joint venture, or merger, or a dangerous likelihood of doing so, unless it is demonstrated that sufficient overall efficiencies are expected from the horizontal merger. This follows from the related rules according to which the legality of horizontal concentrations in antitrust and abuse of dominance must be assessed before they are created and that it is administratively difficult to disentangle undertakings after their integration. [FN93] Perhaps the law could be more permissive if it allowed combinations that threaten to yield to Bain`s power, because Bain`s power, unlike stigérique power, is sometimes easier to recognize and remedy when exercised. [FN94] For example, the law could prohibit combinations that lead to Bain`s power only when the barriers to entry and concentration are higher. It remains to be demonstrated whether it is appropriate to distinguish between the two methods of exercising market power. This section explains why courts should distinguish between Stiglerian and Baïnian power and how this can clarify the structuring of antitrust investigations, the definition of relevant markets, the measurement of market power, the treatment of unexercised market power and the position of competitors.