COMPETITION 

AND 

MONOPOLY: 

SINGLE-FIRM CONDUCT UNDER 

SECTION 2 OF THE SHERMAN ACT 

U.S. DEPARTMENT OF JUSTICE 

2008 
COMPETITION AND MONOPOLY: 

SINGLE-FIRM CONDUCT UNDER 

SECTION 2 OF THE SHERMAN ACT 

ISSUED BY THE 

U.S. DEPARTMENT OF JUSTICE 

SEPTEMBER 2008 
This report should be cited as: 

U.S. DEP’T OF JUSTICE, COMPETITION AND MONOPOLY: SINGLE-FIRM CONDUCT UNDER SECTION 2 OF THE 

SHERMAN ACT (2008). 

This report can be accessed electronically at: 

www.usdoj.gov/atr/public/reports/236681.htm 
TABLE OF CONTENTS 

EXECUTIVE SUMMARY .............................................................. vii 

INTRODUCTION ..................................................................... 1 

CHAPTER 1: SINGLE-FIRM CONDUCT AND SECTION 2

 OF THE SHERMAN ACT: AN OVERVIEW ................................... 5 

I. The Structure and Scope of Section 2 .................................................. 5 

A. Monopolization .................................................................. 5 

B. Attempted Monopolization ........................................................ 6 

II. The Purpose of Section 2 and Its Important Role in Sound Antitrust Enforcement ........... 7 

III. Principles that Have Guided the Evolution of Section 2 Standards and Enforcement ......... 8 

A. The Monopoly-Power Requirement ................................................ 9 

B. The Anticompetitive-Conduct Requirement ......................................... 9 

C. Assaults on the Competitive Process Should Be Condemned .......................... 10 

D. Protection of Competition, Not Competitors ........................................ 11 

E. Distinguishing Competitive and Exclusionary Conduct Is Often Difficult ............... 12 

F. Concern with Underdeterrence and Overdeterrence ................................. 13 

G. The Importance of Administrability when Crafting

Liability Standards Under Section 2 ............................................... 15 

IV. Conclusion ........................................................................ 18 

CHAPTER 2: MONOPOLY POWER ..................................................... 19 

I. Introduction ...................................................................... 19 

II. Market Power and Monopoly Power ................................................. 19 

III. Identifying Monopoly Power ........................................................ 21 

A. Market Shares .................................................................. 21 

1. Courts Typically Have Required a Dominant Market Share to Infer 

Monopoly Power ............................................................. 21 

2. Significance of a Dominant Market Share ........................................ 22 

3. Market-Share Safe Harbor ..................................................... 24 

B. Durability of Market Power ...................................................... 24 

IV. Market Definition and Monopoly Power .............................................. 25 

V. Other Approaches to Identifying Monopoly Power ..................................... 27 

A. Direct Evidence of High Profits, Price-Cost Margins, and Demand Elasticity ............ 28 

B. Direct Evidence of Anticompetitive Effects ......................................... 30 

VI. Conclusion ........................................................................ 30 

CHAPTER 3: GENERAL STANDARDS FOR EXCLUSIONARY CONDUCT ................. 33 

I. Introduction ...................................................................... 33 

II. Allocation of Burdens of Production and Proof ........................................ 35 

III. Proposed General Standards ........................................................ 36 

A. Effects-Balancing Test ........................................................... 36 

B. Profit-Sacrifice and No-Economic-Sense Tests ....................................... 39 

C. Equally Efficient Competitor Test ................................................. 43 

D. Disproportionality Test .......................................................... 45 
SECTION 2 REPORT 

IV. Conclusion ........................................................................ 46 

CHAPTER 4: PRICE PREDATION ....................................................... 49 

I. Predatory Pricing .................................................................. 49 

A. Introduction .................................................................... 49 

B. Background .................................................................... 50 

C. Analysis ....................................................................... 54 

1. Frequency of Predatory Pricing ................................................ 54 

2. Above-Cost Pricing ........................................................... 58 

3. Appropriate Measure of Cost .................................................. 60 

a. Analytical Considerations .................................................. 60 

b. Average Total Cost ........................................................ 61 

c. Measures of Incremental Cost ............................................... 62 

d. Emerging Consensus Support for Average Avoidable Cost ...................... 65 

4. Recoupment ................................................................. 67 

5. Potential Defenses ............................................................ 69 

a. Meeting Competition ...................................................... 70 

b. Efficiency Defenses ........................................................ 71 

6. Equitable Remedies ........................................................... 72 

D. Conclusion ..................................................................... 73 

II. Predatory Bidding ................................................................. 73 

CHAPTER 5: TYING ................................................................... 77 

I. Introduction ...................................................................... 77 

II. Background ....................................................................... 78 

III. Analysis .......................................................................... 82 

A. Potential Anticompetitive Effects .................................................. 83 

1. Monopolizing the Tied-Product Market ......................................... 83 

2. Maintaining a Monopoly in the Tying-Product Market ............................ 84 

B. Potential Procompetitive Effects .................................................. 84 

C. Price Discrimination ............................................................. 85 

D. Technological Ties .............................................................. 87 

E. Tying Should Not Be Per Se Illegal ................................................ 89 

IV. Conclusion ........................................................................ 90 

CHAPTER 6: BUNDLED DISCOUNTS AND SINGLE-PRODUCT LOYALTY DISCOUNTS ... 91 

I. Bundled Discounts ................................................................. 91 

A. Introduction .................................................................... 91 

B. Background .................................................................... 92 

C. Analysis ....................................................................... 95 

1. Theories of Competitive Harm ................................................. 95 

2. Potential Procompetitive Benefits ............................................... 96 

3. Safe Harbors ................................................................. 97 

a. The Total-Bundle Predation-Based Safe Harbor ................................ 98 

b. The Discount-Allocation Safe Harbor ......................................... 99 

4. Analysis of Bundled Discounts Falling Outside

a Safe Harbor ............................................................... 102 

D. Conclusion .................................................................... 105 

II. Single-Product Loyalty Discounts ................................................... 106 

iv 
TABLE OF CONTENTS 

A. Introduction ................................................................... 106 

B. Background ................................................................... 108 

C. Analysis ...................................................................... 110 

1. Predatory-Pricing Analysis ................................................... 111 

2. Foreclosure Analysis ......................................................... 113 

D. Conclusion .................................................................... 116 

CHAPTER 7: UNILATERAL, UNCONDITIONAL REFUSALS TO DEAL WITH RIVALS .... 119 

I. Introduction ..................................................................... 119 

II. Background ...................................................................... 120 

III. Analysis ......................................................................... 123 

A. Using the Antitrust Laws to Require a Monopolist to Deal with a Rival ................ 123 

B. The Essential-Facilities Doctrine .................................................. 127 

IV. Conclusion ....................................................................... 129 

CHAPTER 8: EXCLUSIVE DEALING ................................................... 131 

I. Introduction ..................................................................... 131 

II. Background ...................................................................... 132 

A. Supreme Court ................................................................ 133 

B. Courts of Appeals .............................................................. 134 

III. Analysis ......................................................................... 136 

A. Potential Anticompetitive Effects ................................................. 136 

B. Potential Procompetitive Effects ................................................. 138 

IV. Conclusion ....................................................................... 140 

CHAPTER 9: REMEDIES .............................................................. 143 

I. Introduction ..................................................................... 143 

II. Goals of Section 2 Remedies ........................................................ 144 

III. Considerations in Crafting Remedies ................................................ 146 

IV. Equitable Remedies ............................................................... 149 

A. Conduct Remedies ............................................................. 150 

1. Prohibitory Provisions ....................................................... 150 

2. Affirmative-Obligation Remedies .............................................. 152 

B. Structural Remedies ............................................................ 155 

C. The Special Challenge of Remedies in Technologically Dynamic Industries ............ 158 

V. Monetary Remedies ............................................................... 159 

A. Private Monetary Remedies—Treble Damages ..................................... 159 

B. Civil Fines .................................................................... 161 

VI. Conclusion ....................................................................... 163 

CHAPTER 10: AN INTERNATIONAL PERSPECTIVE .................................... 165 

I. Introduction ..................................................................... 165 

II. Concerns Raised by the Diversity in Approaches to Single-Firm Conduct ................ 165 

A. Concerns About Uncertainty, Chilling

Procompetitive Conduct, and Forum Shopping .................................... 167 

B. Concern About Conflicting Remedies and Spillover Effects .......................... 169 

III. The Way Forward: Efforts to Encourage Convergence and

Cooperation in the Area of Single-Firm Conduct ...................................... 170 

A. Bilateral Cooperation ........................................................... 171 

B. Participation in International Organizations ....................................... 172 

v 
SECTION 2 REPORT

C. Provision of Technical Assistance ................................................ 175 

IV. Additional Steps: What Should Be Done? ............................................ 175 

V. Conclusion ....................................................................... 180 

APPENDIX: HEARINGS AND PARTICIPANTS .............................................. 183 

TABLE OF AUTHORITIES ........................................................... 191 

vi 
 

 

 

 

 

 

 

 

 

EXECUTIVE SUMMARY 

INTRODUCTION 

The U.S. antitrust laws reflect a national 

commitment to the use of free markets to 

allocate resources efficiently and to spur the 

innovation that is the principal source of 

economic growth. Section 2 of the Sherman 

Act plays a unique role in U.S. antitrust law by 

prohibiting single-firm conduct that undermines 

the competitive process and thereby enables a 

firm to acquire, credibly threaten to acquire, or 

maintain monopoly power. 

Competition and consumers are best served 

if section 2 standards are sound, clear, 

objective, effective, and administrable. After 

more than a century of evolution, section 2 

standards have not entirely achieved these 

goals, and there has been a vigorous debate 

about the proper standards for evaluating 

unilateral conduct under section 2. In June 

2006, the Department of Justice (Department) 

and the Federal Trade Commission (FTC) 

began a series of wide-ranging hearings 

relating to unilateral conduct under section 2. 

The hearingsencompassed twenty-nine separate 

panels and were conducted over the course of an 

entire year. Academics, businesspeople, and 

antitrust practitioners presented a broad array of 

views. 

This report synthesizes views expressed at the 

hearings, in extensive scholarly commentary, and 

in the jurisprudence of the Supreme Court and 

lower courts. It reflects the Department’s 

enforcement policy and is intended to make 

progress toward the goal of sound, clear, 

objective, effective, and administrable standards 

for analyzing single-firm conduct under 

section 2. 

CHAPTER 1: Overview 

Chapter 1 provides an overview of section 

2 and its application. This overview explains 

that the purpose of section 2 is to prevent 

conduct that harms the competitive process, 

while not discouraging aggressive competition, 

whether that aggressive competition is from 

monopolists or other competitors. Chapter 1 

also articulates and elaborates on basic principles 

that have emerged from court decisions and 

commentary: 

1. Single-firm conduct comes within the scope 

of section 2 only if the firm possesses, or is 

likely to achieve, monopoly power. 

2. Section 2 does not prohibit the mere 

possession or exercise of monopoly power. 

3. Acquiring or maintaining monopoly power 

through conduct harming the competitive 

process should be condemned. 

4. Section 2 protects the competitive process 

but not individual competitors. 

5. Distinguishing beneficial competitive 

conduct from harmful exclusionary or 

predatory conduct often is difficult. 

6. Section 2 standards should prevent 

conduct that harms the competitive 

process, but should avoid overly broad 

prohibitions that suppress legitimate 

competition. 

7. Section 2 standards should be 

understandable and clear to businesspeople 

and judges and must account for the 

possibility of errorand administrative costs 

in their application. 

CHAPTER 2: Monopoly Power 

Chapter 2 addresses the meaning and 

identification of monopoly power. 
 

 

 

 

SECTION 2 REPORT 

Meaning of a Dominant Market Share. A 

dominant market share typically is a 

prerequisite for the possession of monopoly 

power, but it is only a starting point for 

determining whether a competitor possesses 

monopoly power. Competitive conditions 

must be such that the competitor can 

persistently charge prices well above 

competitive levels without substantial erosion 

of its dominant position through the expansion 

of incumbent rivals or the entry of new 

competitors. Where courts have found monopoly 

power—as opposed to market power—the 

defendant’s market share has been at least fifty 

percent and typically substantially higher. 

When a firm has maintained a market share 

in excess of two-thirds for a significant period 

and the Department concludes that market 

conditions likely would prevent the erosion of 

its market position in the near future, the 

Department will presume that the firm 

possesses monopoly power absent convincing 

evidence to the contrary. 

Market Definition. Defining the market 

involves an assessment of likely substitution by 

customers in response to an exercise of 

monopoly power. This assessment can be 

problematic in a monopoly-maintenance case 

because the threshold issue is whether the 

defendant already possesses, and hence already 

is exercising, monopoly power. It is important 

in those cases not to evaluate substitution 

possibilities at the prevailing monopoly price, 

but it is difficult to evaluate substitution 

possibilities at hypothetical prices significantly 

below prevailing levels. The Department views 

direct evidence of anticompetitive effects as 

useful but normally not sufficient by itself to 

demonstrate monopoly power in the absence of 

a defined antitrust market. 

CHAPTER 3: General Conduct Standards 

Chapter 3 initially discusses the importance 

of an appropriate framework that structures 

the analysis, including an efficient allocation of 

burdens of production and proof in litigation. 

The plaintiff should have the initial burden of 

establishing that challenged conduct harms the 

competitive process and therefore has a 

potentially anticompetitive effect. If plaintiff 

carries that burden, defendant should have the 

opportunity to proffer and substantiate a 

procompetitive justification for the challenged 

conduct. If defendant does so, plaintiff then 

should have the burden of establishing that the 

challenged conduct is anticompetitive under 

the applicable standard. This allocation can 

enable courts to resolve cases more quickly and 

efficiently. 

Turning to the general tests, the Department 

does not believe that any one test works well in 

all cases and encourages the development of 

conduct-specific tests and safe harbors, which 

are discussed in subsequent chapters. The five 

general tests discussed in the chapter are: 

Effects-Balancing. Althoughfocusing analysis 

on the effect on consumer welfare is 

appropriate, the Department does not believe 

that using an effects-balancing test as a general 

standard under section 2 is likely to maximize 

consumer welfare. The Department believes 

that it is better for long-run economic growth 

and consumer welfare not to incur the costs and 

errors from attempting to quantify and 

precisely balance procompetitive and 

anticompetitive effects as required under this 

test. 

Profit-Sacrifice. The Department believes 

that a profit-sacrifice test that asks whether 

conduct is more profitable in the short run than 

other less-exclusionary conduct the firm could 

have undertaken raises serious concerns of 

enforcement error and administrability and 

should not be the test for section 2 liability. The 

Department believes that a firm should not be 

liable for failure to maximize its profits. 

No-Economic-Sense. The Department finds 

the no-economic-sense test useful, among other 

things, as a counseling device to focus 

businesspeople on the reasons for undertaking 

potentially exclusionary conduct. At the same 

time, the Department does not believe that a 

trivial benefit should protect conduct that is 

significantly harmful to consumers and the 

viii 
 

 

 

 

 

EXECUTIVE SUMMARY 

competitive process. Therefore, the Department 

does not believe that this test should serve as the 

general standard under section 2. 

Equally EfficientCompetitor. The Department 

finds it useful to ask in pricing cases whether 

conduct would exclude an equally efficient 

competitor. In non-pricing cases, that inquiry 

does not readily lead to administrable rules, 

and, even in pricing cases, there is difficulty in 

comparing the efficiency of two firms doing 

different things. Accordingly, the Department 

does not believe that this test should be the 

general standard for liability under section 2. 

Disproportionality. In the absence of an 

applicable conduct-specific test, the 

Department believes that conduct should be 

unlawful under section 2 if its anticompetitive 

effects are shown to be substantially 

disproportionate to any associated procompetitive 

effects. While also subject to valid criticism, the 

test focuses on the consumer-welfare goals of 

antitrust and represents the best combination of 

effectiveness and administrability (including 

the need to avoid chilling beneficial 

competition) of the general tests identified to 

date. 

CHAPTER 4: Predatory Pricing 

Chapter 4—the first chapter addressing a 

specific category of potentially exclusionary 

conduct—focuses on predatory pricing. In 1993 

the Supreme Court held that a plaintiff alleging 

predatory pricing must show that the 

defendant cut prices below an appropriate 

measure of its costs and had a dangerous 

probability of recouping its investment in 

below-cost prices. While acknowledging that 

above-cost pricing can sometimes be 

exclusionary, the Court held that attempting to 

identify such instances would harm beneficial 

price competition. The Department believes 

that the Court’s holding is consistent with 

promoting competition and consumer welfare 

under section 2. 

Measure of Cost. The courts have not 

settled on an appropriate measure of cost for 

evaluating predatory-pricing claims. Consistent 

with the thinking expressed in case law, the 

Department concludes that the appropriate 

measure of cost should identify loss-creating 

sales that could force an equally efficient rival 

out of the market and that such a measure 

should be administrable by businesses and the 

courts. 

In most cases, the best cost measure likely 

will be average avoidable cost. This measure of 

cost includes fixed costs to the extent that they 

were incurred only because of the predatory 

strategy, for example, as a result of expanding 

capacity to enable the predatory sales. When 

an increment to a defendant’s output associated 

with the predatory strategy cannot be 

identified, the best cost measure typically is 

average variable cost. The Department does 

not favor the use of average variable cost in 

general because it does not focus on the 

predatory scheme itself and does not indicate 

as reliably whether the firm might be losing 

money to achieve anticompetitive ends. 

Recoupment. The Department believes that 

the recoupment requirement is an important 

reality check in assessing predatory-pricing 

allegations. Without a dangerous probability 

that the investment in below-cost prices will be 

recouped through later supracompetitive 

pricing, below-cost prices most likely reflect 

nothing more than intense price competition 

that is in the interests of consumers. In some 

cases, focusing first on recoupment may avoid 

difficult issues in comparing prices with costs. 

The Department believes that recoupment 

outside the relevant market may be relevant in 

some cases. 

Predatory Bidding. In 2007 the Supreme 

Court applied its two-part test for predatory 

pricing to predatory bidding. The Court 

reasoned that, in important respects, predatory 

bidding is the mirror image of predatory 

pricing and therefore that the same sort of 

analysis is required to avoid chilling 

procompetitive conduct. The Department 

supports the Court’s ruling and analysis. 

ix 
 

 

SECTION 2 REPORT 

CHAPTER 5: Tying 

Chapter 5 discusses various forms of 

tying—selling a product only on the condition 

that the buyer also purchase a second product. 

Examples of tying include contractual 

restrictions on future purchases of consumable 

complements to a durable good, the 

simultaneous sale of two or more products only 

in a bundle, and linking two products 

technologically. 

In some circumstances, tying can allow a 

competitor with monopoly power over one 

product to acquire monopoly power in a tied 

product or to maintain its monopoly in the 

tying product. Those circumstances, however, 

are limited. 

In many others, tying can promote 

efficiency and benefit consumers through a 

reduction in production or distribution costs. 

It also can be used to price discriminate, which 

generally does not create or maintain monopoly 

power. Consequently, the Department believes 

that the historical hostility of the law to tying is 

unjustified. In particular, the qualified rule of 

per se illegality applicable to tying is 

inconsistent with the Supreme Court’s modern 

antitrust decisions and should be abandoned. 

Tying in the form of technologically linking 

products is an area where enforcement 

intervention poses a particular risk of harming 

consumers more than it helps them in the long 

run. Technological tying often efficiently gives 

consumers features they want and judicial 

control of product design risks chilling 

innovation. This form of tying, therefore, 

should be condemned only in exceptional cases, 

such as when integrating two separate products 

serves no purpose other than to disadvantage 

competitors and harms the competitive process. 

CHAPTER 6: Bundled and Loyalty Discounts 

Chapter 6 considers two particular pricing 

practices: bundled discounts and loyalty 

discounts. 

Bundled Discounts. When a defendant’s 

rivals can effectively compete on a bundle-tobundle basis, bundled discounting is much like 

single-product price cutting, and the practice is 

best analyzed as predatory pricing. 

When a defendant’s rivals cannot compete 

bundle-to-bundle, discounts or rebates work 

more like tying, and a different analysis is 

appropriate. In those circumstances, the 

Department believes a cost-based safe harbor 

for bundled discounting, in which an imputed 

price for the item (or items) in the bundle 

potentially subject to competition is computed 

by allocating to that item (or items) the entire 

discount or rebate received by a customer, is 

appropriate. The rationale of this safe harbor is 

that an equally efficient competitor that does 

not sell all the items in the bundle would not be 

excluded if this imputed price exceeds an 

appropriate measure of a defendant’s cost. 

Bundled discounting failing this safe harbor 

is not necessarily anticompetitive and should 

not be presumed to be so. Rather, a plaintiff 

should be required to demonstrate that the 

practice has harmed the competitive process or 

likely would do so if allowed to continue. If the 

defendant demonstrates that the practice has a 

procompetitive explanation, it should be 

condemned only if plaintiff demonstrates a 

substantially disproportionate anticompetitive 

harm. 

Loyalty Discounts. Chapter 6 also considers 

single-product loyalty discounts. Single-product 

loyalty discounts often are procompetitive, but 

they can be anticompetitive under certain 

limited circumstances. The Department is 

inclined to treat this practice as predatory 

pricing and therefore consider the discounting 

lawful unless the seller’s revenues are less than 

an appropriate measure of its costs. This 

approach is administrable, guards against 

chilling legitimate discounting, and is 

especially appropriate if the seller’s rivals can 

reasonably compete for the entirety of a 

customer’s purchases.

 When a significant portion of a customer’s 

purchases are not subject to meaningful 

competition, the Department recognizes the 

possibility that single-product loyalty discounts 

x 
 

EXECUTIVE SUMMARY 

might produce an anticompetitive effect even 

though the discounted price over all of a 

customer’s purchases exceeds the seller’s cost. 

Accordingly, the Department believes that 

further study of the real-world impact of the 

practice is necessary before concluding that 

standard predatory-pricing analysis is 

appropriate in all cases. 

CHAPTER 7: Unilateral, Unconditional 

Refusals to Deal with Rivals 

Chapter 7 discusses unilateral, unconditional 

refusals by firms with monopoly power to deal 

with their rivals. Such refusals can include 

refusing to sell inputs, license intellectual 

property rights, or share scarce resources. In 

certain decisions, the Supreme Court held that 

such refusals violated section 2, but the Court’s 

most recent decision on this subject took a very 

cautious approach. Compelling access to 

inputs, property rights, or resources 

undoubtedly can enhance short-term price 

competition, but doing so can do more harm 

than good to the competitive process over the 

longer term. 

The Department agrees with the Court that 

forcing a competitor with monopoly power to 

deal with rivals can undermine the incentive of 

either or both to innovate. The Department 

also agrees with the Court that judges and 

enforcement agencies are ill-equipped to set 

and supervise the terms on which inputs, 

property rights, or resources are provided. 

Thus, the Department concludes that antitrust 

liability for mere unilateral, unconditional 

refusals to deal with rivals should not play a 

meaningful role in section 2 enforcement. 

CHAPTER 8: Exclusive Dealing 

Chapter 8 addresses the practice of exclusive 

dealing. Exclusive dealing can enhance 

efficiency by aligning the incentives of trading 

partners, by preventing free riding, and in other 

ways. Exclusive dealing also can undermine 

the competitive process by, for example, 

barring smaller competitors from efficient 

distribution channels and denying them the 

ability to operate at efficient scale. 

The Department believes that exclusivedealing arrangements foreclosing less than 

thirty percent of existing customers or effective 

distribution should not be illegal. The 

Department does not believe that the legality of 

an exclusive-dealing arrangement should be 

determined solely by the explicit duration of 

the contract or agreement. When a firm with 

lawful monopoly power utilizes exclusive 

dealing, the Department will examine whether 

the exclusive dealing contributed significantly 

to maintaining monopoly power and whether 

alternative distribution channels allow 

competitors to pose a real threat to the 

monopoly before potentially imposing liability. 

CHAPTER 9: Remedies 

Chapter 9 focuses on remedies in section 2 

cases. Implementing effective remedies is key 

to section 2 enforcement. 

Equitable Remedies. Section 2 equitable 

remedies should terminate a defendant’s 

unlawful conduct, prevent its recurrence, and 

re-establish the opportunity for competition. 

And they should do so without imposing 

undue costs on the court or the parties, without 

unnecessarily chilling legitimate competition, 

and without undermining incentives to invest 

and innovate. This often is a daunting 

challenge. 

The Department believes that prohibiting a 

defendant from engaging in specific acts, 

defined by clear and objective criteria, is the 

proper remedy if it would be effective. In some 

circumstances, however, re-establishing the 

opportunity for competition requires the 

imposition of additional affirmative obligations 

on defendant. Structural remedies, including 

various forms of divestiture, may be 

appropriate if there is a clear, significant causal 

connection between defendant’s monopoly 

power and the unlawful acts. Radical 

restructuring of the defendant, however, is 

appropriate only if there is no other way to 

achieve the remedial goals and the 

determination is made that such restructuring 

xi 
 

 

 

 

SECTION 2 REPORT 

would likely benefit consumers. 

Monetary Remedies. The Department believes 

that further consideration of appropriate 

monetary damages and penalties for section 2 

violations may be useful. 

CHAPTER 10: International Perspective 

Chapter 10 offers an international 

perspective. Over one hundred nations have 

antitrust laws, nearly all including provisions 

on single-firm exclusionary conduct, but there 

are significant differences among various 

countries’ laws, legal institutions, and 

enforcement policies. With increasingly 

globalized markets, the diversity of competition 

regimes has raised concerns. Firms doing 

business globally, when confronted with, for 

example, a product-design decision, may be 

pushed to conform to the rules of the most 

restrictive jurisdiction. Certain types of 

remedies, such as mandatory disclosures of 

intellectual property, also have global impacts. 

The Department and the FTC have 

addressed the challenges posed by multijurisdictional enforcement against single-firm 

exclusionary conduct in several ways. They 

have entered into bilateral cooperation 

agreements with seven countries and the 

European Communities. They actively participate 

in several international organizations, such as the 

International Competition Network and the 

Organisation for Economic Co-Operation and 

Development. And they provide technical 

assistance to nations in the early stages of 

adopting and implementing antitrust laws. The 

Department will continue to explore ways of 

strengthening cooperation with counterparts in 

other jurisdictions and increasing convergence 

on sound enforcement policies. 

CONCLUSION 

The Department believes that the hearings 

advanced the debate with respect to the 

appropriate legal standards for single-firm 

conduct under section 2 of the Sherman Act. 

The Department hopes that this report will 

contribute to the public debate in this complex 

but important area, and that it makes progress 

toward the goal of sound, clear, objective, 

effective, and administrable standards for 

analyzing single-firm conduct. The Department, 

of course, will continue to review the legal and 

economic scholarship in this area, to learn from 

its own investigations and cases, to consult 

with other enforcement officials, and to engage 

in the public dialogue over how best to advance 

that goal in the future. 

xii 
INTRODUCTION 

The U.S. antitrust laws embody a 

commitment to preserving free markets 

unfettered by unreasonable restraints of trade. 

Free markets are the most effective means for 

allocating resources to their highest valued uses 

and maximizing consumer w elfare. 

Competition sharpens firms’ incentives to cut 

costs and improve productivity and stimulates 

product and process innovation. Competition 

necessarily results in some firms losing while 

others succeed. That risk creates a vibrant and 

dynamic rivalry that maximizes economic 

growth. 

The antitrust laws protect this competitive 

process. Section 2 of the Sherman Act prohibits 

a firm from illegally acquiring or maintaining a 

monopoly in any market. This prohibition 

represents a key component of U.S. antitrust 

enforcement. Unlike section 1 of the Sherman 

Act or section 7 of the Clayton Act, section 2 

specifically targets single-firm conduct by firms 

with monopoly power or a dangerous 

probability of attaining such power. Firms 

possessing monopoly power can reduce output 

and charge higher prices than would prevail 

under competitive conditions and thereby harm 

consumers. 

Section 2 enforcement is an area of great 

debate within the antitrust world today. Legal 

and economic scholarship has revealed that 

many single-firm practices once presumed to 

violate section 2 can create efficiencies and 

benefit consumers. At the same time, there is a 

greater appreciation for the potential harm 

from excessive restrictions on single-firm 

conduct, particularly harm to innovation, 

which is the most important source of economic 

growth. These developments cause some to 

question whether certain unilateral conduct 

should be per se lawful, whether penalties for 

section 2 violations should be reduced, and 

even whether section 2 should be repealed. 

Others, however, contend that certain 

potentially anticompetitive practices may be 

more prevalent, or at least more theoretically 

possible, than earlier scholarship suggested. In 

addition, some suggest that certain 

characteristics of today’s markets, for example, 

the increasing emergence of network effects, 

make timely and effective section 2 

enforcement even more important than in the 

past. 

This debate led the Department of Justice 

(Department) and the Federal Trade 

Commission (FTC) in June 2006 to embark on a 

year-long series of joint hearings—involving 29 

panels and 119 witnesses—to study issues 

relating to enforcement of section 2 against 

single-firm conduct.1

 The hearings covered a 

wide range of topics. Some were broad, such as 

the sessions on monopoly power, remedies, and 

international issues. Others focused more 

narrowly on specific conduct, including 

predatory pricing and bidding, tying, bundled 

and single-product loyalty discounts, refusals 

to deal with rivals, and exclusive dealing. Four 

of the sessions—held in Berkeley, California, 

and Chicago, Illinois—were devoted to hearing 

the views of business representatives. 

The sessions included current and former 

antitrust enforcement officials from the United 

States and abroad, leading academic 

1 The hearing record, including transcripts of the 

hearings, presentations, written statements from 

various panelists, and public comments, is available on 

the Department’s website for the hearings: http:// 

www.usdoj.gov/atr/public/hearings/single_firm/ 

sfchearing.htm. 
 

 

2 SECTION 2 REPORT 

economists and legal scholars, antitrust law 

practitioners, and representatives of the 

business community.2 In addition, the 

Department and the FTC requested and 

received comments from lawyers, economists, 

the business community, consum ers, 

academics, and other interested parties. 

The Department expected that the section 2 

hearings would help inform its enforcement 

efforts. In addition, the Department, along 

with the FTC, plays an important role in the 

United States as an advocate of sound 

competition law and policy before courts and in 

consultation with government agencies and 

legislatures. The Department fulfills this role 

by participating as amicus curiae in important 

antitrust cases, issuing guidelines and other 

policy statements, and conducting workshops 

on a wide variety of important antitrust issues. 

The hearings on section 2 unilateral-conduct 

standards are an important example of these 

broader efforts to ensure the law achieves its 

objective of maximizing economic growth by 

protecting the competitive process and 

consumer welfare. 

There was consensus at the hearings and the 

Department agrees that firms with, or seeking 

to acquire, monopoly power can act in ways 

that should be condemned because they harm 

competition and consumers. There also was 

consensus regarding the need for sound, clear, 

objective, effective, and administrable rules 

enabling businesses to conform their behavior 

to the law and affording them a degree of 

certainty in their planning. 

The Department approached this report by 

analyzing the extensive hearing record in the 

context of relevant case law and scholarship, 

with the objectives of clarifying the analytical 

framework for assessing the legality of singlefirm conduct under section 2 and providing 

enhanced guidance to courts, antitrust 

counselors, and the business community. The 

report is divided into ten chapters. 

Chapter 1 discusses the importance of 

2 A list of the participants in the hearings, along 

with their affiliations at the time of their participation, 

is provided in the Appendix. 

section 2 and explicates the principles that 

guide section 2 enforcement. 

Chapter 2 addresses monopoly power, 

exploring topics such as the definition of 

monopoly power, proof of monopoly power, 

and the role of market share, including marketshare safe harbors, presumptions, and 

limitations. 

Chapter 3 discusses the importance of a 

framework for legal analysis and examines 

several general tests that commentators have 

proposed for evaluating section 2 claims. 

Chapters 4–8 explore individual categories 

of conduct that have been challenged under 

section 2 and, where appropriate, recommend 

specific tests to be applied and specific factors 

to be considered. 

Chapter 4 discusses predatory pricing and 

bidding. 

Chapter 5 discusses tying. 

Chapter 6 examines bundled and singleproduct loyalty discounts. 

Chapter 7 analyzes unilateral, unconditional 

refusals to deal with rivals. 

Chapter 8 addresses exclusive dealing. 

Chapter 9 deals with the critical subject of 

remedies, identifying remedial goals and 

examining the benefits and costs of different 

remedies. 

Chapter 10 addresses issues raised by the 

proliferation of antitrust regimes throughout 

the world and how U.S. federal enforcement 

agencies, international organizations, and 

others are attempting to ameliorate conflicts 

and seek convergence in the competitive 

analysis of single-firm conduct. 

The Department remains committed to 

vigilant and sound enforcement of section 2 and 

to the development and application of sound, 

clear, objective, effective, and administrable tests. 

Such tests can provide businesses guidance that 

will more effectively deter violations. They also 

enhance enforcement efforts by reducing the 

time and expense of litigating alleged violations 

and justifying strong remedies when violations 

are proved. 

Where appropriate, the Department has set 
 

3 

out “safe harbors” to create certainty for 

businesses and encourage procompetitive 

activity. In other areas, the Department has 

articulated specific standards that should be 

applied. In still other areas, the Department 

has identified issues for further study and 

evaluation. In all cases, the central tenets that 

the law is intended to protect competition and 

that enforcement decisions are to be based on 

sound facts and economics will continue to 

guide the Department. 

The Department thanks the hearing 

panelists and those who submitted public 

comments for the contributionof their expertise 

and time to this project. The Department also 

thanks the University of Chicago Graduate 

School of Business and the Competition and 

Policy Center, the Berkeley Center for Law and 

Technology, and the Haas School of Business at 

the University of California at Berkeley for 

hosting sessions of the hearings. 

Finally, the Department acknowledges and 

thanks the extraordinary efforts of the staff at 

the Antitrust Division and the FTC in planning, 

organizing, and conducting the hearings and in 

analyzing the extensive record.

3

 Without their 

dedicated efforts, neither the hearings nor this 

report would have been possible. 

3 While the Department is grateful to the many FTC 

personnel for their contributions throughout the 

process, the Department remains solely responsible for 

the contents of this report. 

 

 

CHAPTER 1 

SINGLE-FIRM CONDUCT AND SECTION 2 

OF THE SHERMAN ACT: AN OVERVIEW 

This chapter provides an overview of section 

2 and its application to single-firm conduct. 

Part I describes the elements of the primary 

section 2 offenses—monopolization and 

attempted monopolization. Part II discusses 

the purpose of section 2 and the important role 

it plays in U.S. antitrust enforcement. Part III 

identifies key enforcement principles that flow 

from the U.S. experience with section 2. 

I. The Structure and Scope of Section 2 

Section 2 of the Sherman Act makes it 

unlawful for any person to “monopolize, or 

attempt to monopolize, or combine or conspire 

with any other person or persons, to 

monopolize any part of the trade or commerce 

among the several States, or with foreign 

nations . . . .”1 

Section 2 establishes three offenses, 

commonly termed “monopolization,” 

“attempted monopolization,” and “conspiracy 

to monopolize.”2

 Although this report and 

most of the legal and economic debate focus 

specifically on the two forms of 

monopolization—monopoly acquisition and 

monopoly maintenance—much of the 

discussion applies to the attempt offense as 

well.3 

A. Monopolization 

At its core, section 2 makes it illegal to 

1 15 U.S.C. § 2 (2000). 

2 See, e.g., 1 SECTION OF ANTITRUST LAW, AM. BAR 

ASS’N, ANTITRUST LAW DEVELOPMENTS 225, 317 (6th ed. 

2007). 

3 The conspiracy to monopolize offense addresses 

concerted action directed at the acquisitionof monopoly 

power, see generally id. at 317–22, and is largely outside 

the scope of this report because the hearings focused on 

the legal treatment of unilateral conduct. 

acquire or maintain monopoly power through 

impropermeans. The long-standing requirement 

for monopolization is both “(1) the possession 

of monopoly power in the relevant market and 

(2) the willful acquisition or maintenance of 

that power as distinguished from growth or 

development as a consequence of a superior 

product, business acumen, or historic accident.”4 

Monopolization requires (1) monopoly 

power and (2) the willful acquisition or 

maintenance of that power as 

distinguished from growth or 

development as a consequence of a 

superior product, business acumen, or 

historic accident. 

Regarding the first element, it is “settled 

law” that the offense of monopolization 

requires “the possession of monopoly power in 

the relevant market.”5

 As discussed in chapter 

2, monopoly power means substantial market 

power that is durable rather than 

fleeting—market power being the ability to 

raise prices profitability above those that would 

be charged in a competitive market.6 

But, as the second element makes clear, “the 

possession of monopoly power will not be 

found unlawful unless it is accompanied by an 

element of anticompetitive conduct.”7 Such 

conduct often is described as “exclusionary” or 

“predatory” conduct. This element includes 

both conduct used to acquire a monopoly 

unlawfully and conduct used to maintain a 

4 United States v. Grinnell Corp., 384 U.S. 563, 

570–71 (1966). 

5 Verizon Commc’ns Inc. v. Law Offices of Curtis V. 

Trinko, LLP, 540 U.S. 398, 407 (2004). 

6 See infra Chapter 2, Part II. 

7 Trinko, 540 U.S. at 407 (emphasis omitted). 
6 SECTION 2 REPORT 

monopoly unlawfully. A wide range of 

unilateral conduct has been challenged under 

section 2, and it often can be difficult to 

determine whether the conduct of a firm with 

monopoly power is anticompetitive. 

B. Attempted Monopolization 

Section 2 also proscribes “attempt[s] to 

monopolize.”8

 Establishing attempted monopolization requires proof “(1) that the defendant 

has engaged in predatory or anticompetitive 

conduct with (2) a specific intent to monopolize 

and (3) a dangerous probability of achieving 

monopoly power.”9 It is “not necessary to 

show that success rewarded [the] attempt to 

monopolize;”10 rather, “when that intent and 

the consequent dangerousprobability exist, this 

statute, like many others and like the common 

law in some cases, directs itself against the 

dangerous probability as well as against the 

completed result.”11 

Attempted monopolization requires (1) 

anticompetitive conduct, (2) a specific 

intent to monopolize, and (3) a 

dangerous probability of achieving 

monopoly power. 

The same principles are applied in 

evaluating both attempt and monopolization 

claims.12 Conduct that is legal for a monopolist 

is also legal for an aspiring monopolist.13 But 

conduct that is illegal for a monopolist may be 

legal for a firm that lacks monopoly power 

8 15 U.S.C. § 2 (2000). 

9 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 

456 (1993). 

10 Lorain Journal Co. v. United States, 342 U.S. 143, 

153 (1951). 

11 Spectrum Sports, 506 U.S. at 455 (quoting Swift & 

Co. v. United States, 196 U.S. 375, 396 (1905)). 

12 See SECTION OF ANTITRUST LAW, supra note 2, at 

307 (“The same principles used in the monopolization 

context to distinguish aggressive competition from 

anticompetitive exclusion thus apply in attempt 

cases.”). 

13 Olympia Equip. Leasing Co. v. W. Union Tel. Co., 

797 F.2d 370, 373 (7th Cir. 1986) (Posner, J.) (citing 3 

PHILLIP E. AREEDA & DONALD F. TURNER, ANTITRUST 

LAW ¶ 828a (1978)). 

because certain conduct may not have 

anticompetitive effects unless undertaken by a 

firm already possessing monopoly power.14 

Specific intent to monopolize does not mean 

“an intent to compete vigorously;”15 rather, it 

entails “a specific intent to destroy competition 

or build monopoly.”16 Some courts have 

criticized the intent element as nebulous and a 

distraction from proper analysis of the potential 

competitive effects of the challenged conduct.17 

One treatise concludes that “‘objective intent’ 

manifested by the use of prohibited means 

should be sufficient to satisfy the intent 

component of attempt to monopolize”18 and 

that “consciousness of wrong-doing is not itself 

important, except insofar as it (1) bears on the 

appraisal of ambiguous conduct or (2) limits 

the reach of the offense by those courts that 

improperly undervalue the power component 

of the attempt offense.”19 

The “dangerousprobability” inquiry requires 

consideration of “the relevant market and the 

defendant’s ability to lessen or destroy 

14 United States v. Dentsply Int’l, Inc., 399 F.3d 181, 

187 (3d Cir. 2005) (“Behavior that otherwise might 

comply with antitrust law may be impermissibly 

exclusionary when practiced by a monopolist.”); 3A 

PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST 

LAW ¶ 806e (2d ed. 2002). 

15 Spectrum Sports, 506 U.S. at 459; see also AREEDA & 

HOVENKAMP, supra note 14, ¶ 805b1, at 340 (“There is at 

least one kind of intent that the proscribed ‘specific 

intent’ clearly cannot include: the mere intention to 

prevail over one’s rivals. To declare that intention 

unlawful would defeat the antitrust goal of 

encouraging competition . . . which is heavily motivated 

by such an intent.” (footnote omitted)). 

16 Times-Picayune Publ’g Co. v. United States, 345 

U.S. 594, 626 (1953). 

17 See, e.g., A.A. Poultry Farms, Inc. v. Rose Acre 

Farms, Inc., 881 F.2d 1396, 1402 (7th Cir. 1989) 

(Easterbrook, J.) (“Intent does not help to separate 

competition from attempted monopolization and 

invites juries to penalize hard competition. . . . Stripping 

intent away brings the real economic questions to the 

fore at the same time as it streamlines antitrust 

litigation.”). 

18 AREEDA & HOVENKAMP, supra note 14, ¶ 805b2, at 

342. 

19 Id. ¶ 805a, at 339–40. 
 

GENERAL DISCUSSION OF SECTION 2 7 

competition in that market.”20 In making these 

assessments, lower courts have relied on the 

same factors used to ascertain whether a 

defendant charged with monopolization has 

monopoly power,21 while recognizing that a 

lesser quantum of market power can suffice.22 

II. The Purpose of Section 2 and

 Its Important Role in Sound

 Antitrust Enforcement 

The statutory language of section 2 is terse. 

Its framers left the statute’s centerpiece—what 

it means to “monopolize”—undefined, and the 

statutory language offers no further guidance 

in identifying prohibited conduct.23 Instead, 

Congress gave the Act “a generality and 

adaptability comparable to that found to be 

desirable in constitutional provisions”24 and 

“expected the courts to give shape to the 

statute’s broad mandate by drawing on the 

20 Spectrum Sports, 506 U.S. at 456. 

21 See, e.g., United States v. Microsoft Corp., 253 F.3d 

34, 81 (D.C. Cir. 2001) (en banc) (per curiam) (“Defining 

a market for an attempted monopolization claim 

involves the same steps as defining a market for a 

monopoly maintenance claim . . . .”); SECTION OF 

ANTITRUST LAW, supra note 2, at 312–17 (cataloging 

factors considered by courts, including, most 

importantly, market share and barriers to entry). 

22 See, e.g., Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 

1421, 1438 (9th Cir. 1995) (“[T]he minimum showing of 

market share required in an attempt case is a lower 

quantum than the minimum showing required in an 

actual monopolization case.”); SECTION OF ANTITRUST 

LAW, supra note 2, at 312. 

23 15 U.S.C. § 2 (2000); see also 3 AREEDA & 

HOVENKAMP, supra note 14, ¶ 632, at 49 (“[T]he question 

whether judicial intervention under §2 requires more 

than monopoly is not answered by the words of the 

statute.”); ROBERT H. BORK,THE ANTITRUST PARADOX 57 

(1978) (“The bare language of the Sherman Act conveys 

little . . . .”); Frank H. Easterbrook, Vertical Arrangements 

and the Rule of Reason, 53 ANTITRUST L.J. 135, 136 (1984) 

(“The language of the Sherman Act governs no real 

cases.”); Thomas E. Kauper, Section Two of the Sherman 

Act: The Search for Standards, 93 GEO. L.J. 1623, 1623 

(2005) (“Over its 114-year history, Section Two of the 

Sherman Act has been a source of puzzlement to 

lawyers, judges and scholars, a puzzlement derived in 

large part from the statute’s extraordinary brevity.” 

(footnote omitted)). 

24 Appalachian Coals, Inc. v. United States, 288 U.S. 

344, 360 (1933). 

common-law tradition”25 in furtherance of the 

underlying statutory goals. 

Section 2 serves the same fundamental 

purpose as the other core provisions of U.S. 

antitrust law: promoting a market-based 

economy that increases economic growth and 

maximizes the wealth and prosperity of our 

society. As the Supreme Court has explained: 

The Sherman Act was designed to be a 

comprehensive charter of economic liberty 

aimed at preserving free and unfettered 

competition as the rule of trade. It rests on 

the premise that the unrestrained interaction 

of competitive forces will yield the best 

allocation of our economic resources, the 

lowest prices, the highest quality and the 

greatest material progress . . . .26 

Section 2 achieves this end by prohibiting 

conduct that results in the acquisition or 

maintenance of monopoly power, thereby 

preserving a competitive environment that 

gives firms incentives to spur economic growth. 

Competition spurs companies to reduce costs, 

improve the quality of their products, invent 

new products, educate consumers, and engage 

in a wide range of other activity that benefits 

consumer welfare. It is the process by which 

more efficient firms win out and society’s 

limited resources are allocated as efficiently as 

possible.27 

Section 2 also advances its core purpose by 

ensuring that it does not prohibit aggressive 

competition. Competition is an inherently 

dynamic process. It works because firms strive 

to attract sales by innovating and otherwise 

seeking to please consumers, even if that means 

rivals will be less successful or never 

materialize at all. Failure—in the form of lost 

sales, reduced profits, and even going out of 

business—is a natural and indeed essential part 

of this competitive process. “Competition is a 

25 Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 

U.S. 679, 688 (1978). 

26 N. Pac Ry. Co. v. United States, 356 U.S. 1, 4 

(1958). 

27 See 2B PHILLIP E. AREEDA ET AL., ANTITRUST LAW 

¶402 (3d ed. 2007). See generally WILLIAM W.LEWIS,THE 

POWER OF PRODUCTIVITY: WEALTH, POVERTY, AND THE 

THREAT TO GLOBAL STABILITY 13–14 (2004). 
 

 

8 SECTION 2 REPORT 

ruthless process. A firm that reduces cost and 

expands sales injures rivals—sometimes 

fatally.”28 While it may be tempting to try to 

protect competitors, such a policy would be 

antithetical to the free-market competitive 

process on which we depend for prosperity and 

growth. 

Likewise, although monopoly has long been 

recognized as having the harmful effects of 

higher prices, curtailed output, lowered 

quality, and reduced innovation,29 it can also be 

the outcome of the very competitive striving we 

prize. “[A]n efficient firm may capture 

unsatisfied customers from an inefficient rival,” 

and this “is precisely the sort of competition 

that promotes the consumer interests that the 

Sherman Act aims to foster.”30 Indeed, as 

courts and enforcers have in recent years come 

to better appreciate, the prospect of monopoly 

profits may well be what “attracts ‘business 

acumen’ in the first place; it induces risk taking 

that produces innovation and economic 

growth.”31 Competition is ill-served by insisting 

that firms pull their competitive punches so as 

to avoid the degree of marketplace success that 

gives them monopoly power or by demanding 

that winning firms, once they achieve such 

28 Ball Mem’l Hosp., Inc. v. Mut. Hosp. Ins., Inc., 784 

F.2d 1325, 1338 (7th Cir. 1986) (Easterbrook, J.). 

29 See, e.g., Standard Oil Co. of N.J. v. United States, 

221 U.S. 1, 52 (1911) (citing the danger that a monopoly 

will “fix the price,” impose a “limitation on 

production,” or cause a “deterioration in quality of the 

monopolized article”); Sherman Act Section 2 Joint 

Hearing: Empirical Perspectives Session Hr’g Tr. 13, 

Sept. 26, 2006 [hereinafter Sept. 26 Hr’g Tr.] (Scherer) 

(observing that reluctance to “cannibalize the rents that 

they are earning on the products that they already have 

marketed” may make monopolists “sluggish 

innovators”); Sherman Act Section 2 Joint Hearing: 

Welcome and Overview of Hearings Hr’g Tr. 25, June 

20, 2006 [hereinafter June 20 Hr’g Tr.] (Barnett) 

(identifying as “a major harm of monopoly” the 

possibility that a monopolist may not feel pressure to 

innovate). 

30 Copperweld Corp. v. Independence Tube Corp., 

467 U.S. 752, 767 (1984). 

31 Verizon Commc’ns, Inc. v. Law Offices of Curtis 

V. Trinko, LLP, 540 U.S. 398, 407 (2004); see also June 20 

Hr’g Tr., supra note 29, at 25–27 (Barnett). 

power, “lie down and play dead.”32 

Section 2 thus aims neither to eradicate 

monopoly itself, nor to prevent firms from 

exercising the monopoly power their legitimate 

success has generated, but rather to protect the 

process of competition that spurs firms to 

succeed. The law encourages all firms— 

monopolists and challengers alike—to continue 

striving. It does this by preventing firms from 

achieving monopoly, or taking steps to 

entrench their existing monopoly power, 

through means incompatible with the 

competitive process. 

III. Principles that Have Guided the

 Evolution of Section 2 Standards

 and Enforcement 

The history of section 2 reflects an ongoing 

quest to align the statute’s application with the 

underlying goals of the antitrust laws. 

Consistent with the law’s common-law 

character, courts have interpreted the Sherman 

Act’s broad mandate differently over time and 

have revisited particular section 2 rules in 

response to advances in economic learning, 

changes in the U.S. economy, and experience 

with the application of section 2 to real-world 

conduct. Today, a consensus—as reflected in 

both judicial decisions33 and the views of a 

broad cross-section of commentators—exists on 

at least seven core principles regarding section 

2, each of which is discussed in the sections that 

follow: 

• Unilateral conduct is outside the purview 

of section 2 unless the actor possesses 

32 Goldwasser v. Ameritech Corp., 222 F.3d 390, 397 

(7th Cir. 2000). 

33 Underscoring the degree of consensus on many 

antitrust matters today, the Justices of the Supreme 

Court have shown remarkable agreement in recent 

antitrust matters. The aggregate voting totals for the 

twelve antitrust cases decided over the past decade 

show ninety-one votes in favor of the judgment and 

only thirteen in dissent. Even more striking, and 

directly relevant to this report, all three cases 

addressing claims under section 2 were decided 

without dissent. See Weyerhaeuser Co. v. RossSimmons Hardwood Lumber Co., 127 S. Ct. 1069 (2007); 

Trinko, 540 U.S. 398; NYNEX Corp. v. Discon, Inc., 525 

U.S. 128 (1998). 
GENERAL DISCUSSION OF SECTION 2 9 

monopoly power or is likely to achieve it. 

• The mere possession or exercise of 

monopoly power is not an offense; the 

law addresses only the anticompetitive 

acquisition or maintenance of such 

power (and certain related attempts). 

• Acquiring or maintaining monopoly 

power through assaults on the competitive 

process harms consumers and is to be 

condemned. 

• Mere harm to competitors—without 

harm to the competitive process—does 

not violate section 2. 

• Competitive and exclusionary conduct 

can look alike—indeed, the same conduct 

can have both beneficial and 

exclusionary effects—making it hard to 

distinguish conduct that should be 

deemed unlawful from conduct that 

should not. 

• Because competitive and exclusionary 

conduct often look alike, courts and 

enforcers need to be concerned with both 

underdeterrence and overdeterrence. 

• Standards for applying section 2 should 

take into account the costs, including 

error and administrative costs, associated 

with courts and enforcers applying those 

standards in individual cases and 

businesses applying them in their own 

day-to-day decision making. 

A. The Monopoly-Power Requirement 

Section 2’s unilateral-conduct provisions 

apply only to firms that already possess 

monopoly power or have a dangerous 

probability of achieving monopoly power. This 

core requirement’s importance as a basic 

building block of section 2 application to 

unilateral conduct should not be overlooked. 

Among other things, this requirement ensures 

that conduct within the statute’s scope poses 

some realistic threat to the competitive process, 

and it also provides certainty to firms that lack 

monopoly power (or any realistic likelihood of 

attaining it) that they need not constrain their 

vigorous and creative unilateral-business 

strategies out of fear of section 2 liability.34 

As the Supreme Court explained in its 1984 

Copperweld decision, because “robust 

competition” and “conduct with long-run anticompetitive effects” may be difficult to 

distinguish in the single-firm context, Congress 

had authorized “scrutiny of single firms” only 

where they “pose[d] a danger of 

monopolization.”35 The application of the 

monopoly-power requirement is discussed in 

detail in chapter 2 of the report. 

B. The Anticompetitive-Conduct

 Requirement 

Section 2 prohibits acquiring or maintaining 

(and in some cases attempting to acquire) 

monopoly power only through improper 

means.36 As long as a firm utilizes only lawful 

means, it is free to strive for competitive success 

and reap the benefits of whatever market 

position (including monopoly) that success 

brings, including charging whatever price the 

market will bear. Prohibiting the mere 

possession of monopoly power is inconsistent 

with harnessing the competitive process to 

achieve economic growth. 

Nearly a century ago, in Standard Oil, one of 

the Supreme Court’s first monopolization cases, 

the Court observed that the Act does not 

include “any direct prohibition against 

monopoly in the concrete.”37 The Court thus 

rejected the United States’s assertion that 

section 2 bars the attainment of monopoly or 

monopoly power regardless of the means and 

instead held that without unlawful conduct, 

mere “size, aggregated capital, power and 

volume of business are not monopolizing in a 

legal sense.”38 

United States v. Aluminum Co. of America reemphasized Standard Oil’s distinction between 

the mere possession of monopoly and unlawful 

34 See John Vickers, Market Power in Competition 

Cases, 2 EUR. COMPETITION J. 3, 12 (2006). 

35 467 U.S. at 768. 

36 See Spectrum Sports, Inc. v. McQuillan, 506 U.S. 

447, 456 (1993); United States v. Grinnell, 384 U.S. 563, 

570–71 (1966). 

37 221 U.S. 1, 62 (1911). 

38 Id. at 10; see also id. at 62. 
 

 

 

 

10 SECTION 2 REPORT 

monopolization as a key analytical concept.39 

Writing for the Second Circuit, Judge Hand 

reasoned that, simply because Alcoa had a 

monopoly in the market for ingot, it did “not 

follow” that “it [had] ‘monopolized’” the 

market: “[I]t may not have achieved 

monopoly; monopoly may have been thrust 

upon it.”40 The court determined that mere 

“size does not determine guilt” under section 2 

and that monopoly can result from causes that 

are not unlawful, such as “by force of accident” 

or where a market is so limited it can profitably 

accommodate only one firm.41 Further, the 

court observed that monopoly can result from 

conduct that clearly is within the spirit of the 

antitrust laws. Where “[a] single producer may 

be the survivor out of a group of active 

competitors, merely by virtue of his superior 

skill, foresight and industry,” punishment of 

that producer would run counter to the spirit of 

the antitrust laws: “The successful competitor, 

having been urged to compete, must not be 

turned upon when he wins.”42 

Twenty years after Alcoa, and more than 

fifty years after Standard Oil, the Supreme Court 

articulated in Grinnell43 what remains the classic 

formulation of the section 2 prohibition. 

Drawing from Alcoa, the Court condemned “the 

willful acquisition or maintenance of 

[monopoly] power as distinguished from 

growth or development as a consequence of a 

superior product, business acumen, or historic 

accident.”44 

C. Assaults on the Competitive Process 

Should Be Condemned 

Competition has long stood as the 

touchstone of the Sherman Act. “The law,” the 

Supreme Court has emphasized, “directs itself 

not against conduct which is competitive, even 

severely so, but against conduct which unfairly 

tends to destroy competition itself.”45 The 

39 148 F.2d 416 (2d Cir. 1945) (Hand, J.). 

40 Id. at 429. 

41 Id. at 429–30. 

42 Id. at 430. 

43 384 U.S. 563 (1966). 

44 Id. at 571. 

45 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 

Sherman Act rests on “a legislative judgment 

that ultimately competition will produce not 

only lower prices, but also better goods and 

services.”46 Section 2 stands as a vital safeguard 

ofthat competitiveprocess. AsAssistant Attorney 

General Thomas O. Barnett emphasized at the 

commencement of the hearings, “individual 

firms with . . . monopoly power can act 

anticompetitively and harm consumer 

welfare.”47 Firms with ill-gotten monopoly 

power can inflict on consumers higher prices, 

reduced output, and poorer quality goods or 

services.48 Additionally, in certain circumstances, 

the existence of a monopoly can stymie 

innovation.49 Section 2 enforcement saves 

458 (1993). 

46 Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 

U.S. 679, 695 (1978). As an important corollary, it is 

now generally accepted that section 2 may not be 

enforced to achieve other ends, such as the protection of 

certain kinds of enterprises or the furtherance of 

environmental, social, or other interests. See generally 

RICHARD A.POSNER, ANTITRUST LAW vii–x (2d ed. 2001). 

That is not to say that these other interests are not 

important—they are—but they should be addressed 

through other tools, not the antitrust laws. 

47 June 20 Hr’g Tr., supra note 29, at 35 (Barnett); see 

also id. at 9 (Majoras) (stressing that “private actors can 

and do distort competition” and that “halting conduct 

that goes beyond aggressive competition to distorting 

it is vital to promoting vigorous competition and 

maximizing consumer welfare”). 

48 See, e.g., DENNIS W. CARLTON & JEFFREY M. 

PERLOFF, MODERN INDUSTRIAL ORGANIZATION 94–99(4th 

ed. 2005); POSNER, supra note 46, at 9–32; Andrew I. 

Gavil, Exclusionary Distribution Strategies by Dominant 

Firms: Striking a Better Balance, 72 ANTITRUST L.J. 3, 33 

(2004). 

49 See, e.g., Sept. 26 Hr’g Tr., supra note 29, at 13 

(Scherer) (stating that “firms in dominant positions are 

almost surely sluggish innovators”); Sherman Act 

Section 2 Joint Hearing: Refusals to Deal Panel Hr’g Tr. 

55, July 18, 2006 [hereinafter July 18 Hr’g Tr.] (Salop) 

(“Monopolists have weaker innovation incentives than 

competitors.”); AREEDA ET AL., supra note 27, ¶ 407; 

Peter C. Carstensen, False Positives in Identifying Liability 

for Exclusionary Conduct: Conceptual Error, Business 

Reality, and Aspen, 2008 WIS. L. REV. 295, 306 (arguing 

that “a monopolist has no incentive to support 

technological innovation that could undermine its 

dominant position in the market” and “having sunk 

investments in existing technology, it may well delay or 

refuse to pursue work on new technology until it has 

accounted for its past investments”); cf. POSNER, supra 
GENERAL DISCUSSION OF SECTION 2 11 

consumers from these harms by deterring or 

eliminatingexclusionary conduct that produces 

or preserves monopoly. 

A number of panelists stated that section 2 is 

essential to preserving competition.50 They 

noted that the threat of anticompetitive conduct 

is real, “far from an isolated event” in the 

words of one.51 Section 2 enforcement has 

played a vital role in U.S. antitrust enforcement 

for a century.52 From the seminal case against 

Standard Oil in 1911,53 through litigation 

resulting in the break-up of AT&T,54 to the 

present-day enforcement in high-technology 

industries with the Microsoft case,55 government 

enforcement of section 2 has benefitted U.S. 

consumers. Private cases brought under 

note 46, at 20 (explaining that “it is an empirical 

question whether monopoly retards or advances 

innovation”). 

50 See, e.g., Sherman Act Section 2 Joint Hearing: 

Business Testimony Hr’g Tr. 12, Feb. 13, 2007 

[hereinafter Feb. 13 Hr’g Tr.] (Balto) (“Antitrust 

enforcement in the generic drug industry is essential.”); 

Sherman Act Section 2 Joint Hearing: Business 

Testimony Hr’g Tr. 133, Jan. 30, 2007 [hereinafter Jan. 

30 Hr’g Tr.] (Haglund) (“The application of Section 2 to 

[regional forest product, fishing, and agricultural] 

markets is important . . . .”); id. at 159–60 (Dull) (“The 

antitrust laws have an important role in policing the 

conduct of firms who would seek to take control of 

those interconnections so as to eliminate competition 

and thus harm consumers.”). 

51 Feb. 13 Hr’g Tr., supra note 50, at 58 (Skitol); see 

also Jan. 30 Hr’g Tr., supra note 50, at 158 (Dull) 

(“Obtaining control of key interfaces through 

anticompetitive means, or using control of key 

interfaces to extend a dominant position in one market 

into other markets, is a real danger in our industry.”). 

52 Other provisions of the antitrust laws can play a 

role in preventing the formation or preservation of 

monopoly, as when section 7 of the Clayton Act is 

enforced against mergers to monopoly, or section 1 of 

the Sherman Act is enforced against certain marketallocation agreements. But section 2 uniquely allows 

antitrust enforcers to reach conduct engaged in 

unilaterally by a firm that has achieved, or dangerously 

threatens to achieve, monopoly power. 

53 221 U.S. 1 (1911). 

54 United States v. AT&T, 552 F. Supp. 131 (D.D.C. 

1982), aff’d mem. sub nom. Maryland v. United States, 

460 U.S. 1001 (1983). 

55 United States v. Microsoft Corp., 253 F.3d 34 (D.C. 

Cir. 2001) (en banc) (per curiam). 

section 2 by injured parties are also important 

to U.S. businesses and consumers. Equally 

important, the potential for significant 

injunctive relief and damages awards provides 

strong incentives for firms to refrain from 

engaging in the types of conduct prohibited by 

the statute. 

D. Protection of Competition, 

Not Competitors 

The focus on protecting the competitive 

process has special significance in 

distinguishing between lawful and unlawful 

unilateral conduct. Competition produces 

injuries; an enterprising firm may negatively 

affect rivals’ profits or drive them out of 

business. But competition also benefits 

consumers by spurring price reductions, better 

quality, and innovation. Accordingly, mere 

harm to competitors is not a basis for antitrust 

liability. “The purpose of the [Sherman] Act,” 

the Supreme Court instructs, “is not to protect 

businesses from the working of the market; it is 

to protect the public from the failure of the 

market.”56 Thus, preserving the rough-andtumble of the marketplace ultimately 

“promotes the consumer interests that the 

Sherman Act aims to foster.”57 

The Supreme Court has underscored this 

basic principle repeatedly over the past several 

decades. In 1984, it observed in Copperweld that 

the type of “robust competition” encouraged by 

the Sherman Act could very well lead to injury 

to individual competitors.58 Accordingly, the 

Court stated that, without more (i.e., injury to 

competition), mere injury to a competitor is not 

in itself unlawful under the Act.59 In so stating, 

the Court cited its 1977 decision in Brunswick 

Corp. v. Pueblo Bowl-O-Mat, Inc. for the 

proposition that the antitrust laws “were 

enacted for ‘the protection of competition, not 

competitors.’”60 

56 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 

458 (1993). 

57 Copperweld Corp. v. Independence Tube Corp., 

467 U.S. 752, 767 (1984). 

58 Id. at 758. 

59 See id. at 767–68. 

60 Id. at 767 n.14 (quoting Brunswick Corp. v. Pueblo 
 

12 SECTION 2 REPORT 

A year after Copperweld, in a decision that it 

subsequently referred to as being “at or near 

the outer boundary of § 2 liability,”61 the Court, 

in Aspen Skiing Co. v. Aspen Highlands Skiing 

Corp., found that a firm operating three of four 

mountain ski areas in Aspen, Colorado, 

violated section 2 by refusing to continue 

cooperating with a smaller rival in offering a 

combined four-area ski pass.62 The Court 

considered the challenged conduct’s “impact on 

consumers and whether it [had] impaired 

competition in an unnecessarily restrictive 

way.”63 

In a 1993 decision, the Court re-emphasized 

the importance of focusing on competition, 

rather than competitors. In Brooke Group Ltd. v. 

Brown & Williamson Tobacco Corp., the Court 

commented on the elements of a predatorypricing claim, noting that, even where facts 

“indicate that below-cost pricing could likely 

produce its intended effect on the target, there 

is still the further question whether it would 

likely injure competition in the relevant 

market.”64 In particular, the Brooke Group 

recoupment requirement was a logical 

outgrowth of the Court’s concern with 

protecting competition, not competitors. 

Absent the possibility of recoupment through 

supracompetitive pricing, there can be no 

injury to competition: “That below-cost pricing 

may impose painful losses on its target is of no 

moment to the antitrust laws if competition is 

not injured.”65 

Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting 

Brown Shoe Co. v. United States, 370 U.S. 294, 320 

(1962))) (emphasis in original). 

61 Verizon Commc’ns Inc. v. Law Officesof Curtis V. 

Trinko, LLP, 540 U.S. 398, 409 (2004). 

62 472 U.S. 585, 606, 610 (1985). 

63 Id. at 605; see also id. at 605 n.32 (“‘[E]xclusionary’ 

comprehends at the most behavior that not only (1) 

tends to impair the opportunities of rivals, but also (2) 

either does not further competition on the merits or 

does so in an unnecessarily restrictive way.” (quoting 

AREEDA & TURNER, supra note 13, ¶ 626b, at 78)). The 

Court found that the evidence supported the jury’s 

finding that “consumers were adversely affected by the 

elimination” of the four-area ski pass. 472 U.S. at 606. 

64 509 U.S. 209, 225 (1993). 

65 Id. at 224. 

Again, in its 1998 decision in NYNEX, the 

Court reaffirmed that Sherman Act liability 

requires harm to the competitive process, not 

simply a competitor.66 Discon alleged that 

NYNEX and related entities had violated the 

Sherman Act by engaging in an unlawful 

fraudulent scheme that injured Discon and 

benefitted one of Discon’s competitors. While 

conceding that NYNEX’s scheme “hurt 

consumers by raising telephone service rates,” 

the Court found that any consumer injury 

“naturally flowed not so much from a less 

competitive market” for certain services as 

from “the exercise of market power that is 

lawfully in the hands of a monopolist . . . 

combined with a deception worked upon the 

regulatory agency that prevented the agency” 

from controlling that exercise of monopoly 

power.67 The Court explained that a Sherman 

Act “plaintiff . . . must allege and prove harm, 

not just to a single competitor, but to the 

competitive process, i.e., to competition itself.”68 

E. Distinguishing Competitive and

 Exclusionary Conduct Is Often Difficult 

Courts and commentators have long 

recognized the difficulty of determining what 

means of acquiring and maintaining monopoly 

power should be prohibited as improper. 

Although many different kinds of conduct have 

been found to violate section 2, “[d]efining the 

contours of this element . . . has been one of the 

most vexing questions in antitrust law.”69 As 

66 525 U.S. 128, 139 (1998). While the Court focused 

its analysis on the section 1 claim, it stated that the 

section 2 claim in the case could not survive unless the 

challengedconduct harmed the competitive process. Id. 

at 139–40. 

67 Id. at 136 (emphasis in original). 

68 Id. at 135. 

69 SECTION OF ANTITRUST LAW, supra note 2, at 241; 

see also United States v. Microsoft Corp., 253 F.3d 34, 58 

(D.C. Cir. 2001) (en banc) (per curiam) (“Whether any 

particular act of a monopolist is exclusionary, rather 

than merely a form of vigorous competition, can be 

difficult to discern: the means of illicit exclusion, like 

the means of legitimate competition, are myriad. The 

challenge for an antitrust court lies in stating a general 

rule for distinguishing between exclusionary acts, 

which reduce social welfare, and competitive acts, 

which increase it.”); ANTITRUST MODERNIZATION 
 

GENERAL DISCUSSION OF SECTION 2 13 

Judge Easterbrook observes, “Aggressive, 

competitive conduct by any firm, even one with 

market power, is beneficial to consumers. 

Courts should prize and encourage it. 

Aggressive, exclusionary conduct is deleterious 

to consumers, and courts should condemn it. 

The big problem lies in this: competitive and 

exclusionary conduct look alike.”70 

The problem is not simply one that demands 

drawing fine lines separating different 

categories of conduct; often the same conduct can 

both generate efficiencies and exclude 

competitors.71 Judicial experience and advances 

COMM’N, REPORT AND RECOMMENDATIONS 81 (2007), 

available at http://govinfo.library.unt.edu/amc/report 

_recommendation/amc_final_report.pdf (“How to 

evaluate single-firm conduct under Section 2 poses 

among the most difficult questions in antitrust law.”); 

Sherman Act Section 2 Joint Hearing: Loyalty Discounts 

Session Hr’g Tr. 110, Nov. 29, 2006 (Muris) (stating that 

“the scope and meaning of exclusionary behavior 

remains . . . very poorly defined”); July 18 Hr’g Tr., 

supra note 49, at 21 (Pitofsky) (identifying “the 

definition of exclusion under Section 2 . . . as about the 

toughest issue[] that an antitrust lawyer is required to 

face today”); June 20 Hr’g Tr., supra note 29, at 12 

(Majoras) (“[I]t is difficult to distinguish between 

aggressive procompetitive unilateral conduct and 

anticompetitive unilateral conduct.”); Susan A. 

Creighton et al., Cheap Exclusion, 72 ANTITRUST L.J. 975, 

978 (2005) (“Much of the ‘long, and often sorry, history 

of monopolization in the courts’ has been devoted to 

attempting to provide an answer to the question at the 

center of the Supreme Court’s formulation—that is, 

when is monopolizing conduct ‘anticompetitive.’” 

(footnote omitted)); Timothy J. Muris, The FTC and the 

Law of Monopolization, 67 ANTITRUST L.J. 693, 695 (2000) 

(“Much of the monopolization case law struggles with 

the question of when conduct is, or is not, 

exclusionary.”); Mark S. Popofsky, Defining Exclusionary 

Conduct: Section 2, the Rule of Reason, and the Unifying 

Principle Underlying Antitrust Rules, 73 ANTITRUST L.J. 

435, 438 (2006) (“Over a century since the Sherman 

Act’s passage, and some forty years since the Supreme 

Court held that Section 2 condemns the ‘willful’ 

acquisition or maintenance of monopoly power, great 

uncertainty persists as to the test for liability under 

Section 2 of the Sherman Act.” (footnote omitted)). 

70 Frank H. Easterbrook, When Is It Worthwhile to Use 

Courts to Search for Exclusionary Conduct?, 2003 COLUM. 

BUS. L. REV. 345, 345. 

71 June 20 Hr’g Tr., supra note 29, at 17 (Majoras); see 

also Sept. 26 Hr’g Tr., supra note 29, at 20 (Froeb) 

(“[M]echanisms with opposing effects usually appear in 

a single kind of behavior.”); June 20 Hr’g Tr., supra note 

in economic thinking have demonstrated the 

potential procompetitive benefits of a wide 

variety of practices that were once viewed with 

suspicion when engaged in by firms with 

substantial market power. Exclusive dealing, 

for example, may be used to encourage 

beneficial investment by the parties while also 

making it more difficult for competitors to 

distribute their products.72 

When a competitor achieves or maintains 

monopoly power through conduct that serves 

no purpose other than to exclude competition, 

such conduct is clearly improper. There also 

are examples of conduct that is clearly 

legitimate, as when a firm introduces a new 

product that is simply better than its 

competitors’ offerings. The hard cases arise 

when conduct enhances economic efficiency or 

reflects the kind of dynamic and disruptive 

change that is the hallmark of competition, but 

at the same time excludes competitors through 

means other than simply attracting consumers. 

In these situations, distinguishing between 

vigorous competition by a firm with substantial 

market power and illegitimate forms of conduct 

is one of the most challenging puzzles for 

courts, enforcers, and antitrust practitioners. 

F. Concern with Underdeterrence

 and Overdeterrence 

Experience with section 2 enforcement teaches 

the importance of correctly distinguishing 

between aggressive competition and actions 

that exclude rivals and harm the competitive 

process. Some basic boundaries are provided 

by the law’s requirements that the conduct 

harm “competition itself,”73 that it be 

29, at 29 (Barnett) (“The difficulty lies in cases . . . that 

have the potential for both beneficial cost reductions, 

innovation, development, integration, and at the same 

time potentially anticompetitive exclusion.”); A. 

Douglas Melamed, Exclusionary Conduct Under the 

Antitrust Laws: Balancing, Sacrifice, and Refusals to Deal, 

20 BERKELEY TECH. L.J. 1247, 1249 (2005) (“In the vast 

majority of cases, exclusion is the result of conduct that 

has both efficiency properties and the tendency to 

exclude rivals.”). 

72 See generally Benjamin Klein, Exclusive Dealing as 

Competition for Distribution “On the Merits,” 12 GEO. 

MASON L. REV. 119 (2003); infra Chapter 8, Part III. 

73 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 
14 SECTION 2 REPORT 

“willful,”74 and that it not be “competition on 

the merits,”75 but these maxims offer 

insufficient guidance to be of much use in many 

of the hard cases.76 Failure to make proper 

distinctions will either unnecessarily 

perpetuate a monopoly harming consumers or 

disrupt the dynamic process of competition 

that is so vital to economic growth and 

prosperity. 

It is important to distinguish correctly 

between aggressive competition and 

actions that exclude rivals and harm the 

competitive process. 

Standards of section 2 liability that 

underdeter not only shelter a single firm’s 

exclusionary conduct, but also “empower other 

dominant firms to adopt the same strategy.”77 

They thereby “seriously undermine Section 2’s 

vitality as a shield that guards the competitive 

process.”78 And “because it can be so difficult 

for courts to restore competition once it has 

been lost, the true cost of exclusion to consumer 

welfare—and its benefit to dominantfirms—are 

459 (1993). 

74 United States v. Grinnell Corp., 384 U.S. 563, 570 

(1966). 

75 Brooke Group Ltd. v. Brown & Williamson 

Tobacco Corp., 509 U.S. 209, 223 (1993). 

76 As commentators note, for example, the Grinnell 

standard provides little concrete guidance, either to the 

lower courts or to businesses attempting to conform 

their conduct to the requirements of section 2, because 

virtually all conduct—both “good” and “bad”—is 

undertaken “willfully.” See, e.g., SECTION OF ANTITRUST 

LAW, supra note 2, at 242 (“Courts have not been able to 

agree, however, on any general standard beyond the 

highly abstract Grinnell language, which has been 

criticized as not helpful in deciding concrete cases.”); 

Einer Elhauge, Defining Better Monopolization Standards, 

56 STAN. L.REV. 253, 261 (2003) (noting that the Grinnell 

standard is difficult to apply because “[i]t seems 

obvious that often firms willfully acquire or maintain 

monopolypower precisely through business acumen or 

developing a superior product” and it is difficult to 

conceive “of cases where a firm really has a monopoly 

thrust upon it without the aid of any willful conduct”). 

77 Carstensen, supra note 49, at 321. 

78 Gavil, supra note 48, at 5. 

likely to be understated.”79 

Standards of section 2 liability that overdeter 

risk harmful disruption to the dynamic 

competitive process itself. Being able to reap 

the gains from a monopoly position attained 

through a hard-fought competitive battle, or to 

maintain that position through continued 

competitive vigor, may be crucial to motivating 

the firm to innovate in the first place. Rules 

that overdeter, therefore, undermine the 

incentive structure that competitive markets 

rely upon to produce innovation.80 Such rules 

also may sacrifice the efficiency benefits 

associated with the competitive behavior. 

Importantly, rules that are overinclusive or 

unclear will sacrifice those benefits not only in 

markets in which enforcers or courts impose 

liability erroneously, but in other markets as 

well. Firms with substantial market power 

typically attempt to structure their affairs so as 

to avoid either section 2 liability or even having 

to litigate a section 2 case because the costs 

associated with antitrust litigation can be 

extraordinarily large. These firms must base 

their business decisions on their understanding 

of the legal standards governing section 2, 

determining in advance whether a proposed 

course of action leaves their business open to 

antitrust liability or investigation and litigation. 

If the lines are in the wrong place, or if there is 

uncertainty about where those lines are, firms 

will pull their competitive punches 

unnecessarily, thereby depriving consumers of 

the benefits of their efforts.81 The Supreme 

79 Id. at 39. 

80 See Verizon Commc’ns Inc. v. Law Offices of 

Curtis V. Trinko, LLP, 540 U.S. 398, 407–08 (2004). 

81 See, e.g., Jan. 30 Hr’g Tr., supra note 50, at 36 

(Heiner) (“[T]here have been cases . . . where decisions 

were made not to include particular features that would 

have been valuable to consumers based at least in part 

on antitrust advice.”); id. at 95 (Hartogs) (identifying a 

risk that a lack of clear rules on loyalty discounts and 

bundled pricing may cause firms not “to always choose 

what may be the most price friendly, consumer friendly 

result”); id. at 96 (Skitol) (“There are lots of situations I 

find where a client has in mind doing X, Y, Z with its 

consumables, which would be of significant consumer 

value, would enhance the product, and it looks great. 

But because of Kodak and all of the law that’s built up 
GENERAL DISCUSSION OF SECTION 2 15 

Court has consistently emphasized the 

potential dangers of overdeterrence. The 

Court’s concern about overly inclusive or 

unclear legal standards may well be driven in 

significant part by the particularly strong 

chilling effect created by the specter of treble 

damages and class-action cases.82 Many 

hearing panelists reiterated this concern.83 

around it, this is problematic . . . .”). 

82 See Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 

U.S. 717, 728 (1988) (expressing concern regarding a 

rule that likely would cause manufacturers “to forgo 

legitimate and competitively useful conduct rather 

than risk treble damages and perhaps even criminal 

penalties”); Roundtable Discussion: Antitrust and the 

Roberts Court, ANTITRUST, Fall 2007, at 8, 11 

(roundtable participant stating that “the Court 

continues to endorse arguments made by the 

government and by defendants that treble-damages 

over-incentivize antitrust cases”). See generally 

Trinko, 540 U.S. at 414 (“The cost of false positives 

counsels against an undue expansion of § 2 liability.”); 

Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 

(1993); id. at 458 (stating that “this Court and other 

courts have been careful to avoid constructions of § 2 

which might chill competition, rather than foster it”); 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 

U.S. 574, 594 (1986) (stating that mistaken inferences in 

predatory-pricing cases “are especially costly because 

they chill the very conduct the antitrust laws are 

designed to protect”); Copperweld Corp. v. 

Independence Tube Corp., 467 U.S. 752, 767–68 (1984) 

(noting that scrutiny of single firms under the Sherman 

Act is appropriate only when they pose a danger of 

monopolization, an approach that “reduces therisk that 

the antitrust laws will dampen the competitive zeal of 

a single aggressive [competitor]”); William E. Kovacic, 

The Intellectual DNA of Modern U.S. Competition Law for 

Dominant Firm Conduct: The Chicago/Harvard Double 

Helix, 2007 COLUM. BUS. L. REV. 1, 21 (noting the 

“wariness of rules that might discourage dominant 

firms” from “strategies that generally serve to improve 

consumer welfare” resulting from a “fear that overly 

restrictive rules will induce a harmful passivity”). 

83 See, e.g., Sherman Act Section 2 Joint Hearing: 

Section 2 Policy Issues Hr’g Tr. 45, May 1, 2007 

[hereinafter May 1 Hr’g Tr.] (Willig); id. at 46 

(Jacobson); Feb. 13 Hr’g Tr., supra note 50, at 168 (Wark) 

(“Given the punitive nature of the antitrust laws and 

the inevitability of private class action litigation, 

including the prospect of treble damages, defending 

ourselves in that situation, irrespective of the courage of 

our convictions, is high-stakes poker indeed.”). 

Moreover, competitors have incentives to use the 

antitrust laws to impede their rivals. See Sherman Act 

G. The Importance of Administrability 

when Crafting Liability Standards 

Under Section 2 

Courts and commentators increasingly have 

recognized that section 2 standards cannot 

“embody every economic complexity and 

qualification”84 and have sought to craft legal 

tests that account for these limitations. ThenJudge Breyer explained the need for 

simplifying rules more than two decades ago: 

[W]hile technical economic discussion helps 

to inform the antitrust laws, those laws 

cannot precisely replicate the economists’ 

(sometimes conflicting) views. For, unlike 

economics, law is an administrative system 

the effects of which depend upon the 

content of rules and precedents only as they 

are applied by judges and juries in courts 

and by lawyers advising their clients. Rules 

that seek to embody every economic 

complexity and qualification may well, 

through the vagaries of administration, 

prove counter-productive, undercutting the 

very economic ends they seek to serve.85 

Frequently, courts and commentators 

dealing with antitrust have employed decision 

theory,86 which articulates a process for 

Section 2 Joint Hearing: Misleading and Deceptive 

Conduct Session Hr’g Tr. 25–28, Dec. 6, 2006 (McAfee) 

(contending that, among other reasons, private parties 

bring antitrust claims to “extort[] funds from a 

successful rival,” “chang[e] the terms of a contract,” 

“punish noncooperative behavior,” “respond[] to an 

existing lawsuit,” “prevent[] a hostile takeover,” and 

prevent entry); 2 AREEDA ET AL., supra note 27, ¶ 348a, 

at 387 (2d ed. 2000) (cautioning that “a competitor 

opposes efficient, aggressive, and legitimate 

competition by its rivals [and therefore] has an 

incentive to use an antitrust suit to delay their 

operations or to induce them to moderate their 

competition”). 

84 Barry Wright Corp. v. ITT Grinnell Corp., 724 

F.2d 227, 234 (1st Cir. 1983) (Breyer, J.); see also Kovacic, 

supra note 82, at 36 (noting that both the Chicago and 

Harvard schools have insisted “that courts and 

enforcement agencies pay close attention to 

considerations of institutional design and institutional 

capacity in formulating and applying antitrust rules”). 

85 Barry Wright, 724 F.2d at 234. 

86 See, e.g., POSNER, supra note 46, at ix (observing 

that “[a]lmost everyone professionally involved in 

antitrust today” agrees that “the design of antitrust 

rules should take into account the costs and benefits of 
16 SECTION 2 REPORT 

making decisions when information is costly 

and imperfect.87 Decision theory teaches that 

optimal legal standards should minimize the 

inevitable error and enforcement costs, 

considering both the probability and the 

magnitude of harm from each.88 

Decision theory identifies two types of error 

costs. First, there are “false positives” (or Type 

I errors), meaning the wrongful condemnation 

of conduct that benefits competition and 

consumers. The cost of false positives includes 

not just the costs associated with the parties 

before the court (or agency), but also the loss of 

procompetitive conduct by other actors that, 

due to an overly inclusive or vague decision, 

are deterred from undertaking such conduct by 

a fear of litigation.89 

Second, there are “false negatives” (or Type 

individual assessment of challenged practices”); Gavil, 

supra note 48, at 66 (“It is rare today in cases where 

fundamental questions are raised about the ‘right 

standard’ that the parties and courts do not assess the[] 

issues” raised by decision theory.). 

87 See C. Frederick Beckner III & Steven C. Salop, 

Decision Theory and Antitrust Rules, 67 ANTITRUST L.J.41, 

41–42 (1999) (defining decision theory); Isaac Ehrlich & 

Richard A. Posner, An Economic Analysis of Legal 

Rulemaking, 3 J. LEGAL STUD. 257, 272 (1974) (applying 

a decision-theoretic approach to legal rulemaking 

generally). 

88 See Ken Heyer, A World of Uncertainty: Economics 

and the Globalization of Antitrust, 72 ANTITRUST L.J. 375, 

381 (2005). 

89 See Feb. 13 Hr’g Tr., supra note 50, at 170 (Wark) 

(in-house counsel reporting that his client had altered 

its conduct “based not on what we thought was illegal, 

but on what we feared others might argue is illegal” 

and that “in these circumstances competition has likely 

been compromised”); June 20 Hr’g Tr., supra note 29, at 

55 (Carlton) (“[T]he biggest effect of any antitrust policy 

is likely to be, not on litigants in litigated cases, but 

rather, on firms that are not involved in litigation at all 

but are forced to change their business behavior in 

contemplation of legal rules.”); Dennis W. Carlton,Does 

Antitrust Need to Be Modernized?, J. ECON. PERSP., 

Summer 2007, at 155, 159–60 (“[T]he cost of errors must 

include not only the cost of mistakes on the firms 

involved in a particular case, but also the effect of 

setting a legal precedent that will cause other firms to 

adjust their behavior inefficiently.”); cf. May 1 Hr’g Tr., 

supra note 83, at 86 (Jacobson) (stating that the 

“problem” of overdeterrence “is larger in the eyes of the 

enforcement community than it is in the real world.”). 

II errors), meaning the mistaken exoneration of 

conduct that harms competition and 

consumers. As with false positives, the cost of 

false negatives includes not just the failure to 

condemn a particular defendant’s anticompetitive conduct but also the loss to 

competition and consumers inflicted by other 

firms’ anticompetitive conduct that is not 

deterred.90

 It also is important to consider enforcement 

costs—the expenses of investigating and 

litigating section 2 claims (including potential 

claims)—when framing legal tests. Because 

agency resources are finite, it is important to 

exercise enforcement discretion to best promote 

consumer welfare. Enforcement costs include 

the judicial or agency resources devoted to 

antitrust litigation, the expenses of parties in 

litigation (including time spent by management 

and employees on the litigation as opposed to 

producing products or services), and the legal 

fees and other expenses incurred by firms in 

complying with the law.91 

In structuring a legal regime, it is important 

to consider the practical consequences of the 

regime and the relative magnitude and 

frequency of the different types of errors. If, for 

example, the harm from erroneously 

exonerating anticompetitive conduct outweighs 

the harm from erroneously penalizing 

procompetitive conduct, then, all other things 

90 See, e.g., Gavil, supra note 48, at 5 (expressing 

concern that lax section 2 standards may “lead to ‘false 

negatives’ and under-deterrence, with uncertain, but 

very likely substantial adverse consequences for . . . 

nascent competition”); William Kolasky, Reinvigorating 

Antitrust Enforcement in the United States: A Proposal, 

ANTITRUST, Spring 2008, at 85, 86 (stating that “the risk 

of false positives is now much less serious than it was, 

thanks in large part to the Supreme Court’s rulings over 

the last fifteen years,” and that “if anything, we are now 

in greater danger of false negatives”). 

91 See Feb. 13 Hr’g Tr., supra note 50, at 47 (Stern) 

(“It’s important to help avoid inadvertent violations 

and disputes and investigations that end up wasting 

company time and resources as well as the time and 

resources of the agencies.”); id. at 163 (Wark) (in-house 

counsel commenting that “it diverts a tremendous 

amount of management attention and company 

resources” to defend an antitrust lawsuit); Ehrlich & 

Posner, supra note 87, at 270. 
GENERAL DISCUSSION OF SECTION 2 17 

equal, the legal regime should seek to avoid 

false negatives. Some believe as a general rule 

that, in the section 2 context, the cost of false 

positives is higher than the cost of false 

negatives.92 In the common law regime of 

antitrust law, stare decisis inhibits courts from 

routinely correcting errors or updating the law 

to reflect the latest advances in economic 

thinking.93 Some believe that the persistence of 

errors can be particularly harmful to 

competition in the case of false positives 

because “[i]f the court errs by condemning a 

beneficial practice, the benefits may be lost for 

good. Any other firm that uses the condemned 

practice faces sanctions in the name of stare 

decisis, no matter the benefits.”94 In contrast, 

over time “monopoly is self-destructive. 

Monopoly prices eventually attract entry. . . . 

[Thus] judicial errors that tolerate baleful 

practices are self-correcting, while erroneous 

condemnations are not.”95 This self-correcting 

tendency, however, may take substantial time. 

As a result, courts and enforcers should be 

sensitive to the potential that, once created, 

92 See Kovacic, supra note 82, at 36 (“Chicago School 

and Harvard School commentators tend to share the 

view that the social costs of enforcing antitrust rules 

involving dominant firm conduct too aggressively 

exceed the costs of enforcing them too weakly.”); 

Sherman Act Section 2 Joint Hearing: Conduct as 

Related to Competition Hr’g Tr. 23, May 8, 2007 (Rule) 

(stating that “we as a society, given the way we are 

organized, should be very concerned about the adverse 

economic effects, the false positives”). 

93 Although the Supreme Court has overturned 

several long-standing per se rules, see, e.g., Leegin 

Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 

2705 (2007) (overturning the per se rule against 

minimum resale price maintenance), it did so only after 

decades of criticism. 

94 Frank H. Easterbrook, The Limits of Antitrust, 63 

TEX. L. REV. 1, 2 (1984); see also Thomas C. Arthur, The 

Costly Quest for Perfect Competition: Kodak and 

Nonstructural Market Power, 69 N.Y.U. L. REV. 1, 18 

(1994) (“The principle of stare decisis makes obsolete 

doctrines hard to overrule, even after their economic 

underpinnings have been discredited. This has been 

especially true in antitrust.”). But see May 1 Hr’g Tr., 

supra note 83, at 89 (Jacobson) (maintaining that false 

positives are more ephemeral than commonly 

suggested); id. (Krattenmaker) (same). 

95 Easterbrook, supra note 94, at 2–3. 

some monopolies may prove quite durable, 

especially if allowed to erect entry barriers and 

engage in other exclusionary conduct aimed at 

artificially prolonging their existence.96 

One manifestation of decision theory in 

antitrust jurisprudence is the use of rules of per 

se illegality developed by courts. As the 

Supreme Court has explained, these rules 

reduce the administrative costs of determining 

whether particular categories of conduct harm 

competition and consumer welfare.97 Per se 

prohibitions are justified when experience with 

conduct establishes that it is always or almost 

always sufficiently pernicious that it should be 

condemned without inquiry into its actual 

effects in each case.98 Rules of per se illegality 

are not designed to achieve perfection; to the 

contrary, courts explicitly acknowledge the 

potential that they could from time to time 

penalize conduct that does not in fact harm 

consumer welfare, but the rule is nonetheless 

warranted so long as false positives are 

sufficiently rare and procompetitive benefits 

from conduct deterred by the rules are 

sufficiently small. 

Equally important, if one or the other type of 

error is relatively rare (and that error is unlikely 

to result in great harm), the most effective 

approach to enforcement may be an easy-toadminister bright-line test that reduces 

uncertainty and minimizes administrative 

costs. In the antitrust arena, such rules can take 

the form of safe harbors. Court have long 

96 See, e.g., May 1 Hr’g Tr., supra note 83, at 34–35 

(Jacobson) (arguing that monopoly may prove enduring 

absenteffective antitrust intervention); Gavil,supra note 

48, at 39–41 (same). 

97 See, e.g., Cont’l T.V., Inc. v. GTE Sylvania, Inc., 433 

U.S. 36, 50 n.16 (1977) (explaining that per se rules 

“minimize the burdens on litigants and the judicial 

system”). 

98 See NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 133 

(1998) (“[C]ertain kinds of agreements will so often 

prove so harmful to competition and so rarely prove 

justified that the antitrust laws do not require proof that 

an agreement of that kind is, in fact, anticompetitive in 

the particular circumstances.”); State Oil Co. v. Khan, 

522 U.S. 3, 10 (1997) (Certain “types of restraints . . . 

have such predictable and pernicious anticompetitive 

effects, and such limited potential for procompetitive 

benefit, that they are deemed unlawful per se.”). 
18 SECTION 2 REPORT 

recognized the benefits of bright-line tests of 

legality (also known as safe harbors) when 

conduct is highly likely to bring consumerwelfare benefits and the threat of 

anticompetitive harm is remote.99 The best 

known example is the section 2 rule applicable 

to predatory pricing. Building on Matsushita,

100 

the Court in Brooke Group laid out a two-pronged, 

objective test for evaluating predatory-pricing 

claims.101 The Court held that to prevail on a 

predatory-pricing claim, plaintiff must show 

that defendant priced below an appropriate 

measure of its costs and that defendant “had a 

reasonable prospect, or . . . a dangerous 

probability, of recouping its investment in 

below-cost prices.”102 In Weyerhaeuser, the 

Court recently extended these principles to 

predatory-bidding claims.103 

In Matsushita,Brooke Group, and Weyerhaeuser, 

the Court stressed the importance, in crafting a 

rule of decision, of taking into account the risks 

of false positives, the risks of false negatives, 

and administrability. The Court’s 2004 decision 

in Trinko likewise applies decision-theory 

principles in crafting section 2 liability rules.104 

In reaching its decision, the Court articulated 

the same policy concerns with false positives 

that it had raised in previous section 2 cases. 

The Court observed that it had been “very 

cautious” in limiting “the right to refuse to deal 

with other firms” because enforced sharing 

“may lessen the incentive for the monopolist, 

the rival, or both to invest in . . . economically 

beneficial facilities” and obligates courts to 

99 As then-Judge Breyer explained, such rules 

conceivably may shelter some anticompetitive conduct, 

but they avoid “authoriz[ing] a search for a particular 

type of undesirable . . . behavior [that may] end up . . . 

discouraging legitimate . . . competition.” Barry Wright 

Corp. v. ITT Grinnell Corp., 724 F.2d 227, 234 (1st Cir. 

1983). 

100 475 U.S. 574 (1986). 

101 509 U.S. 209, 222, 224 (1993). See generally infra 

Chapter 4, Part I. 

102 Id. at 224. 

103 Weyerhaeuser Co. v. Ross-Simmons Hardwood 

Lumber Co., 127 S. Ct. 1069 (2007). 

104 540 U.S. 398 (2004); see also Popofsky, supra note 

69, at 452 (describing how the Supreme Court used 

decision theory to decide Trinko). 

identify “the proper price, quantity, and other 

terms of dealing—a role for which they are ill 

suited.”105 As the Court further explained: 

Against the slight benefits of antitrust 

intervention here, we must weigh a realistic 

assessment of its costs . . . . Mistaken 

inferences and the resulting fals e 

condemnations “are especially costly 

because they chill the very conduct the 

antitrust laws are designed to protect.” The 

cost of false positives counsels against an 

undue expansion of § 2 liability.106 

IV. Conclusion 

Section 2 enforcement is crucial to the U.S. 

economy. It is a vexing area, however, given 

that competitive conduct and exclusionary 

conduct often look alike. Indeed, the same 

exact conduct can have procompetitive and 

exclusionary effects. An efficient legal regime 

will consider the effects of false positives, false 

negatives, and the costs of administration in 

determining the standards to be applied to 

single-firm conduct under section 2. 

105 540 U.S. at 408. 

106 Id. at 414 (quoting Matsushita Elec. Indus. Co. v. 

Zenith Radio Corp., 475 U.S. 574, 594 (1986)). 
CHAPTER 2 

MONOPOLY POWER 

I. Introduction 

Monopoly power can harm society by 

making output lower, prices higher, and 

innovation less than would be the case in a 

competitive market.1 The possession of 

monopoly power is an element of the 

monopolization offense,2

 and the dangerous 

probability of obtaining monopoly power is an 

element of the attempted monopolization 

offense.3

 As discussed in chapter 1, the mere 

possession of monopoly power does not violate 

section 2.4 

This monopoly-power requirement serves as 

an important screen for evaluating single-firm 

liability. It significantly reduces the possibility 

of discouraging “the competitive enthusiasm 

that the antitrust laws seek to promote,”5 

assures the vast majority of competitors that 

their unilateral actions do not violate section 2, 

and reduces enforcement costs by keeping 

many meritless cases out of court and allowing 

others to be resolved without a trial. 

Accordingly, it is important to determine when 

monopoly power exists within the meaning of 

section 2. 

An understanding of monopoly power helps 

in crafting appropriate antitrust policy towards 

single-firm conduct. Drawing on lessons from 

1 See generally 2B PHILLIP E. AREEDA ET AL., 

ANTITRUST LAW ¶ 403b, at 8 & n.2 (3d ed. 2007); 

RICHARD A. POSNER,ANTITRUST LAW 9–32 (2d ed. 2001). 

2 United States v. Grinnell Corp., 384 U.S. 563, 

570–71 (1966). 

3 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 

459 (1993). 

4 See Chapter 1, Part I(A); see also Grinnell, 384 U.S. 

at 570–71 (requiring improper conduct—as opposed to 

superior skill, foresight, or industry—as an element of 

a section 2 violation). 

5 Copperweld Corp. v. Independence Tube Corp., 

467 U.S. 752, 775 (1984). 

the hearings, along with existing jurisprudence 

and economic learning, this chapter discusses 

the Department’s view on appropriate 

assessment of monopoly power in enforcing 

section 2. 

II. Market Power and Monopoly Power 

Market power is a seller’s ability to exercise 

some control over the price it charges. In our 

economy, few firms are pure price takers facing 

perfectly elastic demand.6

 For example, the 

unique location of a dry cleaner may confer 

slight market power because some customers 

are willing to pay a little more rather than walk 

an extra block or two to the next-closest dry 

cleaner. Economists say the dry cleaner 

possesses market power, if only to a trivial 

degree. Virtually all products that are 

differentiated from one another, if only because 

of consumer tastes, seller reputation, or 

producer location, convey upon their sellers at 

least some degree of market power. Thus, a 

small degree of market power is very common 

and understood not to warrant antitrust 

intervention.7 

Market power and monopoly power are 

related but not the same. The Supreme Court 

has defined market power as “the ability to 

6 See Sherman Act Section 2 Joint Hearing: 

Monopoly Power Session Hr’g Tr. 13–14, Mar. 7, 2007 

[hereinafter Mar. 7 Hr’g Tr.] (Nelson) (“[I]f you have a 

differentiated product and thus have a downwardsloping demand curve for your product, you might 

have some degree of ability to raise prices above costs 

and you might in that sense have market power . . . .”). 

7 See, e.g., Sherman Act Section 2 Joint Hearing: 

Conduct as Related to Competition Hr’g Tr. 55, May 8, 

2007 [hereinafter May 8 Hr’g Tr.] (Sidak) (“I don’t think 

that the downward-sloping demand curve itself is a 

cause for antitrust intervention.”); Dennis W. Carlton, 

Market Definition: Use and Abuse, COMPETITION POL’Y 

INT’L, Spring 2007, at 3, 7. 
 

20 SECTION 2 REPORT 

raise prices above those that would be charged 

in a competitive market,”8

 and monopoly 

power as “the power to control prices or 

exclude competition.”9

 The Supreme Court has 

held that “[m]onopoly power under § 2 

requires, of course, something greater than 

market power under § 1.”10 Precisely where 

market power becomes so great as to constitute 

what the law deems to be monopoly power is 

largely a matter of degree rather than one of 

kind. Clearly, however, monopoly power 

requires, at a minimum, a substantial degree of 

market power.11 Moreover, before subjecting a 

firm to possible challenge under antitrust law 

formonopolizationor attempted monopolization, 

the power in question is generally required to 

be much more than merely fleeting; that is, it 

8 NCAA v. Bd. of Regents of the Univ. of Okla., 468 

U.S. 85, 109 n.38 (1984); see also Jefferson Parish Hosp. 

Dist. No. 2 v. Hyde, 466 U.S. 2, 27 n.46 (1984) (“As an 

economic matter, market power exists whenever prices 

can be raised above levels that would be charged in a 

competitive market.”); cf. DENNIS W.CARLTON &JEFFREY 

M. PERLOFF, MODERN INDUSTRIAL ORGANIZATION 642 

(4th ed. 2005) (noting that a firm has market power “if 

it is profitably able to charge a price above that which 

would prevail under competition”); William M. Landes 

& Richard A. Posner, Market Power in Antitrust Cases, 94 

HARV. L. REV. 937, 939 (1981) (“A simple economic 

meaning of the term ‘market power’ is the ability to set 

price above marginal cost.”). The demand curve faced 

by the perfectly competitive firm is a horizontal 

line—the market price: the firm can sell as much as it 

wants at the market price, but it can sell nothing at a 

price even slightly higher. Consequently, the perfectly 

competitive firm maximizes its profits by producing up 

to the point at which its marginal cost equals the market 

price. 

9 United States v. E. I. du Pont de Nemours & Co. 

(Cellophane), 351 U.S. 377, 391 (1956). 

10 Eastman Kodak Co. v. Image Technical Servs., 

Inc., 504 U.S. 451, 481 (1992). 

11 See, e.g., Bacchus Indus., Inc. v. Arvin Indus., Inc., 

939 F.2d 887, 894 (10th Cir. 1991) (defining monopoly 

power as “substantial” market power); Deauville Corp. 

v. Federated Dep’t Stores, Inc., 756 F.2d 1183, 1192 n.6 

(5th Cir. 1985) (defining monopoly power as an 

“extreme degree of market power”); 3A PHILLIP E. 

AREEDA &HERBERT HOVENKAMP,ANTITRUST LAW ¶ 801, 

at 318 (2d ed. 2002) (stating that “the Sherman Act § 2 

notion of monopoly power . . . is conventionally 

understood to mean ‘substantial’ market power”); 

Landes & Posner, supra note 8, at 937 (defining 

monopoly power as “a high degree of market power”). 

must also be durable.12 

Although monopoly power will generally 

result in the setting of prices above competitive 

levels, the desire to obtain profits that derive 

from a monopoly position provides a critical 

incentive for firms to invest and create the 

valuable products and processes that drive 

economic growth.13 For this reason, antitrust 

law does not regard as illegal the mere 

possession of monopoly power where it is the 

product of superior skill, foresight, or 

industry.14

 Where monopoly power is acquired 

or maintained through anticompetitive conduct, 

however, antitrust law properly objects. 

Section 2’s requirement that single-firm 

conduct create or maintain, or present a 

dangerous probability of creating, monopoly 

power serves as an important screen for 

evaluating single-firm liability. Permitting 

conduct that likely creates at most an ability to 

exercise a minor degree of market power 

significantly reduces the possibility of 

discouraging “the competitive enthusiasm that 

the antitrust laws seek to promote”15 and 

assures the majority of competitors that their 

unilateral actions will not violate section 2. It 

also reduces enforcement costs, including costs 

associated with devising and policing remedies. 

The costs that firms, courts, and competition 

authorities would incur in identifying and 

litigating liability, as well as devising and 

policing remedies for any and all conduct with 

the potential to have a minor negative impact 

on competition for short periods, would almost 

certainly far outweigh the benefits, particularly 

if the calculus includes, as it should, the loss of 

procompetitive activity that would inevitably 

12 See AREEDA & HOVENKAMP, supra note 11, ¶ 801d, 

at 323; see also Colo. Interstate Gas Co. v. Natural Gas 

Pipeline Co. of Am., 885 F.2d 683, 695–96 (10th Cir. 

1989) (finding a firm lacked monopoly power because 

its “ability to charge monopoly prices will necessarily 

be temporary”). 

13 See Verizon Commc’ns Inc. v. Law Offices of 

Curtis V. Trinko, LLP, 540 U.S. 398, 407–08 (2004). 

14 See, e.g., United States v. Grinnell Corp., 384 U.S. 

563, 570–71 (1966). 

15 Copperweld Corp. v. Independence Tube Corp., 

467 U.S. 752, 775 (1984). 
 

MONOPOLY POWER 21 

be discouraged in such a system. 

III. Identifying Monopoly Power 

Monopoly power is conventionally 

demonstrated by showing that both (1) the firm 

has (or in the case of attempted monopolization, 

has a dangerous probability of attaining) a high 

share of a relevant market and (2) there are 

entry barriers—perhaps ones created by the 

firm’s conduct itself—that permit the firm to 

exercise substantial market power for an 

appreciable period.16 Unless these conditions 

are met, defendant is unlikely to have either the 

incentive or ability to exclude competition.17 

A. Market Shares 

1. Courts Typically Have Required a

 Dominant Market Share to

 Infer Monopoly Power 

In determining whether a competitor 

possesses monopoly power in a relevant 

market, courts typically begin by looking at the 

firm’s market share.18 Although the courts 

16 See W. Parcel Express v. UPS, 190 F.3d 974, 975 

(9th Cir. 1999); Am. Council of Certified Podiatric 

Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, 

Inc., 185 F.3d 606, 622–23 (6th Cir. 1999). 

17 See, e.g., May 8 Hr’g Tr., supra note 7, at 46 

(Creighton) (noting that “the percentage of the market 

that you control actually can be helpful as direct 

evidence regarding how profitable it is likely to be to 

you, and both your incentives and your ability to enter 

into some kind of exclusionary conduct”); Mar. 7 Hr’g 

Tr., supra note 6, at 69–71 (Katz); HERBERT HOVENKAMP, 

FEDERAL ANTITRUST POLICY 82–83 (3d ed. 2005); Einer 

Elhauge, Defining Better Monopolization Standards, 56 

STAN. L. REV. 253, 336 (2003) (asserting that market 

share “bears on the ability of the defendant to persuade 

buyers to agree to exclusionary schemes, the likelihood 

that those schemes will impair rival efficiency, the 

profitability to the defendant of impairing rival 

efficiency, and the relevance of any economies of share 

the defendant may enjoy from the scheme”). 

18 See, e.g., U.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 

7 F.3d 986, 999 (11th Cir. 1993) (“The principal measure 

of actual monopoly power is market share . . . .”); 

Movie 1 & 2 v. United Artists Commc’ns, Inc., 909 F.2d 

1245, 1254 (9th Cir. 1990) (stating that “although market 

share does not alone determine monopoly power, 

market share is perhaps the most important factor to 

consider in determining the presence or absence of 

monopoly power”); Weiss v. York Hosp., 745 F.2d 786, 

827 (3d Cir. 1984) (“A primary criterion used to assess 

“have not yet identified a precise level at which 

monopoly power will be inferred,”19 they have 

demanded a dominant market share. 

Discussions of the requisite market share for 

monopoly power commonly begin with Judge 

Hand’s statement in United States v. Aluminum 

Co. of America that a market share of ninety 

percent “is enough to constitute a monopoly; it 

is doubtful whether sixty or sixty-four percent 

would be enough; and certainly thirty-three per 

cent is not.”20 The Supreme Court quickly 

endorsed Judge Hand’s approach in American 

Tobacco Co. v. United States.

21 

Following Alcoa and American Tobacco, 

courts typically have required a dominant 

market share before inferring the existence of 

monopoly power. The Fifth Circuit observed 

that “monopolization is rarely found when the 

defendant’s share of the relevant market is 

below 70%.”22 Similarly, the Tenth Circuit 

noted that to establish “monopoly power, lower 

courts generally require a minimum market 

share of between 70% and 80%.”23 Likewise, 

the Third Circuit stated that “a share 

significantly larger than 55% has been required 

to establish prima facie market power”24 and 

held that a market share between seventy-five 

percent and eighty percent of sales is “more 

than adequate to establish a prima facie case of 

power.”25 

It is also important to consider the share 

levels that have been held insufficient to allow 

courts to conclude that a defendant possesses 

monopoly power. The Eleventh Circuit held 

the existence of monopoly power is the defendant’s 

market share.”). 

19 SECTION OF ANTITRUST LAW, AM. BAR ASS’N, 

MARKET POWER HANDBOOK 19–20 (2005) (footnote 

omitted). 

20 148 F.2d 416, 424 (2d Cir. 1945). 

21 See 328 U.S. 781, 813–14 (1946). 

22 Exxon Corp. v. Berwick Bay Real Estates Partners, 

748 F.2d 937, 940 (5th Cir. 1984) (per curiam). 

23 Colo. Interstate Gas Co. v. Natural Gas Pipeline 

Co. of Am., 885 F.2d 683, 694 n.18 (10th Cir. 1989) 

(citation omitted). 

24 United States v. Dentsply Int’l, Inc., 399 F.3d 181, 

187 (3d Cir. 2005). 

25 Id. at 188. 
22 SECTION 2 REPORT 

that a “market share at or less than 50% is 

inadequate as a matter of law to constitute 

monopoly power.”26 The Seventh Circuit 

observed that “[f]ifty percent is below any 

accepted benchmark for inferring monopoly 

power from market share.”27 A treatise agrees, 

contending that “it would be rare indeed to 

find that a firm with half of a market could 

individually control price over any significant 

period.”28 

Some courts have stated that it is possible 

for a defendant to possess monopoly power 

with a market share of less than fifty percent.29 

These courts provide for the possibility of 

establishing monopoly power through nonmarket-share evidence, such as direct evidence 

of an ability profitably to raise price or exclude 

competitors. The Department is not aware, 

however, of any court that has found that a 

defendant possessed monopoly power when 

its market share was less than fifty percent.30 

Thus, as a practical matter, a market share of 

greater than fifty percent has been necessary for 

courts to find the existence of monopoly 

26 Bailey v. Allgas, Inc., 284 F.3d 1237, 1250 (11th 

Cir. 2002). 

27 Blue Cross & Blue Shield United of Wis. v. 

Marshfield Clinic, 65 F.3d 1406, 1411 (7th Cir. 1995) 

(Posner, C.J.); accord Rebel Oil Co. v. Atl. Richfield Co., 

51 F.3d 1421, 1438 (9th Cir. 1995) (noting that 

“numerous cases hold that a market share of less than 

50 percent is presumptively insufficient to establish 

market power” in a claim of actual monopolization); 

U.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 986, 

1000 (11th Cir. 1993). 

28 AREEDA ET AL., supra note 1, ¶ 532c, at 250. 

29 See Hayden Publ’g Co., Inc. v. Cox Broad. Corp., 

730 F.2d 64, 69 n.7 (2d Cir. 1984) (“[A] party may have 

monopoly power in a particular market, even though 

its market share is less than 50%.”); Broadway Delivery 

Corp. v. UPS, 651 F.2d 122, 129 (2d Cir. 1981) (“[W]hen 

the evidence presents a fair jury issue of monopoly 

power, the jury should not be told that it must find 

monopoly power lacking below a specified share.”); 

Yoder Bros., Inc. v. Cal.-Fla. Plant Corp., 537 F.2d, 1347, 

1367 n.19 (5th Cir. 1976) (rejecting “a rigid rule 

requiring 50% of the market for a monopolization 

offense without regard to any other factors”). 

30 Cf. U.S. Anchor Mfg., 7 F.3d at 1000 (“[W]e have 

discovered no cases in which a court found the 

existence of actual monopoly established by a bare 

majority share of the market.”). 

power.31 

2. Significance of a

 Dominant Market Share 

A dominant market share is a useful starting 

point in determining monopoly power. 

Modern decisions consistently hold, however, 

that proof of monopoly power requires more 

than a dominant market share. For example, 

the Sixth Circuit instructed that “market share 

is only a starting point for determining whether 

monopoly power exists, and the inference of 

monopoly power does not automatically follow 

from the possession of a commanding market 

share.”32 Likewise, the Second Circuit held that 

a “court will draw an inference of monopoly 

power only after full consideration of the 

relationship between market share and other 

relevant characteristics.”33 

A simple example illustrates the “pitfalls in 

mechanically using market share data” to 

31 This observation does not apply to claims of 

attempted monopolization. Courts, commentators, and 

panelists all recognize that situations can exist where 

“there [is] a dangerous probability that the defendant’s 

conduct would propel it from a non-monopolistic share 

of the market to a share that would be large enough to 

constitute a monopoly for purposes of the 

monopolization offense.” Colo. Interstate Gas Co. v. 

Natural Gas Pipeline Co. of Am., 885 F.2d 683, 694 (10th 

Cir. 1989); see also, e.g., Rebel Oil, 51 F.3d at 1438 (“[T]he 

minimum showing of market share required in an 

attempt case is a lower quantum than the minimum 

showing required in an actual monopolization case.”); 

Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 

F.2d 480, 490 (5th Cir. 1984) (holding that “a share of 

less than the fifty percent generally required for actual 

monopolization may support a claim for attempted 

monopolization”); May 8 Hr’g Tr.,supra note 7, at 46–47 

(Creighton); Mar. 7 Hr’g Tr., supra note 6, at 154 

(Krattenmaker); AREEDA & HOVENKAMP, supra note 11, 

¶ 807d, at 372 (noting that “[t]he all important 

consideration is that the alleged conduct must be 

reasonably capable of creating a monopoly in the 

defined market. . . . [A] moderate but rising share may 

pose more ‘dangerous probability’ than would a higher 

but falling share.”). 

32 Am. Council of Certified Podiatric Physicians & 

Surgeons v. Am. Bd. of Podiatric Surgery, Inc., 185 F.3d 

606, 623 (6th Cir. 1999). 

33 Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 

98 (2d Cir. 1998). 
 

MONOPOLY POWER 23 

measure monopoly power.34 Suppose a large 

firm competes with a fringe of small rivals, all 

producing a homogeneous product. In this 

situation, the large firm’s market share is only 

one determinant of its power over price. Even 

a very high share does not guarantee 

substantial power over price for a significant 

period: if the fringe firms can readily and 

substantially increase production at their 

existing plants in response to a small increase in 

the large firm’s price (that is, if the fringe 

supply is highly elastic), a decision by the large 

firm to restrict output may have no effect on 

market prices.35 

Even if fringe firms cannot readily and 

substantially increase production, a firm with a 

very high market share is still not guaranteed 

substantial power over price if the quantity 

demanded decreases significantly in response 

to a small price increase—in other words, if 

market demand is highly elastic.36 That is, 

when demand is elastic, a firm may be unable 

to raise price without losing so many sales that 

it will prove to be an unprofitable strategy.37 

Instances of high fringe-firm supply 

elasticity or high industry-demand elasticity 

are not the only situations where a high market 

share may be a misleading indicator of 

monopoly power. In markets characterized by 

rapid technological change, for example, a high 

market share of current sales or production 

may be consistent with the presence of robust 

competition over time rather than a sign of 

monopoly power.38

 In those situations, any 

34 Landes & Posner, supra note 8, at 947; see also id. at 

944–97. 

35 Id. at 945–46 n.20. 

36 Cf. Jonathan B. Baker & Timothy F. Bresnahan, 

Empirical Methods of Identifying and Measuring Market 

Power, 61 ANTITRUST L.J. 3, 10 (1992) (“[W]hen industry 

demand is highly elastic, firms with market power 

behave similarly to those without market power.”). 

37 See CARLTON & PERLOFF, supra note 8, at 92–93; 

Landes & Posner, supra note 8, at 941–42. 

38 See, e.g., May 8 Hr’g Tr., supra note 7, at 53–54 

(Rule) (stating that as the economy becomes “more 

dynamic and complex,” it “becomes a little more 

difficult to use the market power and monopoly power 

market share screen that traditionally we have used”); 

Sherman Act Section 2 Joint Hearing: Monopoly Power 

power a firm may have may be both temporary 

and essential to the competitive process. 

Indeed, in the extreme case, “market structure 

may be a series of temporary monopolies” in a 

dynamically competitive market.39 

Notwithstanding that a high share of the 

relevant market does not always mean that 

monopoly power exists, a high market share is 

one of the most important factors in the 

Department’s examination of whether a firm 

has, or has a dangerous probability of 

obtaining, monopoly power. A high share 

indicates that it is appropriate to examine other 

relevant factors. In this regard, if a firm has 

maintained a market share in excess of twothirds for a significant period and market 

conditions (for example, barriers to entry) are 

such that the firm’s market share is unlikely to 

be eroded in the near future, the Department 

believes that such evidence ordinarily should 

establish a rebuttable presumption that the firm 

possesses monopoly power. This approach is 

consistent with the case law.40 

Session Hr’g Tr. 11–12, Mar. 8, 2007 [hereinafter Mar. 8 

Hr’g Tr.] (Schmalensee) (“In a number of markets 

marked by rapid technological change, network effects 

can lead some firms to high shares. If you have a 

snapshot in which network effects have led to a 

dominant position, that snapshot is consistent with a 

world of vigorous Schumpeterian competition,in which 

the next hot product may displace the leader.”); Mar. 7 

Hr’g Tr., supra note 6, at 78–79 (Katz) (noting that “the 

R&D capabilities . . . may be much more important than 

current market shares in terms of understanding 

innovation”). 

39 MichaelL. Katz,MarketDefinition, Concentration 

& Section 2, at 5 (Mar. 7, 2007) (hearing submission). 

40 See generally 1 SECTION OF ANTITRUST LAW, AM. 

BAR ASS’N, ANTITRUST LAW DEVELOPMENTS 231 (6th ed. 

2007) (“A market share in excess of 70 percent generally 

establishes a prima facie case of monopoly power, at 

least with evidence of substantial barriers to entry and 

evidence that existing competitors could not expand 

output.” (footnotes omitted)); AREEDA & HOVENKAMP, 

supra note 11, ¶ 801a, at 319 (“Although one cannot be 

too categorical, we believe it reasonable to presume the 

existence of substantial single-firm market power from 

a showing that the defendant’s share of a well-defined 

market protected by sufficient entry barriers has 

exceeded 70 or 75 percent for the five years preceding 

the complaint.”); supra notes 20–25 and accompanying 

text. 
 

 

24 SECTION 2 REPORT 

3. Market-Share Safe Harbor 

To give businesses greater certainty in 

circumstances where significant competitive 

concerns are unlikely, many panelists 

supported a market-share safe harbor in section 

2 cases, voicing skepticism about how 

frequently monopoly power would be present 

when a firm possesses a market share less than 

Alcoa’s “sixty or sixty-four percent” market 

share. 

41 Market shares “can be used to 

eliminate frivolous antitrust cases, [and] that 

use can contribute enormous value to 

society.”42 

However, other panelists voiced objections 

to a market-share safe harbor. Market 

definition can lack precision,43 and it is possible 

that an incorrect market definition could allow 

anticompetitive conduct to avoid liability.44 

Additionally, some assert that, just as firms 

with large shares may not have monopoly 

power, firms with relatively small shares can 

sometimes still harm competition by their 

unilateral conduct. They thus are concerned 

that a safe harbor may protect anticompetitive 

41 See May 8 Hr’g Tr., supra note 7, at 41 (Eisenach) 

(stating that he is “not opposed in any way to a 75 

percent safe harbor or a 70 percent safe harbor”); id. at 

42 (Rill) (noting that “70 percent sounds reasonable . . . 

maybe a little higher”); Mar. 7 Hr’g Tr., supra note 6, at 

216 (Sims) (stating that he might be “very comfortable” 

with a “70 percent or an 80 percent number”); id. at 218 

(Bishop) (stating that he “would set the threshold at 

70–80 percent”). But see id. at 217 (Stelzer) (opposing a 

market-share safe harbor); cf. id. at 218 (Krattenmaker) 

(supporting market-share safe harbors but deeming a 

single safe harbor inappropriate for all conduct). 

42 Carlton, supra note 7, at 27. 

43 Cf. May 8, Hr’g Tr., supra note 7, at 44 (Melamed) 

(“From my experience in counseling, market share-type 

screens are of limited value because market share 

depends on market definition, and it is a binary concept 

and we are often sitting there saying well, gidgets 

might be in the market with widgets, but they might 

not be and who knows.”); Sherman Act Section 2 Joint 

Hearing: Section 2 Policy Issues Hr’g Tr. 54, May 1, 

2007 [hereinafter May 1 Hr’g Tr.] (Jacobson) (noting 

that “there are a lot of differentiated products where 

you do not know where the market definition fight is 

going to come out”). 

44 Cf. Mar. 7 Hr’g Tr., supra note 6, at 57–58 (Gilbert); 

id. at 65, 74–76 (Katz). 

conduct.45 

The Department believes that a marketshare safe harbor for monopoly—as opposed to 

market—power warrants serious consideration 

by the courts. In many decades of section 2 

enforcement, we are aware of no court that has 

found monopoly power when defendant’s 

share was less than fifty percent, suggesting 

instances of monopoly power below such a 

share, even if theoretically possible, are 

exceedingly rare in practice. It is therefore 

plausible that the costs of seeking out such 

instances exceed the benefits. 

B. Durability of Market Power 

The Second Circuit has defined monopoly 

power as “the ability ‘(1) to price substantially 

above the competitive level and (2) to persist in 

doing so for a significant period without 

erosion by new entry or expansion.’”46 

Likewise, other circuit courts have found that 

firms with dominant market shares lacked 

monopoly power when their market power was 

insufficiently durable.47 

45 See, e.g., May 8 Hr’g Tr., supra note 7, at 49 

(Pitofsky) (“Let me just say that first of all, I’m not 

comfortable with safe harbors. I like rebuttable 

presumptions because there are too many quirky 

situations. Somebody has 40 percent of the market but 

everybody else has one percent each.”); id. at 52 (Sidak) 

(“Would we infer that there is not a problem because 

the market share is only 40 percent and that is way 

below Judge Hand’s ALCOA threshold or would we 

look at a price increase or loss of competitor market 

share and say that is a more direct set of facts that 

elucidates what the price elasticity of demand is?”). 

46 AD/SAT v. Associated Press, 181 F.3d 216, 227 

(2d Cir. 1999) (quoting 2A AREEDA ET AL., supra note 1, 

¶ 501, at 90 (2d. ed. 2002) (emphasis in original)); see 

also United States v. Dentsply Int’l, Inc., 399 F.3d 181, 

188–89 (3d Cir. 2005) (“In evaluating monopoly power, 

it is not market share that counts, but the ability to 

maintain market share.” (quoting United States v. Syufy 

Enters., 903 F.2d 659, 665–66 (9th Cir. 1990) (emphasis 

in original))). 

47 See, e.g., W. Parcel Express v. UPS, 190 F.3d 974, 

975 (9th Cir. 1999) (finding that a firm with an allegedly 

“dominant share” could not possess monopoly power 

because there were no significant “barriers to entry”); 

Colo. Interstate Gas, 885 F.2d at 695–96 (“If the evidence 

demonstrates that a firm’s ability to charge monopoly 

prices will necessarily be temporary, the firm will not 

possess the degree of market power required for the 
MONOPOLY POWER 25 

Panelists agreed that monopoly power is the 

ability to engage profitably in substantial, 

sustained supracompetitive pricing. As one 

panelist noted, the “picture [of monopoly 

power] that we carry around in our head” is 

“the sustained charging of a price above 

marginal cost, maintaining . . . a price 

substantially above marginal cost.”48 Another 

stressed, “[F]or antitrust to worry about market 

power . . . it has to be durable.”49 

“[A] firm cannot possess monopoly power 

in a market unless that market is also protected 

by significant barriers to entry.”50 In particular, 

a high market share provides no reliable 

indication of the potential for rivals to supply 

market demand. Even when no current rival 

exists, an attempt to increase price above the 

competitive level may lead to an influx of 

competitors sufficient to make that price 

increase unprofitable.51 In that case, the firm 

monopolization offense.”);Williamsburg Wax Museum, 

Inc. v. Historic Figures, Inc., 810 F.2d 243, 252 (D.C. Cir. 

1987) (finding that a firm did not have monopoly power 

when a competitor was able to supply customer’s 

demand within a year); Borough of Lansdale v. Phila. 

Elec. Co., 692 F.2d 307, 312–14 (3d Cir. 1982) (affirming 

finding that power company did not have monopoly 

power when customer could have built its own power 

line within sixteen months). 

48 Mar. 7 Hr’g Tr., supra note 6, at 32 (White); see also 

id. at 61 (Gilbert); id. at 82–83 (Gavil); id. at 87 (White) 

(monopoly power is the ability profitably to charge “a 

price significantly above marginal cost, sustained for a 

sustained amount of time . . . how much and for how 

long, I do not know”); id. at 96–97 (Katz). 

49 Mar. 8 Hr’g Tr., supra note 38, at 80 (Lande); see 

also AREEDA & HOVENKAMP, supra note 11, ¶ 801, at 319 

(suggesting that “it is generally reasonable to presume 

that a firm has monopoly power when the firm’s 

dominant market share has lasted, or will last, for at 

least five years”). 

50 United States v. Microsoft Corp., 253 F.3d 34, 82 

(D.C. Cir. 2001) (en banc) (per curiam); see also Harrison 

Aire, Inc. v. Aerostar Int’l, Inc., 423 F.3d 374, 381 (3d 

Cir. 2005) (“In a typical section 2 case, monopoly power 

is ‘inferred from a firm’s possession of a dominant 

share of a relevant market that is protected by entry 

barriers.’” (quoting Microsoft, 253 F.3d at 51)); cf. Mar. 7 

Hr’g Tr., supra note 6, at 139–40 (de la Mano) (stating 

that “substantial market power” entails “barriers to 

entry and expansion” that are “significant”). 

51 See, e.g., 2A AREEDA ET AL., supra note 1, ¶ 501, at 

91 (2d ed. 2002) (“In spite of its literal imprecision, the 

lacks monopoly power even though it may 

currently have a dominant market share.52 

IV.Market Definition andMonopoly Power

 The Supreme Court has noted the crucial 

role that defining the relevant market plays in 

section 2 monopolization and attempt cases.53 

The market-definition requirement brings 

discipline and structure to the monopolypower inquiry, thereby reducing the risks and 

costs of error. 

The relevant product market in a section 2 

case, as elsewhere in antitrust, “is composed of 

products thathave reasonable interchangeability 

for the purposes for which they are 

produced—price, use and qualities 

considered.”54 Thus, the market is defined with 

regard to demand substitution, which focuses 

standard formulation is essentially correct in asking 

whether the defendant can price monopolistically 

without prompt erosion from rivals’ entry or 

expansion.”). 

52 See, e.g., United States v. Waste Mgmt., Inc., 743 

F.2d 976, 983–84 (2d Cir. 1984) (noting that, in a market 

where entry is easy, a firm that raised price “would 

then face lower prices charged by all existing 

competitors as well as entry by new ones, a condition 

fatal to its economic prospects if not rectified”). See 

generally Franklin M. Fisher, Diagnosing Monopoly, Q. 

REV. ECON. & BUS., Summer 1979, at 7, 23 (noting that 

“consideration of the role of entry plays a major part in 

any assessment of monopoly power”). 

53 See Spectrum Sports, Inc. v. McQuillan, 506 U.S. 

447, 459 (1993) (explaining that “the dangerous 

probability of monopolization in an attempt case . . . 

requires inquiry into the relevant product and 

geographic market and the defendant’s economic 

power in that market”); United States v. Grinnell Corp., 

384 U.S. 563, 571 (1966); Walker Process Equip., Inc. v. 

Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965) 

(“Without a definition of that market there is no way to 

measure [a defendant’s] ability to lessen or destroy 

competition.”). 

54 United States v. E. I. du Pont de Nemours & Co. 

(Cellophane), 351 U.S. 377, 404 (1956); see also Microsoft, 

253 F.3d at 51–52 (“‘Because the ability of consumers to 

turn to other suppliers restrains a firm from raising 

prices above the competitive level,’ the relevant market 

must include all products ‘reasonably interchangeable 

by consumers for the same purposes.’” (citation 

omitted) (quoting Rothery Storage & Van Co. v. Atlas 

Van Lines, Inc., 792 F.2d 210, 218 (D.C. Cir. 1986) and 

Cellophane, 351 U.S. at 395)). 
 

26 SECTION 2 REPORT 

on buyers’ views of which products are 

acceptable substitutes or alternatives.55 

However, particular care is required when 

delineating relevant markets in monopolization 

cases. In merger cases, the antitrust enforcement 

agencies define markets by applying the 

hypothetical monopolist paradigm. The 

Horizontal Merger Guidelines state: 

A market is defined as a product or group 

of products and a geographic area in which 

it is produced or sold such that a 

hypothetical, profit-maximizing firm, not 

subject to price regulation, that was the 

only present and future producer or seller 

of those products in that area likely would 

impose at least a ‘small but significant and 

nontransitory’ increase in price, assuming 

the terms of sale of all other products are 

held constant.56 

The Guidelines go on to explain that in 

implementing this definition, the agencies “use 

prevailing prices.”57 In the section 2 context, 

however, if the inquiry is being conducted after 

monopoly power has already been exercised, 

using prevailing prices can lead to defining 

markets too broadly and thus inferring that 

monopoly power does not exist when, in fact, it 

does.58 

The problem with using prevailing prices to 

define the market in a monopoly-maintenance 

case is known as the “Cellophane Fallacy” 

because it arose in a case involving cellophane, 

where an issue before the Supreme Court was 

whether the relevant market was cellophane or 

55 See Jonathan B. Baker, Market Definition: An 

Analytical Overview, 74 ANTITRUST L.J. 129, 132 (2007). 

56 U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, 

HORIZONTAL MERGER GUIDELINES § 1.0 (1992) (rev. ed. 

1997), available at http://www.usdoj.gov/atr/public/ 

guidelines/hmg.pdf. 

57 Id. § 1.11. However, the Guidelines recognize that 

when “premerger circumstances are strongly 

suggestive of coordinated interaction . . . the Agency 

will use a price more reflective of the competitive 

price.” Id. (footnote omitted). 

58 See, e.g., Mark A. Glick et al., Importing the Merger 

Guidelines Market Test in Section 2 Cases: Potential Benefits 

and Limitations, 42 ANTITRUST BULL. 121, 145–49 (1997); 

Philip Nelson, Monopoly Power, Market Definition, 

and the Cellophane Fallacy 7 (n.d.) (hearing submission). 

all flexible-packaging materials.59 During the 

relevant period, du Pont produced over 

seventy percent of the cellophane in the United 

States.

60 Cellophane, however, “constitutedless 

than 20% of all ‘flexible packaging material’ 

sales.”61 The Court concluded that cellophane’s 

interchangeability with other materials made it 

part of a broader, flexible-packaging market. 

Many have criticized the Court’s reasoning 

because it assessed the alternatives for 

cellophane after du Pont already had raised its 

price to the monopoly level, failing to recognize 

that a firm with monopoly power finds it 

profitable to raise price—above the competitive 

level—until demand becomes elastic. Hence, it 

should not be at all surprising to find that at the 

monopoly price the firm faces close substitutes 

and would not be able profitably to raise price 

further.62 “Because every monopolist faces an 

elastic demand . . . at its profit-maximizing 

output and price, there is bound to be some 

substitution of other products for its own when 

it is maximizing profits, even if it has great 

market power.”63 

One panelist suggested using the 

hypothetical-monopolist paradigm in certain 

monopoly-acquisition cases, defining the 

relevant market as of a time before the 

challenged conduct began and carrying 

forward the resulting market definition to the 

present to assess whether the firm possesses 

59 Cellophane, 351 U.S. at 377. 

60 Id. at 379. 

61 Id. 

62 See, e.g., Landes & Posner, supra note 8, at 960–61. 

See generally George W. Stocking & Willard F. Mueller, 

The Cellophane Case and the New Competition, 45 AM. 

ECON. REV. 29, 53–54 (1955). 

63 Landes & Posner, supra note 8, at 961 (footnote 

omitted); see also, e.g., Lawrence J. White, Market Power 

and Market Definition in Monopolization Cases: A 

Paradigm Is Missing 7 (Jan. 24, 2007) (hearing 

submission) (“[A]ll firms—regardless of whether they 

are competitive or are trulymonopolists—will be found 

to be unable to raise price profitably from currently 

observed levels, since they will already have 

established a profit-maximizing price for themselves; 

and thus this ‘test’ will fail to separate the true 

monopolist that does exercise market power from the 

firm that does not have market power.”). 
 

MONOPOLY POWER 27 

monopoly power.64 This suggestion is sound in 

theory. Unfortunately, however, substantial 

practical problems may make it difficult to 

determine consumers’ preferences and other 

relevant factors as of some prior date, thereby 

impeding the ability to conduct an accurate 

“but-for” exercise.65 Moreover, the market 

definition as of the pre-conduct time may no 

longer be relevant because of intervening new 

product introductions or other significant 

changes in the marketplace. 

An additional problem concerns allegations 

of monopoly maintenance where the conduct in 

question allegedly has maintained preexisting 

monopoly power rather than created that 

power. One possibility is to apply the 

hypothetical-monopolist paradigm of the 

Horizontal Merger Guidelines just as in merger 

cases, except at the competitive price rather 

than the prevailing price. However, accurately 

determining the competitive price is apt to be 

quite difficult in such cases. 

Despite its limitations in the section 2 

context, there exists no clear and widely 

accepted alternative to the hypotheticalmonopolist methodology for defining relevant 

markets.66 Some commentators suggest that, 

for all its limitations, the hypotheticalmonopolist paradigm still has value in 

monopolization cases.67 It appropriately focuses 

64 May 1 Hr’g Tr., supra note 43, at 162 (Willig) 

(stating that “mentally, we can go back to before” the 

exclusion, and “there is a relevant market that’s 

pertinent for this analysis”). 

65 See Carlton,supra note 7, at 20 (“It may sometimes 

be difficult to figure out the [but-for] benchmark price, 

though not always.”). 

66 See Mar. 7 Hr’g Tr., supra note 6, at 127–28 

(Bishop); Nelson, supra note 58, at 13 (stating that “there 

is no ‘cookbook’ methodology for defining markets” in 

monopolization cases); White, supra note 63, at 15 

(stating that the “absence of a generally accepted 

market definition paradigm is a genuine problem”). 

67 Gregory J. Werden, Market Delineation Under the 

Merger Guidelines: Monopoly Cases and Alternative 

Approaches, 16 REV. INDUS. ORG. 211, 214–15 (2000) 

(“[T]he Guidelines’ hypothetical monopolist paradigm 

[can] play a very useful, albeit conceptual, role . . . 

provid[ing] the critical insight necessary to decide the 

case without any need to get into the details of their 

application.”); White, supra note 63, at 14. 

the market-definition process on market-power 

considerations and thereby helps to avoid ad 

hoc conclusions regarding the boundaries of the 

market and the effects of the conduct. 

Moreover, and importantly, concerns over 

the Cellophane Fallacy need not confound 

market definition in all section 2 cases. 

Panelists observed that, although there may be 

no reliable paradigm for defining the relevant 

market in every case, courts often are able to 

draw sound conclusions about the relevant 

market based on the facts and circumstances of 

the industry.68 Furthermore, “[T]he issue in 

many cases arising under Section 2 of the 

Sherman Act is whether ongoing or threatened 

conduct, if left unchecked, would create 

monopoly power—not whether the defendant 

already possesses monopoly power.”69 In 

particular, Cellophane considerations present 

less of a problem in attempted monopolization 

cases where monopoly prices are either not yet 

being charged or where competitive prices 

were being charged in the not-too-distant preconduct past. The Department believes that 

market definition remains an important aspect 

of section 2 enforcement and that continued 

consideration and study is warranted regarding 

how to appropriately determine relevant 

markets in this context. 

V. Other Approaches to Identifying 

Monopoly Power 

As noted above, courts typically determine 

whether a firm possesses monopoly power by 

first ascertaining the relevant market and then 

examining market shares, entry conditions, and 

other factors with respect to that market. One 

important issue is whether plaintiffs should 

instead be permitted to demonstrate monopoly 

power solely through direct evidence—for 

example, proof of high profits 70—thus 

68 See Mar. 7 Hr’g Tr., supra note 6, at 67–68 (Katz) 

(stating that market definition is often obvious); cf. id. at 

51 (Gavil) (noting that defendants did not contest the 

existence of monopoly power in LePage’s, Inc. v. 3M, 324 

F.3d 141 (3d Cir. 2003) (en banc) and Conwood Co. v. 

U.S. Tobacco Co., 290 F.3d 768 (6th Cir. 2002)). 

69 Werden, supra note 67, at 212. 

70 See, e.g., Broadcom Corp. v. Qualcomm Inc., 501 
28 SECTION 2 REPORT 

rendering market definition unnecessary. 

While no court has relied solely on direct 

evidence to establish monopoly power, one 

court found direct evidence sufficient to 

survive summary judgment despite plaintiff’s 

failure “to define the relevant market with 

precision.”71 

A. Direct Evidence of High Profits, PriceCost Margins, and Demand Elasticity 

Relying exclusively on direct evidence of 

profits to establish monopoly power presents a 

number of difficult issues.72 High accounting 

profits do not necessarily reflect the exercise of 

monopoly power. In particular, cost measures 

are normally available only from reports 

prepared in conformity with accounting 

conventions, but economics and accounting 

have significantly different notions of cost.73 

Accounting figures seldom reflect the firm’s 

true economic cost of producing its goods and 

F.3d 297, 307 (3d Cir. 2007) (“The existence of 

monopoly power may be proven through direct 

evidence of supracompetitive prices and restricted 

output.”); PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 

107 (2d Cir. 2002) (per curiam) (holding that “there is 

authority to support [the proposition] that a relevant 

market definition is not a necessary component of a 

monopolization claim”); Conwood, 290 F.3d at 783 n.2 

(noting that monopoly power “‘may be proven directly 

by evidence of the control of prices or the exclusion of 

competition’” (quoting Tops Mkts., Inc. v. Quality 

Mkts., Inc., 142 F.3d 90, 97–98 (2d Cir. 1998))). 

71 Re/Max Int’l, Inc. v. Realty One, Inc., 173 F.3d 

995, 1016 (6th Cir. 1999) (“[A]lthough the plaintiffs 

failed to define the relevant market with precision and 

therefore failed to establish the defendants’ monopoly 

power through circumstantial evidence, theredoes exist 

a genuine issue of material fact as to whether the 

plaintiffs’ evidence shows direct evidence of a 

monopoly, that is, actual control over prices or actual 

exclusion of competitors.”). 

72 See generally Baker & Bresnahan, supra note 36, at 

5 (noting that problems with accounting profits or 

mark-ups methodology “loom[s] so large that antitrust 

today does not rely heavily on profitability measures in 

making inferences about market power”); Richard 

Schmalensee, Another Look at Market Power, 95 HARV. L. 

REV. 1789, 1805 (1982) (discussing “serious problems 

with using profitability to gauge market power”). 

73 This is not to suggest that financial data lack value 

for the economic analysis of competition. See Nelson, 

supra note 58, at 17. 

services, and accounting rates of return will 

often differ from true economic rates of 

return.74 

For example, determining if a firm is earning 

an economic profit requires accounting 

properly for depreciation and the economic 

replacement cost of the assets the firm is using 

to generate its income. Yet the information 

reported by accountants frequently is not 

designed to measure and accurately reflect 

those costs.75 In addition, determining if a firm 

is earning a profit reflecting the exercise of 

monopoly power should take into account the 

opportunity cost of employing those assets in 

their current use. Accounting records rarely 

attempt to make such assessments. 

Moreover, available estimates of a firm’s 

capital costs, an important input into 

calculating a firm’s profitability, are generally 

based on accounting rules that do not account 

for the riskiness of the investment. If the 

investment, at the time it was made, was quite 

risky, a very high accounting rate of return may 

reflect a modest economic return. More 

generally, when all relevant economic costs are 

properly accounted for, what may at first seem 

to be a supracompetitive return may be no 

more than a competitive one (or vice versa).76 

Using price-cost margins, rather than profits, 

as evidence of monopoly power is also 

unsatisfactory. Economists have long pointed 

to a firm’s price-cost margin—its price minus 

its short-run marginal cost, all divided by its 

price (known as the Lerner index77)—as a 

74 See generally George J. Benston, Accounting 

Numbers and Economic Values, 27 ANTITRUST BULL. 161, 

162–66 (1982); Franklin M. Fisher & John J. McGowan, 

On the Misuse of Accounting Rates of Return to Infer 

Monopoly Profits, 73 AM. ECON. REV. 82, 82–84 (1983) 

(noting that standard accounting treatments of 

investment and depreciation are inappropriate for 

determining a firm’s economic rate of return). 

75 See Fisher & McGowan, supra note 74. 

76 See generally Bailey v. Allgas, Inc., 284 F.3d 1237, 

1252–55 (11th Cir. 2002); AREEDA ET AL., supra note 1, 

¶ 516f; Margaret Sanderson & Ralph A. Winter, 

“Profits” Versus “Rents” in Antitrust Analysis: An 

Application to the Canadian Waste Services Merger, 70 

ANTITRUST L.J. 485, 510–11 (2002). 

77 See A. P. Lerner, The Concept of Monopoly and the 
 

MONOPOLY POWER 29 

measure of the extent to which the firm is 

exercising short-run market power.78 For some 

purposes, such as attempting to determine the 

firm’s short-run elasticity of demand at a given 

price, the measure can have value. 

Short-run price-cost margins are not, 

however, of much use in determining whether 

a firm has monopoly power. Monopoly power 

requires that the firm be able profitably to 

charge prices high enough to earn a 

supernormal return on its investment. It is not 

clear how much price must exceed short-run 

marginal cost before there is monopoly 

power.79 Depending on the size of the firm’s 

fixed costs, even a significant margin between 

price and short-run marginal cost may be 

insufficient to earn even a normal return. 

Indeed, a firm should not be found to possess 

monopoly power simply because it prices in 

excess of short-run marginal cost and hence has 

a high price-cost margin.80 

In principle, a better measure of margin 

would be the ratio of price to the firm’s longrun marginal cost.81 Unfortunately, such 

information, and in particular data allowing 

accurate adjustments for risk, is unlikely to be 

available.82 

Measurement of Monopoly Power, 1 REV. ECON. STUD. 157, 

169 (1934). 

78 See, e.g., CARLTON & PERLOFF, supra note 8, at 93. 

79 See Dennis W. Carlton, Does Antitrust Need to be 

Modernized?, J. ECON. PERSP., Summer 2007, at 155, 164 

(“Since monopolistically competitive firms have some 

market power in the sense that price exceeds marginal 

cost, presumably the deviation between price and 

marginal cost . . . should be significant if it is to expose 

the firm to antitrust scrutiny. But no consensus exists in 

the courts or among economists as to how large this 

deviation should be.”). 

80 See Mar. 7 Hr’g Tr., supra note 6, at 13–14 

(Nelson); id. at 97 (Katz); see also CARLTON & PERLOFF, 

supra note 8, at 93 (distinguishing monopoly from 

market power on the basis that more than just a 

competitive profit is earned when a firm with 

monopoly power optimally sets its price above its 

short-run marginal cost). 

81 See Werden, supra note 67, at 214. 

82 See generally AREEDA ET AL., supra note 1, ¶ 504b, 

at 123–24; 3 AREEDA & HOVENKAMP, supra note 11, ¶ 739e; 

Werden, supra note 67, at 214 (noting that “[i]nferences 

based on econometrics and first-order conditions allow 

Nor does evidence concerning the elasticity 

of demand for the firm’s products establish the 

existence of monopoly power. Demand 

elasticity can, to be sure, provide information 

about the firm’s market power.83 For example, 

a firm with no market power faces infinitely 

elastic demand.84 Sellers of differentiated 

products, on the other hand, may face a 

significantly less elastic demand at their profitmaximizing prices. In those cases, they will 

generally have high price-cost margins and 

market power. Only rarely, however, will 

those firms possess monopoly power. As one 

panelist noted, “[E]lasticities do not help us 

very much. You cannot tell the difference 

between a true monopolist and . . . a seller of a 

differentiated product.”85 As an indicator of 

monopoly power, demand elasticities suffer 

from the same fundamental problem that 

margins do: neither tell us whether the firm is 

earning durable, supernormal profits.86 

In short, direct evidence of a firm’s profits, 

margins, or demand elasticities is not likely to 

provide an accurate or reliable alternative to 

the traditional approach of first defining the 

relevant market and then examining market 

shares and entry conditions when trying to 

determine whether the firm possesses 

monopoly power. 

one to determine whether, and even how much, price 

exceeds short-run marginal cost, but not how much 

price exceeds long-run marginal cost”); Diane P. Wood, 

“Unfair” Trade Injury: A Competition-Based Approach, 41 

STAN. L. REV. 1153, 1180–81 n.96 (1989) (noting that 

long-run marginal cost figures “are extremely difficult 

to calculate in practice”). 

83 See CARLTON & PERLOFF, supra note 8, at 97–99. 

84 Id. at 66. 

85 Mar. 7 Hr’g Tr., supra note 6, at 38 (White); see also 

May 8 Hr’g Tr., supra note 7, at 56 (Muris) (stating that 

“it is difficult to have simple uses of Lerner indexes and 

downward sloping demand as measures of anything 

meaningful”). 

86 Attempts to compare actual with competitive 

prices suffer from similar infirmities. Determining the 

competitive price is difficult, as is determining when 

price so exceeds the competitive level for so long that it 

amounts to monopoly power rather than just market 

power. See Carlton, supra note 7, at 6–7. 
30 SECTION 2 REPORT 

B. Direct Evidence of

 Anticompetitive Effects 

Focusing on anticompetitive effects, such as 

the reduction of output, may be more useful 

than focusing on profits, price-cost margins, or 

demand elasticity. In section 1 cases involving 

concerted conduct by competitors, courts have 

held that direct evidence of anticompetitive 

effects can demonstrate market power.87 

However, courts have not held expressly that 

direct evidence of anticompetitive effects can 

prove monopoly power in section 2 cases. But 

in several cases, courts have suggested that 

such an approach would make sense, and a 

number of panelists agreed.88 If a dominant 

firm’s conduct has been demonstrated to cause 

competitive harm, one could rely simply on 

that evidence and dispense with the marketdefinition requirement entirely. 

However, there are concerns with taking 

such an approach. One important concern is 

that effects evidence, while very valuable, is 

generally imperfect, and sometimes subject to 

differing interpretations. For this reason, also 

requiring a traditional market-definition 

exercise—incorporating, perhaps, available 

evidence of alleged effects—likely adds value 

by strengthening inferences and thereby 

avoiding potentially costly errors. 

The Department agrees with panelists who 

maintained that an assessment of actual or 

potential anticompetitive effects can be useful 

in a section 2 case.89 In some circumstances, an 

87 See FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 

460–61 (1986) (noting that “‘proof of actual detrimental 

effects, such as reduction of output,’ can obviate the 

need for an inquiry into market power, which is but a 

‘surrogate for detrimental effects’” (quoting 7PHILLIP E. 

AREEDA, ANTITRUST LAW ¶ 1511, at 429 (1986))). 

88 See Broadcom Corp. v. Qualcomm Inc., 501 F.3d 

297, 307 (3d Cir. 2007); Conwood Co. v. U.S. Tobacco 

Co., 290 F.3d 768, 783 n.2 (6th Cir. 2002); see also Mar. 7 

Hr’g Tr., supra note 6, at 39–40 (White) (proposing that 

analysis of alleged exclusion consider comparison of 

existing market with exclusion to hypothetical 

consequences of absence of exclusion); id. at 61–63 

(Gilbert). 

89 See, e.g., Mar. 7 Hr’g Tr., supra note 6, at 25–26 

(Simons) (“[O]ne could argue that the first condition 

[should be] that the unilateral conduct be such that it is 

inability to find any anticompetitive effects may 

serve as a useful screen, enabling courts or 

enforcement officials to conclude quickly that a 

section 2 violation is implausible. In other 

cases, there may be effects evidence strongly 

suggestive of harm and the existence of a 

relevant market that has indeed been 

monopolized.90 

VI. Conclusion 

Monopoly power entails both greater and 

more durable power over price than mere 

market power and serves as an important 

screen for section 2 cases. As a practical matter, 

a market share of greater than fifty percent has 

been necessary for courts to find the existence 

of monopoly power. If a firm has maintained a 

market share in excess of two-thirds for a 

significant period and the firm’s market share 

is unlikely to be eroded in the near future, the 

Department believes that such facts ordinarily 

should establish a rebuttable presumption that 

the firm possesses monopoly power. The 

Department is not likely to forgo defining the 

reasonably likely to significantly raise price and/or 

reduce quality . . . .”); id. at 40 (White); id. at 44–49 

(Gavil); id. at 63 (Gilbert); id. at 114–119 (multiple 

panelists); Sherman Act Section 2 Joint Hearing: 

Academic Testimony Hr’g Tr. 90, Jan. 31, 2007 

(Bresnahan) (“[Y]ou can gain a lot of clarity about a 

Section 2 case by bringing the competitive effects and 

causation arguments to the forefront.”); id. at 174–76 

(Rubinfeld). 

90 See Mar. 7 Hr’g Tr., supra note 6, at 40 (White) 

(“You have already found the effect. Implicitly, you 

have said there must be a market there . . . .”); id. at 63 

(Gilbert) (“Too often, I think many of us would agree 

that the market definition exercise puts the cart in front 

of the horse. We should be thinking about where are 

the competitive effects . . . and then let the market 

definition respond to that rather than defining where 

the competitive effects are.”); id. at 114 (Nelson) (stating 

that “the market definition exercise helps you 

understand what is going on . . . but that is not to say 

you have to do it in every case, and there are numerous 

cases where you may be able to expedite things by 

going straight to the competitive effects bottom line”). 

But see id. at 117 (Gilbert) (“But I also can sympathize 

that if we did away with market definition completely, 

it could be highly problematic in leading to a lot of 

cases.”); id. at 195 (White) (“Yes, you ought to look at 

competitive effects more than we have, but I think there 

is still going to be a role for market definition.”). 
MONOPOLY 

POWER 31 

relevant market or calculating market shares in 

section 2 monopolization and attempt cases, 

but will use direct evidence of anticompetitive 

effects when warranted and will not rely 

exclusively on market shares in concluding that 

a firm possesses monopoly power. 

 

CHAPTER 3 

GENERAL STANDARDS FOR 

EXCLUSIONARY CONDUCT 

I. Introduction 

As discussed in chapter 1, the Supreme 

Court’s description of conduct that violates 

section 2 in United States v. Grinnell Corp.—“the 

willful acquisition or maintenance of 

[monopoly] power as distinguished from 

growth or development as a consequence of a 

superior product, business acumen, or historic 

accident”1

—provides little useful guidance.2 

The trial court’s instruction to the jury 

approved in Aspen Skiing Co. v. Aspen Highlands 

Skiing Corp., that a refusal to deal with a 

competitor is lawful if justified by “valid 

business reasons,”3

 has proven similarly 

unavailing as a source of specific guidance 

because of uncertainty over what constitutes a 

valid business reason. Indeed, commentators 

draw quite different conclusions from that 

instruction.4 

While the Supreme Court has established 

conduct-specific tests for predatory pricing and 

bidding, it has neither articulated similarly 

explicit standards for many other types of 

potentially exclusionary conduct nor adopted a 

1 United States v. Grinnell Corp., 384 U.S. 563, 

570–71 (1966). 

2 See, e.g., 1 SECTION OF ANTITRUST LAW, AM. BAR 

ASS’N, ANTITRUST LAW DEVELOPMENTS 210, 242 (6th ed. 

2007) (noting that“thehighly abstract Grinnelllanguage 

. . . has been criticized as not helpful in deciding 

concrete cases”); 3 PHILLIP E. AREEDA & HERBERT 

HOVENKAMP, ANTITRUST LAW, ¶ 651b, at 74 (2d ed. 

2002) (describing the Grinnell formulation as “not 

helpful” and “sometimes misleading”). 

3 475 U.S. 585, 597 (1985) (quoting trial court). 

4 See generally Mark S. Popofsky, Defining 

Exclusionary Conduct: Section 2, the Rule of Reason, and the 

Unifying Principle Underlying Antitrust Rules, 73 

ANTITRUST L.J. 435, 439 (2006) (“[A]dvocates of rival 

Section 2 tests treat Aspen as a mirror, reflecting support 

for their favored doctrine.”). 

test applicable to all conduct.5 The lower courts 

also have not settled on either a general test or 

conduct-specific tests.6 

Accordingly, there has been increasing focus 

in recent years on developing more refined 

tests to determine whether conduct is 

anticompetitive under section 2. This effort has 

been informed, in large part, by the following 

principles set forth in chapter 1: 

• Unilateral conduct is outside the purview 

of section 2 unless the actor possesses 

monopoly power or is likely to achieve it. 

• The mere possession or exercise of 

monopoly power is not an offense; the 

law addresses only the anticompetitive 

acquisition or maintenance of such 

power (and certain related attempts). 

• Acquiring or maintaining monopoly 

power through assaults on the competitive 

process harms consumers and is to be 

condemned. 

• Mere harm to competitors—without 

harm to the competitive process—does 

not violate section 2. 

• Competitive and exclusionary conduct 

can look alike—indeed, the same conduct 

can have both beneficial and exclusionary 

5 See, e.g., Verizon Commc’ns Inc. v. Law Offices of 

Curtis V. Trinko, LLP, 540 U.S. 398, 409 (2004) (not 

adopting a specific test and characterizing Aspen Skiing 

as at the outer boundaries of section 2 enforcement 

without further explanation); Spectrum Sports, Inc. v. 

McQuillan, 506 U.S. 447 (1993); see also United States v. 

Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945). 

6 Compare, e.g., Cascade Health Solutions v. 

PeaceHealth, 515 F.3d 883, 903 (9th Cir. 2008) (applying 

a cost-based test to bundled discounting), with LePage’s 

Inc. v. 3M, 324 F.3d 141, 155 (3d Cir. 2003) (en banc) 

(condemning bundled discounting practices without 

applying a cost-based test). 
34 SECTION 2 REPORT 

effects—making it hard to distinguish 

conduct that should be deemed unlawful 

from conduct that should not. 

• Because competitive and exclusionary 

conduct often look alike, courts and 

enforcers need to be concerned with both 

underdeterrence and overdeterrence. 

• Standards for applying section 2 should 

take into account the costs, including 

error and administrative costs, associated 

with courts and enforcers applying those 

standards in individual cases and 

businesses applying them in their own 

day-to-day decision making. 

While there is general consensus that clearer 

and more predictable standards are desirable, 

legal scholarship and the record from the 

hearings suggest far less consensus on what 

those standards should be.7 Some advocate a 

single test for analyzing all, or substantially all, 

conduct challenged under section 2, but there is 

no agreement on what that single test should 

be.8 Others maintain that no unitary test can be 

7 See, e.g., Sherman Act Section 2 Joint Hearing: 

Tying Hr’g Tr. 59, Nov. 1, 2006 (Popofsky) (“[T]here is 

a holy war raging over the appropriate liability 

standard under Section 2 generally.”); Popofsky, supra 

note 4, at 435 (“The antitrust community is engaged in 

a renewed debate over the legal test for exclusionary 

conduct under Section 2 of the Sherman Act.”). 

8 See, e.g., Sherman Act Section 2 Joint Hearing: 

Conduct as Related to Competition Hr’g Tr. 31, May 8, 

2007 [hereinafter May 8 Hr’g Tr.] (Pitofsky) (advocating 

a framework whereby “procompetitive justifications” 

are balanced against “anticompetitive effects”); Einer 

Elhauge, Defining Better Monopolization Standards, 56 

STAN. L. REV. 253, 330 (2003) (advocating rules of per se 

legality and illegality based on monopolist’s efficiency); 

A. Douglas Melamed, Exclusive Dealing Agreements and 

Other Exclusionary Conduct—Are There Unifying 

Principles?, 73 ANTITRUST L.J. 375, 389 (2006) 

(advocating a “test” under which “conduct is 

anticompetitive if, but only if, it makes no business 

sense or is unprofitable for the defendant but for the 

exclusion of rivals and resulting supra–competitive 

recoupment”); Mark R. Patterson, The Sacrifice of Profits 

in Non-Price Predation, ANTITRUST, Fall 2003, at 37, 43 

(stating that “the sacrifice-of-profits test provides a 

desirable approach both for litigation and business 

planning”);Steven C. Salop, Exclusionary Conduct, Effect 

on Consumers, and the Flawed Profit-Sacrifice Standard, 73 

ANTITRUST L.J. 311, 341 (2006) (proposing a standard 

applied to the broad range of conduct that may 

be subject to challenge under section 2.9

 Some 

urge development of specific tests or safe 

harbors for specific categories of conduct.10 

where “the court would evaluate the likelihood and 

magnitude of expected consumer benefits or harms 

based on the information reasonably available at the 

time that the conduct was undertaken”). 

9 See, e.g., ANTITRUST MODERNIZATION COMM’N, 

REPORT AND RECOMMENDATIONS 91 (2007), available at 

http://govinfo.library.unt.edu/amc/report_recomm 

endation/amc_final_report.pdf (“Many commentators 

are skeptical that any one legal standard should be used 

to evaluate the wide variety of different types of 

conduct that may be challenged under Section 2.”); May 

8 Hr’g Tr., supra note 8, at 21 (Rule) (“The problem with 

the unitary standards is . . . [that] they presume a . . . 

capability of regulators and enforcers and courts to 

distinguish efficient from inefficient conduct that just 

doesn’t exist.”); Sherman Act Section 2 Joint Hearing: 

Section 2 Policy Issues Session Hr’g Tr. 12, May 1, 2007 

[hereinafter May 1 Hr’gTr.] (McDavid) (recommending 

that the search for a single standard be abandoned and 

noting that antitrust is “very fact-specific”); id. at 56 

(Jacobson) (“I think the consensus today is that there 

cannot be a single test for all aspects of [section 2] 

conduct . . . .”); Sherman Act Section 2 Joint Hearing: 

Monopoly Power Session Hr’g Tr. 172, Mar. 7, 2007 

(Sims) (stating that there is no consensus for section 2 

approaches except to pay attention to the facts); 

Sherman Act Section 2 Joint Hearing: International 

Issues Session Hr’g Tr. 15, Sept. 12, 2006 [hereinafter 

Sept. 12 Hr’g Tr.] (Lowe) (“[O]ne test may not be the 

final answer to the analysis we need to carry out. There 

may be several tests which have been proposed which 

are relevant to a particular case.”); id. at 101–02 (Addy) 

(asserting that “we should [not] expect the kind of 

detail or precision that some proponents might 

advocate” and that “there is no Holy Grail”). 

10 See, e.g., Sherman Act Section 2 Joint Hearing: 

Business Testimony Session Hr’g Tr. 95–96, Feb. 13, 

2007 [hereinafter Feb. 13 Hr’g Tr.] (Stern) (stating that 

meaningful safe harbors that clarify what is clearly 

legal and not questionable should be developed); 

Sherman Act Section 2 Joint Hearing: Academic 

Testimony Session Hr’g Tr. 161–62, Jan. 31, 2007 

[hereinafter Jan. 31 Hr’g Tr.] (Gilbert) (advocating 

different standards for different types of behavior); id. 

at 117 (Bloom) (“[W]e may need more than one test . . . 

to cover different types of exclusionary conduct.”); id. 

at 130 (Rill) (advocating that conduct safe harbors be 

developed). But cf. Melamed, supra note 8, at 384 

(contending that different rules for different types of 

conduct “would be problematic in practice” because 

“[d]ifferent rules . . . would inevitably invite disputes 

about how the conduct at issue should be categorized”). 
 

GENERAL STANDARDS 35 

This chapter first discusses the allocation of 

burdens of production and proof in section 2 

cases, an important issue no matter the 

substantive test adopted. The chapter then 

turns to five tests that have been proposed as a 

general standard for assessing whether conduct 

is anticompetitive under section 2—namely, (1) 

the effects-balancing test, (2) the profit-sacrifice 

test, (3) the no-economic-sense test, (4) the 

equally efficient competitor test, and (5) the 

disproportionality test.11 The chapter briefly 

describes the tests and assesses the relative 

advantages and disadvantages of each against 

modern Supreme Court section 2 jurisprudence 

and the principles set forth in chapter 1. 

II. Allocation of Burdens of 

Production and Proof 

Regardless of the substantive standard 

applied, the proper allocation of burdens of 

production and proof is key to facilitating the 

efficient resolution of cases that are notoriously 

complex, time consuming, and expensive.12 As 

the Supreme Court has observed, “[P]roceeding 

to antitrust discovery can be expensive” as it 

sometimes entails “‘a potentially massive 

factual controversy.’”13 Allocating burdens can 

enable courts more quickly to dispose of nonmeritorious cases and sometimes to identify 

violations.14 

11 The chapter focuses on five prominent tests, 

although others have been proposed. See, e.g., Elhauge, 

supra note 8, at 330; Kenneth L. Glazer & Brian R. 

Henry, Coercive vs. Incentivizing Conduct: A Way Out of 

the Section 2 Impasse?, ANTITRUST, Fall 2003, at 45, 47–48. 

12 See Frank H. Easterbrook, The Limits of Antitrust, 

63 TEX. L. REV. 1, 17 (1984); Andrew I. Gavil, 

Exclusionary Distribution Strategies by Dominant Firms: 

Striking a Better Balance, 72 ANTITRUST L.J. 3, 64 (2004). 

13 Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1967 

(2007) (quoting Associated Gen. Contractors of Cal.,Inc. 

v. Carpenters, 459 U.S. 519, 528 n.17 (1983)); see also, e.g., 

Feb. 13 Tr., supra note 10, at 209 (Sewell) (noting that 

firms “expend[] an enormous amount of resources, 

legal resources, trying to figure out” what is illegal 

under section 2). 

14 See HERBERT HOVENKAMP, THE ANTITRUST 

ENTERPRISE: PRINCIPLE AND EXECUTION 108 (2005) 

(observing that a “staged inquiry is particularly 

conducive to summary judgment or other early 

termination of the dispute”). 

Excessively lengthy antitrust litigation helps 

neither businesses nor consumers. As one 

commentator observed, it can be impossible to 

obtain effective relief in a matter that drags on 

for years and years before resolution: “As 

litigation stretches on—perhaps with no 

interim relief—the competitive moment that 

brought forth the rival may be lost, and along 

with it the prospect of new or improved 

products and services.”15 Lengthy litigation of 

non-meritorious claims can have similarly 

harmful competitive effects by restraining 

innovative or efficient conduct. 

Noting the costs and complexities of section 

2 litigation, several panelists voiced concern 

about the process of deciding such cases. One 

panelist stressed the need for a “sound 

analytical framework” for deciding section 2 

claims.16 Another noted that merely “punt[ing] 

issues downstream to juries . . . leads to forced 

settlement because people are risk averse and 

don’t want to go to trial.”17 Another expressed 

the view that pressure to settle can lead to “a lot 

of hidden false positives . . . particularly in the 

private cases.”18 

One commentator explains: 

To be effective, antitrust rules must be 

“operative,” i.e., they must work 

reasonably well in the context of litigation 

where they are ultimately going to be 

applied. That means they must be 

structured to take into account such basic 

litigation features as due process, burdens 

of pleading, production, and proof, and 

rules of evidence. Rules that make perfect 

sense as a matter of economics may not 

make sense from the point of view of 

procedure.19 

15 Gavil, supra note 12, at 80. 

16 May 1 Tr., supra note 9, at 17 (Kolasky). 

17 Sherman Act Section 2 Joint Hearing: Loyalty 

Discounts Session Hr’g Tr. 186, Nov. 29, 2006 

[hereinafter Nov. 29 Hr’g Tr.] (Crane). 

18 Jan. 31 Tr., supra note 10, at 73–74 (Shelanski). 

19 Gavil, supra note 12, at 66; cf. HOVENKAMP, supra 

note 14, at 105 (“If the rule of reason is to be 

administered rationally through the costly antitrust 

enterprise, it should never be an unfocused inquiry into 

all aspects of a defendant’s business.”). 
 

 

 

 

36 SECTION 2 REPORT 

A proper allocation of the burdens can help 

“limit the cases that proceed to discovery and 

trial” and “structure the proceedings in the rest, 

leading courts to focus on the most important 

issues.”20 

The D.C. Circuit outlined a useful 

procedural framework for distinguishing 

exclusionary from competitive acts. First, “[T]o 

be condemned as exclusionary, a monopolist’s 

act must have an ‘anticompetitive effect.’ That 

is, it must harm the competitive process and 

thereby harm consumers. . . . [And] the 

plaintiff, on whom the burden of proof of 

course rests, must demonstrate that the 

monopolist’s conduct indeed has the requisite 

anticompetitive effect.”21 Second, “[I]f a 

plaintiff successfully establishes a prima facie 

case under § 2 by demonstrating anticompetitive 

effect, then the monopolist may proffer a 

[nonpretextual] ‘procompetitive justification’ 

for its conduct.”22 Third, “[I]f the monopolist’s 

procompetitive justification stands unrebutted, 

then the plaintiff must demonstrate that the 

anticompetitive harm of the conduct outweighs 

the procompetitive benefit.”23 

Requiring plaintiffs to make a showing of 

harm to the competitive process at the outset 

facilitates the disposition of non-meritorious 

claims. One commentator describes this type of 

requirement as an “important initial filter[]”24 

that can “weed[] out either at the pleading 

stage or the summary judgment stage”25 

meritless claims. Likewise, requiring a defendant, 

upon a prima facie showing of harm to the 

20 Easterbrook, supra note 12, at 18. 

21 United States v. Microsoft Corp., 253 F.3d 34, 58 

(D.C. Cir. 2001) (en banc) (per curiam) (citations 

omitted) (emphasis in original). 

22 Id. at 59. 

23 Id. 

24 Gavil, supra note 12, at 62. 

25 Id. at 75; see also Easterbrook, supra note 12, at 17 

(endorsing “filters” that “help to screen out cases in 

which the risk of loss to consumers and the economy is 

sufficiently small that there is no need of extended 

inquiry and significant risk that inquiry would lead to 

wrongful condemnation or to the deterrence of 

competitive activity as firms try to steer clear of the 

danger zone”). 

competitive process, to come forward with a 

nonpretextual justification for its conduct 

enables courts and juries to condemn patently 

anticompetitive conduct without any weighing 

of offsetting effects.26 

These steps can spare courts and juries 

difficult questions. In many cases, the plaintiff 

will not be able to make a plausible showing of 

harm to the competitive process, or the 

defendant will not be able to muster a plausible 

efficiency-enhancing rationale for its conduct, 

meaning that the court or jury can readily 

determine whether or not the conduct is 

anticompetitive. In effect, this approach 

“strip[s] away those explanations that are 

implausible or unproven until we have a ‘core’ 

left that characterizes the practice as pro- or 

anticompetitive.”27 

The Department urges courts to apply such 

a procedural framework and to consider 

litigation costs and the substantive goals of 

antitrust when allocating the burdens of proof 

and production. 

III. Proposed General Standards 

If the allegation of competitive harm is not 

meritless but the conduct is not patently 

anticompetitive,the standard for evaluating the 

conduct plays a crucial role in ensuring that 

section 2 promotes competition and consumer 

welfare. This section discusses five general 

tests that have been proposed for determining 

whether or not challenged conduct is 

anticompetitive. 

A. Effects-Balancing Test 

Given the objective of identifying conduct 

that causes harm to the competitive process, it 

is natural that some commentators and courts 

favor applying an effects-balancing test that 

focuses on a challenged practice’s “overall 

impact on consumers” or net effects on 

consumer welfare.28 The test asks whether 

26 Cf. Gavil, supra note 12, at 80. 

27 HOVENKAMP, supra note 14, at 108. 

28 Salop, supra note 8, at 330. It is not always clear 

whether the consumer-welfare test focuses only on 

consumer surplus or includes both consumer and 

producer surplus. See Sherman Act Section 2 Joint 
GENERAL STANDARDS 37 

particular conduct “reduces competition 

without creating a sufficient improvement in 

performance to fully offset these potential 

adverse effect[s] on prices and thereby prevent 

consumer harm.”29 At its core, the test entails 

quantifying and weighing procompetitive and 

anticompetitive effects of the challenged 

conduct. 

The effects-balancing test makes illegal all 

conduct by which a monopolist acquires or 

maintains monopoly power where the conduct 

causes net harm to consumers. The effectsbalancing test has the advantage of focusing the 

exclusionary-conduct analysis on the impact on 

consumers, a key concern of Sherman Act 

jurisprudence.30 

Critics of this test contend that it is not easily 

administrable and is inconsistent with the 

Supreme Court’s recent section 2 

jurisprudence.31 Administrability is crucial, as 

then-Judge Breyer explained in Barry Wright 

Corp. v. ITT Grinnell Corp.: “Rules that seek to 

embody every economic complexity and 

qualification may well, through the vagaries of 

administration, prove counter-productive, 

undercutting the very economic ends they seek 

to serve.”32 

Recent Supreme Court decisions have 

reflected then-Judge Breyer’s appreciation of 

the need to adopt standards that reasonably 

identify truly anticompetitive conduct, 

minimizing administrative costs and risk of 

Type I and Type II errors that would ultimately 

undermine effective antitrust enforcement. The 

Supreme Court has realized that a search for 

every possible anticompetitive effect can do 

more harm than good. The Court’s predatoryHearing: Predatory Pricing Hr’g Tr. 178–190, June 22, 

2006 [hereinafter June 22 Hr’g Tr.]; id. at 180 (Salop) (“I 

think by consumer welfare I mean true consumer 

welfare.”); id. at 184 (Salop) (noting that “what the 

Supreme Court meant by consumer welfare is total 

welfare”). 

29 Salop, supra note 8, at 330. 

30 See id. at 330–32. 

31 See, e.g., Popofsky,supra note 4, at 464 (stating that 

the effects-balancing test “cannot be reconciled with 

certain . . . Section 2 rules”). 

32 724 F.2d 227, 234 (1983). 

pricing test in Brooke Group Ltd. v. Brown & 

Williamson Tobacco Corp., for example, provides 

a safe harbor for pricing above a relevant 

measure of cost, even though the Court 

explicitly recognized a possibility of such 

pricing causing consumer harm through the 

exclusion of rivals.33 Similarly, in Trinko, the 

Court observed that violations of certain 

sharing duties imposed by statute may be 

“‘beyond the practical ability of a judicial 

tribunal to control,’” even where enforcement 

of such duties might increase competition in the 

short run.34 

The effects-balancing test confronts a court 

with the administrative challenge of conducting 

an open-ended measuring of effects that 

includes comparing the existing world with a 

hypothetical world that is subject to debate. 

These administrability problems include 

limitations on both the ability of economists 

accurately to measure the net consumer-welfare 

effects of particular conduct35 and the ability of 

judges and juries to evaluate this evidence.36 

33 509 U.S. 209, 223 (1993). 

34 Verizon Commc’ns Inc. v. Law Offices of Curtis V. 

Trinko, LLP, 540 U.S. 398, 414 (2004) (quoting Brooke 

Group, 509 U.S. at 223); see also Weyerhaeuser Co. v. 

Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 

1078 (2007) (holding that, while higher bidding for 

inputs may potentially have exclusionary effects even 

where it does not result in below-cost output pricing, 

such effects are “‘beyond the practical ability of a 

judicial tribunal to control without courting intolerable 

risks of chilling legitimate’ procompetitive conduct” 

(quoting Brooke Group, 509 U.S. at 223)). 

35 See, e.g., Gregory J. Werden, Identifying 

Exclusionary Conduct Under Section 2: The “No Economic 

Sense” Test, 73 ANTITRUST L.J. 413, 431–32 (2006). 

36 See, e.g., Elhauge, supra note 8, at 317 (The “openended balancing inquiry” required by an effectsbalancing test, when performed by “antitrust judges 

and juries[,] would often be inaccurate, hard to predict 

years in advance when the business decision must be 

made, and too costly to litigate.”); Melamed, supra note 

8, at 386–87 (noting that the effects-balancing test would 

“pose a daunting challenge to any decision maker”); 

Popofsky, supra note 4, at 465 (observing that “the 

inquiry adjudicators need to make” under the effectsbalancing test “is too difficult”); Werden, supra note 35, 

at 431–32 (“Reliance on the jury system assures that the 

consumer-welfare test would result in a high incidence 

of false positive findings of exclusionary conduct.”). 
 

38 SECTION 2 REPORT 

Indeed, several panelists and commentators 

have pointed out that, in practice, courts do not 

engage in the precise balancing called for by the 

effects-balancing test. One panelist explained 

that, “when you look at the decisions, the 

courts never reach [a] final balancing stage.”37 

Another panelist agreed, stating that no “court 

has ever written an opinion saying, now that it 

is all over, we find that there are these harms 

and these efficiencies and we are now going to 

weigh them and we are going to choose 

between the two.”38 Similarly, in commenting 

on the D.C. Circuit’s Microsoft decision,39 

another asserts that the court, “while using the 

language of comparing effects, in fact avoided 

that inquiry.”40 

The effects-balancing test also may lead 

courts to focus too much on static, short-run 

consumer effects. Because dynamic effects are 

often more difficult to assess than static effects, 

the effects-balancing test may well be 

misapplied to condemn conduct with dynamic 

effects that benefit consumers significantly. As 

one commentator notes, “Even if economists 

could perfectly sort out the relatively short-run 

economic consequences of all marketplace 

conduct, they still could not accurately account 

But see Salop, supra note 8, at 314 (“Although [the 

consumer- welfare] standard has been criticized, it can 

be implemented without causing excessive false 

positives that might lead to over-deterrence or a 

welfare-reducing diminution in innovation 

incentives.”). 

37 May 1 Hr’g Tr., supra note 9, at 60 (Kolasky). 

38 Id. at 103 (Krattenmaker); see also May 8 Hr’g Tr., 

supra note 8, at 30 (Melamed) (“[T]o talk about . . . 

balancing as a solution to the problem where you have 

both benefit and harm . . . is nonsense. And I don’t 

think any court does it.”); id. at 32 (Rule) (stating that 

balancing “becomes infinitely more difficult . . . in a 

Section 2 context for a variety of reasons”); May 1 Hr’g 

Tr., supra note 9, at 81 (Calkins) (“[Y]ou never get to the 

last step, and so it is not really a balancing.”). But see 

May 8 Hr’g Tr., supra note 8, at 31 (Pitofsky) (“The 

balancing test is the baseline of all antitrust. . . . Why do 

you single out Section 2 of the Sherman Act as an area 

where balancing is nonsense?”). 

39 United States v. Microsoft Corp., 253 F.3d 34 (D.C. 

Cir. 2001) (en banc) (per curiam). 

40 Popofsky, supra note 4, at 445 (emphasis in 

original). 

for the important long-term effects of any 

remedial action on incentives for innovation 

and risk-taking—the twin engines of our 

prosperity.”41 To the extent it is applied in a 

manner that focuses more on short-run 

consumer effects of specific conduct, the effectsbalancing test may ultimately harm, ratherthan 

benefit, consumers in the long run. 

Further, critics note that the complexity of 

administering the effects-balancing test would 

make it difficult for firms to determine at the 

outset whether specific conduct would violate 

section 2, thereby potentially chilling procompetitive conduct and reducing consumer 

welfare.42 Moreover, a legal rule under which 

every action of a monopolist must be 

scrutinized for net consumer-welfare effects 

threatens to chill a monopolist’s incentives to 

engage in procompetitive conduct out of fear of 

antitrust investigation, litigation, or even 

mistaken liability—again, potentially harming 

consumer welfare. 

Given the open-ended nature of the effectsbalancing test and the inherent uncertainty for 

businesses in predicting its outcome, the 

Department does not believe it should be the 

general test for analyzing conduct under 

section 2. Although consumer welfare should 

remain the goal of enforcement efforts, that 

objective likely is better served by a standard 

that takes better account of administrative costs 

and the benefits of dynamic competition for 

economic growth. 

The Department does not believe that the 

effects-balancing test should be the general 

test for analyzing conduct under section 2. 

41 Id. at 431–32. 

42 See, e.g., Sherman Act Section 2 Joint Hearing: 

Refusals to Deal Session Hr’g Tr. 46, July 18, 2006 

[hereinafter July 18 Hr’g Tr.] (Pate) (“[W]hile a general 

balancing test is flexible . . . it is inherently lacking in 

any objective content that businesses can apply in a 

predictable manner to make their decisions.”); 

Melamed, supra note 8, at 387 (stating that a “static 

market-wide balancing test” would “place a costly and 

often impossible burden on the defendant when 

deciding in real time how to conduct its business”). 
GENERAL STANDARDS 39 

B. Profit-Sacrifice and 

No-Economic-Sense Tests 

Some commentators favor reducing the 

uncertainties, and thus perceived chilling 

effects, surrounding the application of an 

effects-balancing test by applying tests that do 

away with the need for that balancing 

altogether. The profit-sacrifice and noeconomic-sense tests are two prominent 

examples. These tests are often discussed 

together and commentary is not always clear as 

to their precise definitions. Indeed, some 

appear to equate them, while others believe 

they are different. The Department does not 

consider them to be equivalent and sets forth 

below how these tests are sometimes described 

and how they differ. 

Generally, a profit-sacrifice test asks 

whether the scrutinized conduct is more 

profitable in the short run than any other 

conduct the firm could have engaged in that 

did not have the same (or greater) exclusionary 

effects. If the conduct is not more profitable, 

the firm sacrificed short-run profits and might 

have been investing in an exclusionary scheme, 

seeking to secure monopoly power and recoup 

the foregone profits later. 

One can apply a version of the no-economicsense test in a similar fashion, comparing the 

non-exclusionary profits from the conduct to 

the profits the firm would have earned from 

alternative, legal conduct in which it would 

have engaged (the “but-for” scenario).43 If the 

non-exclusionary profits are greater, the 

conduct would make economic sense without 

exclusionary effects and thus be legal; if the 

non-exclusionary profits are less, the conduct 

would not make economic sense and thus 

potentially be illegal. 

However, as often described, another 

variation of the no-economic-sense test asks 

whether the conduct in question contributed 

any profit to the firm apart from its 

exclusionary effect. As long as the conduct is 

profitable apart from its exclusionary effect, it 

would pass this variation of the no-economicsense test, regardless of whether any other 

43 See Werden, supra note 35, 420–22. 

conduct would have been more profitable or 

the extent of any harm to competition. 

The profit-sacrifice and no-economic-sense 

tests seek to establish objective standards by 

which to identify conduct that is likely to 

damage the competitive process, as opposed to 

merely aggressive competition. The tests draw 

on the Supreme Court’s predatory-pricing 

jurisprudence.44 A cornerstone of those cases is 

a 1975 law review article by Professors Areeda 

and Turner, in which they argued that 

“predation in any meaningful sense cannot 

exist unless there is a temporary sacrifice of net 

revenues in the expectation of greater future 

gains.”45 

That concept, and subsequent academic 

commentary suggesting that an action’s likely 

economic effects are key to assessing liability 

under section 2,46 played a significant role in 

several decisions construing section 2, 

including Aspen Skiing,

47 Matsushita Industrial 

44 Id. at 16–17. 

45 Phillip Areeda & Donald F. Turner, Predatory 

Pricing and Related Practices Under Section 2 of the 

Sherman Act, 88 HARV. L. REV. 697, 698 (1975); see also id. 

(asserting that “the classically-feared case of predation 

has been the deliberate sacrifice of present revenues for 

the purpose of driving rivals out of the market and then 

recouping the losses through higher profits earned in 

the absence of competition”). 

46 See, e.g., ROBERT H. BORK, THE ANTITRUST 

PARADOX 144 (1978) (“Predation may be defined . . . as 

a firm’s deliberate aggression against one or more rivals 

through the employment of business practices that 

would not be considered profit maximizing except for 

the expectation either that (1) rivals will be driven from 

the market, leaving the predator with a market share 

sufficient to command monopoly profits, or (2) rivals 

will be chastened sufficiently to abandon competitive 

behavior the predator finds inconvenient or 

threatening.”); Janusz A. Ordover & Robert D. Willig, 

An Economic Definition of Predation: Pricing and Product 

Innovation, 91 YALE L.J. 8, 9–10 (1981) (“[P]redatory 

behavior is a response to a rival that sacrifices part of 

the profit that could be earned under competitive 

circumstances, were the rival to remain viable, in order 

to induce exit and gain consequent additional 

monopoly profit.”). 

47 Aspen Skiing Co. v. Aspen Highlands Skiing 

Corp., 472 U.S. 585, 608 (1985) (noting that defendant 

“elected to forgo . . . short-term benefits because it was 

more interested in reducing competition in the Aspen 

market over the long run”). 
40 SECTION 2 REPORT 

Co., Ltd. v. Zenith Radio Corp.,

48 Brooke Group,49 

and several lower court decisions.50 For 

instance, pricing below cost is an objectively 

measurable standard and indicates that the 

pricing makes no economic sense in the short 

term and, accordingly, is likely to be serving 

other ends, which might include exclusion of 

competitors. Similarly, the Trinko Court, while 

not expressly adopting the no-economic-sense 

test, identified the Aspen Skiing defendant’s 

“willingness to forsake short-term profits to 

achieve an anticompetitive end” as a key 

element of the liability finding.51 

Although, as discussed above, there are 

48 475 U.S. 574, 588–89 (1986) (explaining that an 

“agreement to price below the competitive level 

requires the conspirators to forgo profits that free 

competition would offer them” in the hope of obtaining 

“later monopoly profits”). 

49 509 U.S. 209, 224 (1993) (holding that low prices 

are not illegal under section 2 absent “a dangerous 

probability[] of recouping [the] investment in belowcost prices”). 

50 See, e.g., Covad Commc’ns Co. v. Bell Atl. Corp., 

398 F.3d 666, 675 (D.C. Cir. 2005) (“[I]n order to prevail 

upon [a refusal-to-deal] claim [plaintiff] will have to 

prove [defendant’s] refusal to deal caused [defendant] 

short-term economic loss.”); Morris Commc’ns Corp. v. 

PGA Tour, Inc., 364 F.3d 1288, 1295 (11th Cir. 2004) 

(“[A]nticompetitive conduct . . . is conduct without a 

legitimate business purpose that makes sense only 

because it eliminates competition.” (internal quotation 

marks omitted) (quoting Gen. Indus. Corp. v. Hartz 

Mountain Corp., 810 F.2d 795, 804 (8th Circuit 1987))); 

Neumann v. Reinforced Earth Co., 786 F.2d 424, 427 

(D.C. Cir. 1986) (“[P]redation involves aggression 

against business rivals through the use of business 

practices that would not be considered profit 

maximizing except for the expectation that (1) actual 

rivals will be driven from the market, or the entry of 

potential rivals blocked or delayed, so that the predator 

will gain or retain a market share sufficient to 

command monopoly profits, or (2) rivals will be 

chastened sufficiently to abandon competitive behavior 

the predator finds threatening to its realization of 

monopoly profits.”); William Inglis & Sons Baking Co. 

v. ITT Cont’l Baking Co., 668 F.2d 1014, 1030–31 (9th 

Cir. 1981) (stating that, in order to violate section 2, 

conduct “must be such that its anticipated benefits were 

dependent upon its tendency to discipline or eliminate 

competition and thereby enhance the firm’s long-term 

ability to reap the benefits of monopoly power”). 

51 Verizon Commc’ns Inc. v. Law Offices ofCurtis V. 

Trinko, LLP, 540 U.S. 398, 409 (2004). 

variations on the profit-sacrifice and noeconomic-sense tests, proponents of all 

variations maintain that the tests are consistent 

with the Supreme Court’s long-standing 

emphasis on protecting the competitive process 

and avoiding the chilling of procompetitive 

conduct.52 For instance, while acknowledging 

that the tests have been “criticized by 

numerous commentators who are concerned 

that [they] will result in false negatives,”53 one 

proponent nevertheless contends that the 

policy tradeoffs are justified: 

The sacrifice test does not purport to 

condemn all conduct that might create 

market power or reduce economic welfare. 

Rather, the test rests on the judgment that 

market-wide balancing tests, which in 

theory could condemn all welfare-reducing 

conduct, will in practice prove to be an 

inferior legal standard because of their 

greater difficulty in administration and 

their perverse incentive effects.54 

Supporters of the tests also recommend 

them on grounds that firms can use them to 

assess the legality of proposed actions before 

acting and that courts should be able to apply 

them relatively easily.55 Even supporters 

52 See, e.g., ANTITRUST MODERNIZATION COMM’N, 

supra note 9, at 91–92; General Approaches to Defining 

Abusive/Monopolistic Practices—Roundtable, in 2006 

ANNUAL PROCEEDINGS OF THE FORDHAM COMPETITION 

LAW INSTITUTE 577–79 (Barry E. Hawk ed., 2007) 

(Werden). 

53 A. Douglas Melamed, Exclusionary Conduct Under 

the Antitrust Laws: Balancing, Sacrifice, and Refusals to 

Deal, 20 BERKELEY TECH. L.J. 1247, 1257 (2005). 

54 Id.; see also Werden, supra note 35, at 433 (“The no 

economic sense test is predicated on the proposition 

that some potentially harmful conduct must be 

tolerated to avoid even greater harms from chilling risk 

taking and aggressively competitive conduct.”). 

55 See Jan. 31 Hr’g Tr., supra note 10, at 135 

(Rubinfeld) (asserting that the profit sacrifice test is 

“easier to operationalize”); July 18 Hr’g Tr., supra note 

42, at 32 (Pate) (stating that “some variation of a pricecost comparison . . . is going to be necessary if 

objectivity is going to be brought to the inquiry”); 

Melamed, supra note 8, at 393 (“Perhaps most 

important, the sacrifice test provides simple, effective, 

and meaningful guidance to firms so that they will know 

how to avoid antitrust liability without steering clear of 

procompetitive conduct.”); Werden, supra note 35, at 433. 
 

GENERAL STANDARDS 41 

acknowledge, however, that these tests can be 

difficult to apply in some circumstances, for 

instance “in cases involving simultaneous 

benefits for the defendant and cost increases for 

rivals.”56 

Some panelists criticized these tests for 

focusing only indirectly on consumers and 

preferred that section 2 be construed to focus 

directly on consumer welfare.57 Other panelists 

made similar points, emphasizing the potential 

of these tests to result in false negatives, 

allowing conduct that harms consumers to 

escape liability under section 2.58 

The profit-sacrifice test also has been 

56 Melamed, supra note 53, at 1261; see also Werden, 

supra note 35, at 421 (“The utility of the no economic 

sense test ultimately is apt to vary, depending mainly 

on the feasibility of determiningwhetherthe challenged 

conduct would make no economic sense but for its 

tendency to eliminate competition. That determination 

should be feasible in the vast majority of cases, but it 

might not be if the conduct generates legitimate profits 

as well as profits from eliminating competition.”). 

57 See, e.g., May 1 Hr’g Tr., supra note 9, at 67 

(Kolasky) (stating that the profit-sacrifice test “focuses 

. . . too much attention on whether the conduct makes 

sense from the standpoint of the alleged monopolist as 

opposed to what is its effect on the consumer”); 

Sherman Act Section 2 Joint Hearing: Business 

Testimony Session Hr’g Tr. 35, Jan. 30, 2007 (Edlin). 

58 See, e.g., May 1 Hr’g Tr., supra note 9, at 77 (Baker) 

(“If the profit sacrifice or no economic sense test differs 

from the reasonableness analysis, it is doing so in order 

. . . to put a thumb on the scales in favor of 

defendants.”); July 18 Hr’g Tr., supra note 42, at 25 

(Pitofsky) (stating that he is “uncomfortable” with the 

profit-sacrifice test because it focuses on the monopolist 

rather than the consumer); see also Gavil, supra note 12, 

at 71 (“As an economic matter, ‘sacrifice’ is not relevant 

either to the defendant’s market power or the fact that 

its conduct resulted in actual exclusion or consumer 

harm.”); Jonathan M. Jacobson & Scott A. Sher, “No 

Economic Sense” Makes No Sense for Exclusive Dealing, 73 

ANTITRUST L.J. 779, 786 (2006) (“[M]ost importantly, the 

no economic sense and profit sacrifice tests still do not 

ask the correct question—that is, whether the practice 

is likely to aid consumers or to hurt them.”); Salop, 

supra note 8, at 345–46, 357–63 (stating that the profitsacrifice test is a highly imperfect and generally biased 

predictor of the impact of the conduct on competition 

and consumer welfare). But see Werden, supra note 35, 

at 428 (“Theoretical possibilities [of false negatives] 

should be given little weight in formulating antitrust 

policy or any other legal rules of general application.”). 

criticized for its potential to result in false 

positives, condemning procompetitive 

investments and product innovation. Almost 

all substantial investments—from building a 

new factory to new-product development— 

involve a short-term sacrifice of current 

revenue in expectation of future increased 

revenues resulting from taking business from 

competitors. The test is criticized because it 

“does not adequately dis t i nguis h 

anticompetitive ‘sacrifice’ from procompetitive 

investment”59 and may condemn clearly 

procompetitive conduct.60

 As one commentator 

59 Herbert Hovenkamp, Antitrust and theDominant 

Firm: Where Do We Stand? 12 (n.d.) (unpublished 

manuscript), available at http://www.ftc.gov/os/ 

comments/section2hearings/hovenkamppaper.pdf 

(“One particular problem with sacrifice tests is that 

most substantial investments involve a short term 

‘sacrifice’ of dollars in anticipation of increased revenue 

at some future point. . . . Likewise, product innovations 

are always costly to the defendant, and their success 

may very well depend on their ability to exclude rivals 

from the market . . . .”); cf. Carl Shapiro, Exclusionary 

Conduct, Testimony Before the Antitrust 

Modernization Commission 4 (Sept. 29, 2005), available 

at http://govinfo.library.unt.edu/amc/commission_ 

hearings/pdf/Shapiro_Statement.pdf(endorsinga safe 

harbor for “investment in new and superior production 

capacity” and “unadorned product improvement” even 

though such investment could in theory deter entry by 

rivals or induce the exit of rivals, thereby leading to 

higher prices). 

60 See, e.g., Jan. 31 Hr’g Tr., supra note 10, 113–14 

(Gilbert) (“[A] profit sacrifice test . . . doesn’t . . . make 

any sense to innovation” because “innovation almost 

always involves a profit sacrifice” which is called 

“investing in research and development. . . . 

[Moreover], if [innovation] really works, [it] probably 

excludes competitors. . . . [P]roducing a really good 

mousetrap” means that “other mousetraps can’t 

compete.”); Elhauge, supra note 8, at 274 (noting that the 

sacrifice test fails for the fundamental reason that 

sacrificing short-term profits to make the sort of 

investments that enable one to destroy one’s rivals is 

ordinarily not a sign of evil but the mark of capitalist 

virtue); Popofsky, supra note 4, at 462 (noting that the 

profit-sacrifice test “could deem unlawful conduct that 

impedes rivals only because it improves the 

attractiveness of the defendant’s product and has no 

other exclusionary property”); Salop, supra note 8, at 

314 (observing that “the profit-sacrifice standard may 

well be more likely to condemn a cost-reducing 

investment that leads to market power than would the 

consumer welfare effect standard”). 
 

42 SECTION 2 REPORT 

puts it, 

[P]ublic policy should encourage firms that 

want to invest in activities that consumers 

value in order to gain future sales from 

their rivals. However, because such actions 

by definition reduce present profits, a blind 

application of a “profit sacrifice” test could 

condemn almost any competitive behavior. 

When a test could potentially challenge a 

wide array of core competitive behaviors, it 

becomes dangerous.61 

In addition, although these tests are based in 

part on their purported ease of administration, 

critics claim that they are difficult to implement 

in practice.62 For instance, some critics 

maintain that the tests are inappropriate for 

analyzing exclusive-dealing arrangements, 

which make economic sense for the defendant 

“precisely because they lessen competition by 

rivals for the affected business.”63 These critics 

contend that there is no practical way to 

separate the economic benefits to a defendant 

from the exclusionary impact on rivals.64 

61 Dennis W. Carlton, Does Antitrust Need to Be 

Modernized?, J. ECON. PERSP., Summer 2007, at 155, 170. 

But see Gregory J. Werden, Identifying Single-Firm 

Exclusionary Conduct: From Vague Concepts to 

Administrable Rules, in 2006 FORDHAM COMPETITION LAW 

INSTITUTE 509, 528 (Barry E. Hawk ed., 2007). 

62 See, e.g., May 1 Hr’g Tr., supra note 9, at 69 

(Jacobson) (“[I]t is a very, very difficult test to 

administer.”); id. at 77 (Baker) (noting “tremendous 

problems with administrability”); Elhauge, supra note 

8, at 293 (“The general problem is that the efforts to 

modify the profit-sacrifice test to avoid its substantive 

defects necessarily require distinguishing between 

profits earned desirably (even if it excludes rivals) and 

profits earned undesirably . . . . Not only does it beg the 

question of what the criteria of desirability are, it also 

eliminates any administrability benefit by converting 

the test from one based on actual profits to one based 

on the desirability of how those profits were 

acquired.”); Gavil, supra note 12, at 55 (contending that 

“all forms of the but-for test are objectionable on 

procedural grounds”); Salop, supra note 8, at 321, 323 & 

n.50 (noting that there is debate over the proper way to 

implementthestandard, including what the benchmark 

should be and how to determine what profits are due to 

the lessening of competition compared with other 

causes). 

63 Sherman Act Section 2 Joint Hearing: Exclusive 

Dealing Session Hr’g Tr. 59, Nov. 15, 2006 (Jacobson). 

64 See id.; Jacobson & Sher, supra note 58, at 781 

Another contends that these tests conflict with 

the sham-litigation doctrine; costly litigation 

might be permissible under the sham-litigation 

doctrine yet fail the no-economic-sense or 

profit-sacrifice tests.65 Still others express 

concern that some misleading and deceptive 

conduct with no efficiency justification might 

involve little or no profit sacrifice.66 

Yet another potential problem with these 

tests is that they may open the door to plaintiffs 

hypothesizing any number of alternative 

courses of action that may, especially with the 

benefit of hindsight, have been more profitable 

for defendant. However, there may be 

legitimate reasons why a firm does not pursue 

the most profitable course of action, including 

simple unawareness of the options. No 

defendant should be required to show that it 

maximized profits among all conceivable 

choices. Hinging antitrust liability on such 

second guessing raises serious concerns that 

such a standard would undermine rather than 

promote the goal of economic growth and 

increased consumer welfare. 

The Department believes that a profitsacrifice test that asks whether conduct is more 

profitable in the short run than other lessexclusionary conduct the firm could have 

undertaken raises serious concerns and should 

not be the test for section 2 liability. 

The Department believes that a profitsacrifice test should not be the test for 

section 2 liability. 

The Department further concludes that the 

(Analyzing exclusive dealing only under a noeconomic-sense or profit-sacrifice testis “unintelligible” 

because “there is no way to separate the economic 

benefit to the defendant from the exclusionary impact 

on rivals. The relevant question for exclusive dealing is 

not whether it ‘makes economic sense’ (because it so 

frequently does), but whether, on balance, the specific 

arrangements at issue are likely to raise prices, reduce 

output, or otherwise harm consumers. The no 

economic sense test declines that inquiry.”). 

65 See Popofsky, supra note 4, at 463. 

66 See, e.g., Susan A. Creighton et al., Cheap Exclusion, 

72 ANTITRUST L.J. 975, 985–86 (2005). But see Werden, 

supra note 35, at 425–26. 
 

GENERAL STANDARDS 43 

no-economic-sense test should not be the 

exclusive test for section 2 liability. As even its 

proponents recognize, there are difficulties 

using it in all circumstances. Assessing what 

portion of an act’s anticipated profits is 

exclusionary, as opposed to non-exclusionary, 

is apt to be difficult in many cases. Also, the 

test arguably does not work well for 

exclusionary conduct involving little cost to 

defendant. The Department also agrees with 

those who are concerned that this test might 

allow businesses too much freedom to engage 

in conduct likely to harm competition, because 

conduct could be protected even if it 

contributed virtually no profits (for example, 

only $1 of profit) apart from its exclusionary 

effect but caused tremendous harm to the 

competitive process. And to the extent that the 

test relies on a comparison to a but-for scenario, 

there may be situations where the but-for 

scenario either is not clear or would take much 

effort to establish. 

Although the Department does not 

recommend the no-economic-sense test as a 

necessary condition for liability in all section 2 

cases, it believes that the test may sometimes be 

useful in identifying certain exclusionary 

conduct.67 The test can also serve as a valuable 

counseling tool by highlighting the need for 

businesses to think carefully about why they 

are pursuing a particular course of conduct. If 

conduct does not make economic sense at the 

time it is undertaken except for its exclusionary 

effect on competition, it likely will be difficult 

to defend.68 

67 See Werden, supra note 35, at 418. 

68 See, e.g., May 1 Hr’g Tr., supra note 9, at 55 

(McDavid) (“[A]s someone who does not think there is 

a single standard, I do think [profit sacrifice] is [an] 

appropriate test, but I do not think it is the appropriate 

test.” (emphasis added)); id. at 64 (Calkins) 

(“Everybody . . . would agree that the no economic 

sense question is a good [one]” for an attorney to ask a 

client, but it is not the only question.); id. at 63–64 

(Willig) (stating that the no-economic-sense test is 

another way of asking whether there is a sound 

business rationale for the conduct); id. at 66 (Kolasky) 

(agreeing that “focusing on profit sacrifice and whether 

the conduct makes economic sense is . . . a very useful 

question to ask your clients”); Nov. 29 Hr’g Tr., supra 

note 17, at 202 (Crane) (stating that the no-economicAlthough the Department does not 

recommend the no-economic-sense test 

as a necessary condition for liability in 

all section 2 cases, it believes that the test 

may sometimes be useful in identifying 

certain exclusionary conduct. 

C. Equally Efficient Competitor Test 

The equally efficient competitor test 

addresses some of the concerns with openended balancing by requiring that “the 

challenged practice is likely in the 

circumstances to exclude from defendant’s 

market an equally or more efficient 

competitor.”69 If a plaintiff makes such a 

showing, “defendant can rebut by proving that 

although it is a monopolist and the challenged 

practice exclusionary, the practice is, on 

balance, efficient.”70 This test is based on the 

rationale “that a firm should not be penalized 

for having lower costs than its rivals and 

pricing accordingly.”71 

The equally efficient competitor test also 

draws on principles similar to those underlying 

the Supreme Court’s predatory-pricing 

jurisprudence, under which a price is deemed 

predatory only if it is reasonably calculated to 

exclude a rival that is at least as efficient as the 

defendant. As Judge Posner explains, “It 

would be absurd to require the firm to hold a 

price umbrella over less efficient entrants. . . . 

[P]ractices that will exclude only less efficient 

firms, such as the monopolist’s dropping his 

price nearer to (but not below) his cost, are not 

actionable, because we want to encourage 

efficiency.”72 Courts have referred to the 

sense test presents difficulties as a starting point but it 

makes some sense as a defense); Hovenkamp, supra 

note 59, at 13 (stating that the no-economic-sense test 

offers a good deal of insight into the question of when 

aggressive actions by a single firm go too far, but it can 

lead to erroneous results unless complicating 

qualifications are added). 

69 RICHARD A. POSNER, ANTITRUST LAW 194–95 (2d 

ed. 2001). 

70 Id. at 195. 

71 Herbert Hovenkamp, Exclusion and the Sherman 

Act, 72 U. CHI. L. REV. 147, 154 (2005). 

72 POSNER, supra note 69, at 196. 
 

44 SECTION 2 REPORT 

concept of an equally efficient competitor in a 

number of cases involving predatory pricing 

and bundled discounts.73 

Proponents of this test point out that it is 

designed to allow firms to take full advantage 

of their efficiency and protects competition 

offered by efficient rivals. Moreover, it is useful 

because it allows firms to assess their conduct 

at the outset based on something they should 

be able to evaluate—their own costs.74 

Critics of the test assert that there are a 

number of problems with it, however. First, 

they challenge the basic premise of the 

test—that section 2 should focus only on the 

exclusion of competitors as efficient as the 

alleged monopolist. They contend that “entry 

[by] even a less efficient rival can stimulate 

competition and lower prices if an incumbent 

dominant firm is charging monopoly prices.”75 

73 See, e.g., LePage’s Inc. v. 3M, 324 F.3d 141, 155 (3d 

Cir. 2003) (en banc) (observing that “even an equally 

efficient rival may find it impossible to compensate for 

lost discounts on products that it does not produce” 

(quoting AREEDA & HOVENKAMP, supra note 2, ¶ 749, at 

83–84 (Supp. 2002))); Concord Boat Corp. v. Brunswick 

Corp., 207 F.3d 1039, 1063 (8th Cir. 2000) (stating that 

above-cost market-share discounts were not unlawful 

where evidence showed customers switched to 

competitors offering better discounts); Barry Wright 

Corp. v. ITT Grinnell Corp., 724 F.2d 227, 232 (1st Cir. 

1983) (Breyer, J.) (noting that, if a firm prices below 

“avoidable” or “incremental” cost, equally efficient 

competitors cannot permanently match the price and 

stay in business); Ortho Diagnostic Sys., Inc. v. Abbott 

Labs., Inc., 920 F. Supp. 455, 466 (S.D.N.Y. 1996) 

(“[B]elow-cost pricing, unlike pricing at or above that 

level, carries with it the threat that the party so engaged 

will drive equally efficient competitors out of business, 

thus setting the stage for recoupment at the expense of 

consumers.”). 

74 See Sept. 12 Hr’g Tr., supra note 9, at 14–15 (Lowe) 

(acknowledging that efficient competitor is not the only 

test that can be used and that there may be more than 

one test applicable to any particular case, but that it is 

a useful principle because it allows dominant firms to 

assess their conduct based on their own costs). 

75 Gavil, supra note 12, at 59; see also, e.g., June 22 

Hr’g Tr., supra note 28, at 124 (Brennan) (noting that 

“inefficient competitors hold down price”); Salop, supra 

note 8, at 328 (“The fundamental problem with 

applying the equally efficient entrant standard . . . is 

that the unencumbered (potential) entry of less-efficient 

competitors often raises consumer welfare.”). 

These critics contend that this is especially true 

in the case of nascent competition where an 

equally efficient competitor standard “could 

lead to false negatives . . . and pose a significant 

threat of under-deterrence.”76 In markets 

where competition is just starting to emerge, 

they contend, it is inappropriate to compare the 

efficiency of new rivals with that of the 

monopolist. 

Second, the test has also been criticized as 

difficult to administer. Exactly what constitutes 

an equally efficient competitor is not always 

evident, and the test is especially difficult to 

apply outside the pricing context.77 For 

example, it is not clear whether a firm that 

produces a single product as efficiently as a 

defendant in a tying case would qualify as an 

equally efficient competitor if it does not 

produce the other product(s) involved in the 

tie. In the multi-product setting, a firm may be 

equally efficient with respect to one product 

but not with respect to all the products. A 

diversified firm may enjoy superior efficiencies 

in joint production and marketing, as compared 

to a firm that is arguably as efficient with 

respect to the one target product. Thus, it may 

be difficult to conclude that a firm would be 

equally efficient based on the analysis of only 

the one targeted product. Moreover, it is 

difficult to measure and compare efficiencies in 

multi-product cases where there are joint costs. 

Similarly, the concept of an equally efficient 

competitor may be difficult to apply in the 

exclusive-dealing context, where a firm’s 

efficiency may depend on how it distributes its 

products. 

The Department believes that whether 

conduct has the potential to exclude, eliminate, 

76 Gavil, supra note 12, at 61; see also June 22 Hr’g Tr., 

supra note 28, at 73 (Bolton) (expressing concern over 

exclusion of entrants that offer nascent competition); 

Gavil, supra note 12, at 59–61; Hovenkamp, supra note 

71, at 154. 

77 See Nov. 29 Hr’g Tr., supra note 17, at 140–41 

(Ordover) (observing that “what it means to be an 

equally efficient competitor is subject to debate”); 

Melamed, supra note 8, at 388 (“[I]t is not clear what it 

means to exclude only a less-efficient rival, especially 

when firms and products are heterogenous.”); infra 

Chapter 6, Part I(C). 
 

 

GENERAL STANDARDS 45 

or weaken the competitiveness of equally 

efficient competitors can be a useful inquiry 

and may be best suited to particular pricing 

practices.78 The Department does not believe 

that this inquiry leads readily to administrable 

rules in other contexts, such as tying and 

exclusive dealing. 

Whether conduct has the potential to 

exclude, eliminate, or weaken the 

competitiveness of equally efficient 

competitors can be a useful inquiry and 

may be best suited to particular pricing 

practices. 

D. Disproportionality Test 

In their Trinko merits brief, the Department 

and the FTC advised the Supreme Court that, in 

the absence of a conduct-specific rule, conduct 

is anticompetitive under section 2 when it 

results in “harm to competition” that is 

“disproportionate to consumer benefits (by 

providing a superior product, for example) and 

to the economic benefits to the defendant (aside 

from benefits that accrue from diminished 

competition).”79 Under the disproportionality 

test, conduct that potentially has both 

procompetitive and anticompetitive effects is 

anticompetitive under section 2 if its likely 

anticompetitive harms substantially outweigh 

its likely procompetitive benefits. 

78 See Hovenkamp, supra note 71, at 153 (stating that 

“[t]he ‘equally efficient rival’ test has found widespread 

acceptance in predatory pricing cases”); see also, e.g., 

Brooke Group Ltd. v. Brown & Williamson Tobacco 

Corp., 509 U.S. 209, 223 (1993) (identifying the relative 

“cost structure” of competitors as a source of the safe 

harbor for above-cost pricing in predatory-pricing 

cases); Areeda & Turner, supra note 45, at 709–18, 733 

(recognizing that, in the predatory-pricing context, 

prices at or above average variable cost exclude less 

efficient firms while minimizing the likelihood of 

excluding equally efficient firms). 

79 Brief for the United States & the Federal Trade 

Commission as Amici Curiae Supporting Petitioner at 

14, Verizon Commc’ns Inc. v. Law Offices of Curtis V. 

Trinko, LLP, 540 U.S. 398 (2004) (No. 02-682), available 

at http://www.usdoj.gov/atr/cases/f201000/ 

201048.htm. In the brief, the Department and the FTC 

also argued that the no-economic-sense test should 

apply to the specific conduct at issue—a refusal to deal. 

Properly applied, the disproportionality test 

reduces the need to precisely balance 

procompetitive and anticompetitive effects, 

which, as described above, is a difficult and 

costly task. In addition, it allows firms the 

freedom to compete vigorously without undue 

fear of antitrust liability based on an after-thefact determination that their conduct had small 

negative effects on static competition. The 

disproportionality test reduces the risks of 

chilling procompetitive conduct but prohibits 

conduct that will significantly harm 

competition and consumer welfare. 

The justification for this test arises from the 

principles discussed in chapter 1. It expressly 

focuses on prohibiting conduct that harms 

competition, not just individual competitors. It 

seeks to provide reasonable clarity for firms 

over a wide range of activity. It seeks to reduce 

administrative costs. Further, it recognizes that 

the cost of legal rules that erroneously condemn 

procompetitive conduct likely will be higher 

and more persistent than the cost of rules that 

erroneously exonerate anticompetitive conduct. 

To be sure, the disproportionality test is not 

without its difficulties and may not be easy to 

apply in some instances. As the enforcement 

agencies acknowledged in their Trinko brief, 

applying the test “‘can be difficult,’ because ‘the 

means of illicit exclusion, like the means of 

legitimate competition, are myriad.’”80 

Moreover, as one commentator cautions, 

disproportionality “is hardly an inherently 

certain formula.”81 In the most difficult 

cases—those involving significant harm and 

smaller, but still significant, efficiencies—there 

is some ambiguity. As one commentator 

queries, “Is 55–45 percent ‘disproportionate’ 

enough? Or do proponents of the test think 75– 

25 percent is more what they have in mind.”82 

80 Id. at 14 (quoting United States v. Microsoft Corp., 

253 F.3d 34, 58 (D.C. Cir. 2001) (en banc) (per curiam)). 

81 Gavil, supra note 12, at 64. 

82 Id.; see also Herbert Hovenkamp, Signposts of 

Anticompetitive Exclusion: Restraints on Innovation and 

Economies of Scale, in 2006 FORDHAM COMPETITION LAW 

INSTITUTE 409, 412 (Barry E. Hawk ed., 2007) 

(acknowledgingthat“phrases such as ‘disproportionate 

to the resulting benefits’ are marshmallows, covering 
 

 

46 SECTION 2 REPORT 

This issue is critical. Failure to ensure that 

courts condemn only conduct that has an 

adverse effect on competition that is 

substantially disproportionate to any benefits 

could render this test tantamount to the 

burdensome, open-ended effects-balancing test 

discussed above. 

Importantly, the standard likely can be 

readily applied in a number of cases because 

either the harm or the benefit is clearly 

predominant.

83 A trivial benefit should not 

outweigh substantial anticompetitive effects. 

At the same time, if the benefits and harms are 

comparable or close to comparable, then the 

conduct should be lawful under this test. 

The Department recognizes that the 

disproportionality test imposes a higher 

burden on a plaintiff than the effects-balancing 

test. If there is procompetitive justification for 

the challenged conduct, the test requires the 

plaintiff to demonstrate that the harm to 

competition substantially outweighs the 

benefits. The Department believes that this 

higher liability threshold is in keeping with the 

Supreme Court’s repeated insistence that 

section 2 should not be construed in a way that 

chills procompetitive conduct, yet it also 

prohibits conduct where signific ant 

anticompetitive harm appears likely. 

At the same time, as Professor Hovenkamp 

states in endorsing this test, its “formulation is 

not intended to give a complete definition of” 

conduct that is anticompetitive under section 2, 

but rather is “only a starting point for the 

development of specific rules for specific types 

of conduct.”84 The Department believes that 

conduct-specific tests and, where appropriate, 

safe harbors enable more effective enforcement 

while providing businesses with greater 

very much or very little depending on one’s ideology or 

fundamental beliefs”). 

83 See Gavil, supra note 12, at 77 (“[M]ost cases will 

be weeded out before trial for weaknesses related to the 

plaintiff’s assertions with respect to monopoly poweror 

effects. To the extent a small number of cases proceed 

any further, most will be decided based on lopsided 

evidence—lots of harm and little or no efficiency, or 

little harm and substantial efficiency.”). 

84 Hovenkamp, supra note 82, at 412. 

certainty, are most administrable by the 

agencies and courts, and reduce the risk of 

erroneous determinations. Conduct-specific 

tests are particularly important because, as 

Professor Hovenkamp notes, “our level of 

concern and our administrative capabilities 

vary considerably among the list of practices 

that antitrust tribunals have identified as 

exclusionary.”85 The Department, therefore, 

will continue to work to develop conductspecific tests and safe harbors. However, in 

general, the Department believes that, when a 

conduct-specific test is not applicable, the 

disproportionality test is likely the most 

appropriate test identified to date for 

evaluating conduct under section 2. 

The Department will continue to work 

to develop conduct-specific tests and 

safe harbors. However, in general, the 

Department believes that, when a 

conduct-specific test is not applicable, 

the disproportionality test is likely the 

most appropriate test identified to date 

for evaluating conduct under section 2. 

IV. Conclusion 

There was no consensus at the hearings, and 

there is currently no consensus among 

commentators, that a single test should be used 

to define anticompetitive conduct for purposes 

of section 2. Although many of the proposed 

tests have virtues, they also have flaws. The 

Department believes that none currently works 

well in all situations. 

Thus, as will be seen in subsequent chapters, 

the Department believes different types of 

conduct warrant different tests, depending 

upon, among other things, the scope of harm 

implicated by the practice; the relative costs of 

false positives, false negatives, and enforcement; 

the ease of application;and other administrability 

concerns. An important goal for any test is to 

identify conduct that harms competition while 

enabling firms effectively to evaluate the 

legality of their conduct before it is undertaken. 

85 Id. 
GENERAL 

STANDARDS 47 

The Department believes different 

types of conduct warrant different tests, 

depending upon, among other things, 

the scope of harm implicated by the 

practice; the relative costs of false 

positives, false negatives, and 

enforcement; the ease of application; 

and other administrability concerns. 

In deciding individual cases, courts would 

be well served to consider the appropriate 

allocation of burdens of proof and production. 

In applying legal standards, courts should 

determine whether the conduct at issue 

warrants employing a conduct-specific test. In 

general, the Department believes that when a 

conduct-specific test is not utilized, the disproportionality test is likely the most 

appropriate test identified to date for 

evaluating conduct under section 2. 

Adopting conduct-specific tests is in keeping 

with modern Supreme Court section 2 

jurisprudence. In the last twenty-five years, the 

Court has adopted conduct-specific tests for 

both predatory pricing and predatory bidding 

and has avoided articulating a general test 

applicable to all section 2 cases. Instead, the 

Court has set forth unifying principles— 

including protecting the competitive process 

and avoiding chilling procompetitive conduct—from which conduct-specific tests can 

be derived. The Department believes that the 

Court’s approach is appropriate and 

recommends further development of conductspecific tests to guide the continued evolution 

of section 2 jurisprudence. 

CHAPTER 4 

PRICE PREDATION 

A firm with monopoly power can violate 

section 2 if it engages in classic price predation, 

namely, predatory pricing, or in its buy-side 

equivalent, predatory bidding.1 Drawing on 

the testimony and submissions presented at the 

hearings, as well as cases and commentary, this 

chapter explores and provides the 

Department’s views on some important issues 

surrounding these forms of exclusionary 

conduct. 

I. Predatory Pricing 

A. Introduction 

There is broad consensus that, in certain 

circumstances, temporarily charging prices 

below a firm’s costs can harm competition and 

consumers.2 For example, harm could occur if 

a firm priced low to make it unprofitable for 

competitors to stay in the market and then, 

following their exits, increased price to 

supracompetitive levels for a significant 

period.3 In such circumstances, although 

consumers may benefit in the short term from 

low prices, in the long term they may be worse 

off.4

 “There is, therefore, good reason for 

1 See generally 3 PHILLIP E. AREEDA & HERBERT 

HOVENKAMP, ANTITRUST LAW ¶¶ 722–49 (2d ed. 2002). 

This chapter deals solely with what one commentator 

characterizes as “conventional” predatory pricing and 

not with bundling, quantity discounts, market-share 

discounts, and other forms of what he terms 

“exclusionary pricing.” Herbert Hovenkamp, The Law 

of Exclusionary Pricing, COMPETITION POL’Y INT’L, Spring 

2006, at 21. These other types of conduct are addressed 

in other chapters. 

2 See generally AREEDA & HOVENKAMP, supra note 1, 

¶ 723b, at 273–74; RICHARD A. POSNER, ANTITRUST LAW 

214 (2d ed. 2001). 

3 See Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 

104, 117 (1986); AREEDA & HOVENKAMP, supra note 1, 

¶ 723a, at 272. 

4 See ShermanAct Section 2 Joint Hearing: Predatory 

Pricing Hr’g Tr. 30, June 22, 2006 [hereinafter June 22 

Hr’g Tr.] (Bolton). 

including a ‘predatory pricing’ antitrust offense 

within the proscription of monopolization or 

attempts to monopolize in section 2 of the 

Sherman Act.”5 

However, a firm accused of pursuing a 

predatory-pricing strategy is, in essence, 

accused of charging prices that are too low. 

Therein lies “a difficult conundrum in antitrust 

law.”6 Price cutting is a core competitive 

activity. Consumers prefer lower prices to 

higher prices, and they benefit when firms 

aggressively compete to price as low as 

possible. Price competition enables consumers 

to secure desired products and services for less. 

Thus, alongside the broad consensus that 

predatory pricing can be anticompetitive, there 

is general recognition that, in the words of one 

treatise, “[a]ntitrust would be acting foolishly if 

it forbade price cuts any time a firm knew that 

its cuts would impose hardship on any 

competitor or even force its exit from the 

market.”7

 In the absence of clear standards, 

distinguishing harmful predation from 

procompetitive discounting is often difficult 

and runs the risk of erroneous condemnation, 

which can discourage firms from engaging in 

beneficial price competition and thus “chill the 

very conduct the antitrust laws are designed to 

protect.”8

 The key question, therefore, is how 

5 Phillip Areeda & Donald F. Turner, Predatory 

Pricing and Related Practices Under Section 2 of the 

Sherman Act, 88 HARV. L. REV. 697, 697 (1975). 

6 Ari Lehman, Note, Eliminating the Below-Cost 

Pricing Requirement from Predatory Pricing Claims, 27 

CARDOZO L. REV. 343, 385 (2005). 

7 AREEDA & HOVENKAMP, supra note 1, ¶ 722, at 271. 

8 Verizon Commc’ns Inc. v. Law Offices of Curtis V. 

Trinko, LLP, 540 U.S. 398, 414 (2004) (quoting 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 

U.S. 574, 594 (1986)). See generally Phillip Areeda, 

Monopolization, Mergers, and Markets: A Century Past and 

the Future, 75 CAL. L. REV. 959, 965–70 (1987); Daniel A. 

Crane, The Paradox of Predatory Pricing, 91 CORNELL L. 
 

 

 

50 SECTION 2 REPORT 

to structure a rule under section 2 that 

effectively condemns only harmful predation 

while providing clear and sound guidance to 

firms, competition authorities, potential private 

plaintiffs, and courts. 

B. Background 

“The predatory price-cutter is one of the 

oldest and most familiar villains in our 

economic folklore.”9 For instance, the 1906 

complaint in Standard Oil Co. of New Jersey v. 

United States alleged, among other things, “local 

price cutting at the points where necessary to 

suppress competition.”10 Similarly, in 1911, 

United States v. American Tobacco Co. involved 

allegations of “ruinous competition, by 

lowering the price of plug below its cost.”11 

“Historically,treatmentof predatory pricing 

in the cases and the literature suffered from two 

interrelated defects: (1) failure to delineate 

clearly and correctly what practices should 

constitute the offense, and (2) exaggerated fears 

that large firms would be inclined to engage in 

predatory pricing.”12 The result was that in the 

decades before the Supreme Court decided 

Brooke Group Ltd. v. Brown & Williamson Tobacco 

Corp.,

13 “[p]laintiffs won most litigated cases, 

including those they probably should have 

lost.”14 

The Supreme Court’s decision in Utah Pie Co. 

v. Continental Baking Co.,

15 although decided 

within the context of the Robinson-Patman 

REV. 1, 55–56 (2005). 

9 Roland H. Koller II, The Myth of Predatory Pricing: 

An Empirical Study, ANTITRUST L.&ECON.REV., Summer 

1971, at 105, 105. 

10 221 U.S. 1, 43 (1911). See generally Elizabeth 

Granitz & Benjamin Klein, Monopolization by “Raising 

Rivals’ Costs”: The Standard Oil Case, 39 J.L. & ECON. 1 

(1996); John S. McGee, Predatory Price Cutting: The 

Standard Oil (N.J.) Case, 1 J.L. & ECON. 137 (1958). 

11 221 U.S. 106, 160 (1911). 

12 AREEDA & HOVENKAMP, supra note 1, ¶ 723a, at 

272–73 (footnotes omitted). 

13 509 U.S. 209 (1993). 

14 Patrick Bolton et al., Predatory Pricing: Strategic 

Theory and Legal Policy, 88 GEO. L.J. 2239, 2250 (2000). 

15 386 U.S. 685 (1967). 

Act16 and not section 2 of the Sherman Act, 

nevertheless illustrates the courts’ approach to 

predatory-pricing claims during that period. In 

Utah Pie, defendant Continental Baking 

Company sold apple pies for $2.85 a dozen, 

which “was less than its direct cost plus an 

allocation for overhead.”17 This caused plaintiff 

Utah Pie to reduce its price for frozen apple 

pies to $2.75 per dozen, a price Continental 

refused to match.18 The Supreme Court found 

Continental had engaged in predatory pricing 

because a jury could have “reasonably 

concluded that a competitor who is forced to 

reduce his price to a new all-time low in a 

market of declining prices will in time feel the 

financial pinch and will be a less effective 

competitive force.”19 

Utah Pie received much scholarly criticism 

as an example of a case where “low prices 

seemed more likely to injure competitors than 

competition and consumers.”20 One commentator 

wrote that it “must rank as the most 

anticompetitive antitrust decision of the 

decade.”21 Judge Bork’s view was that “[t]here 

is no economic theory worthy of the name that 

could find an injury to competition on the facts 

of the case.”22 As he saw it, “Defendants were 

convicted not of injuring competition but, quite 

16 15 U.S.C. § 13(a) (2000); see Weyerhaeuser Co. v. 

Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 

1074 n.1 (2007) (“‘[P]rimary-line competitive injury 

under the Robinson-Patman Act is of the same general 

character as the injury inflicted by predatory pricing 

schemes actionable under § 2 of the Sherman Act.’” 

(quoting Brooke Group, 509 U.S. at 221)). 

17 386 U.S. at 698. 

18 Id. at 698–99. 

19 Id. at 699–700. 

20 Aaron S. Edlin, Stopping Above-Cost Predatory 

Pricing, 111 YALE L.J.941, 953 (2002); see also Kenneth G. 

Elzinga & Thomas F. Hogarty, Utah Pie and the 

Consequences of Robinson-Patman, 21 J.L. & ECON. 427, 

427 (1978) (“The Utah Pie opinion . . . has provoked 

much criticism on the grounds that it serves to protect 

localized firms from the competition of more distant 

sellers.”). 

21 Ward S. Bowman, Restraint of Trade by the Supreme 

Court: The Utah Pie Case, 77 YALE L.J. 70, 84 (1967). 

22 ROBERT H. BORK, THE ANTITRUST PARADOX 387 

(1978). 
 

PRICE PREDATION 51 

simply, of competing.”23 

Utah Pie was not an aberration. As one 

treatise points out, “Historically,courts approved 

formulations or jury instructions containing . . . 

useless formulae” that “provide[d] little or no 

basis for analyzing the predatory pricing 

offense.”24 

In 1975, after Utah Pie but before Brooke 

Group, Professors Areeda and Turner published 

a landmark article “attempt[ing] to formulate 

meaningful and workable tests for 

distinguishing between predatory and 

competitive pricing by examining the 

relationship between a firm’s costs and its 

prices.”25 Their proposal was that, for a firm 

with monopoly power, “[a] price at or above 

reasonably anticipated average variable cost 

should be conclusively presumed lawful,” and 

a price below that cost “should be conclusively 

presumed unlawful.”26 The rationale was that 

prices at or above average variable cost27 

exclude less efficient firms while minimizing 

the likelihood of excluding equally efficient 

firms.28 

Notwithstanding the rapidity with which 

the appellate courts embraced the new AreedaTurner test29 and the increasing scholarly 

23 Id.; see also Edlin, supra note 20, at 953 (the “facts 

[of Utah Pie] suggest vigorous price competition that 

benefited consumers”). 

24 AREEDA & HOVENKAMP, supra note 1, ¶ 723d, at 

276–77. 

25 Areeda & Turner, supra note 5, at 699–700, see also 

June 22 Hr’g Tr., supra note 4, at 8 (Elzinga) (stating that 

Areeda and Turner’s 1975 article on predatory pricing 

is “the most often cited article in antitrust scholarship”). 

26 Areeda & Turner, supra note 5, at 733. 

27 DENNIS W. CARLTON & JEFFREY M. PERLOFF, 

MODERN INDUSTRIAL ORGANIZATION 29 (4th ed. 2005) 

(Average variable costs are the “costs that change with 

the level of output.”). 

28 Areeda & Turner, supra note 5, at 711, 716–18. 

29 See, e.g., Bolton et al., supra note 14, at 225 (“The 

Areeda-Turner rule had an immediate impact on the 

courts.”); William E. Kovacic, The Intellectual DNA of 

Modern U.S. Competition Law for Dominant Firm Conduct: 

The Chicago/Harvard Double Helix, 2007 COLUM. BUS. L. 

REV. 1, 46 (“In 1975, Areeda and Turner published a 

proposal that courts use the relationship of the 

dominant firm’s prices to its variable costs to determine 

criticism of then-prevailing legal doctrine that 

predatory intent plus an unreasonably low 

price was sufficient to prove predatory 

pricing,30 firms continued to face the risk of 

antitrust liability for price cutting that appeared 

to benefit consumers. For instance, in 1983, the 

Ninth Circuit rejected the notion, espoused by 

Areeda and Turner, that “prices above average 

total cost ‘should be conclusively presumed 

legal.’”31 The court reasoned that “we should 

hesitate to create a ‘free zone’ in which 

monopolists can exploit their power without 

fear of scrutiny by the law” and that a “rule 

based exclusively on cost forecloses 

consideration of other important factors, such 

as intent, market power, market structure, and 

long-run behavior in evaluating the predatory 

impact of a pricing decision.”32 The court 

accordingly held that “if the challenged prices 

exceed average total cost, the plaintiff must 

prove by clear and convincing evidence—i.e., 

that it is highly probably true—that the 

defendant’s pricing policy was predatory.”33 

But in 1986, the Supreme Court handed 

down two significant decisions—Matsushita 

Electric Industrial Co. v. Zenith Radio Corp.34 and 

Cargill35—that focused on the relationship 

between price and cost and the central role that 

recoupment plays in a successful predation 

strategy, and thus anticipated by seven years its 

opinion in Brooke Group.

36 In Matsushita, the 

the legality of a challenged pricing strategy. Within 

months of the article’s publication, two courts of 

appeals relied heavily on the paper to dismiss 

predatory pricing allegations.”). 

30 See generally Richard O. Zerbe, Jr. & Michael T. 

Mumford,Does Predatory Pricing Exist? Economic Theory 

and the Courts After Brooke Group, 41 ANTITRUST BULL. 

949, 949–50 (1996) (summarizing the pre-Brooke Group 

criticism). 

31 Transamerica Computer Co. v. IBM, 698 F.2d 

1377, 1386 (9th Cir. 1983). Average total cost is total 

fixed and total variable costs, divided by quantity of 

output. Id. at 1384. 

32 Id. at 1387. 

33 Id. at 1388. 

34 475 U.S. 574 (1986). 

35 479 U.S. 104 (1986). 

36 See June 22 Hr’g Tr., supra note 4, at 8 (Elzinga) 

(describing Matsushita and the Areeda and Turner 
52 SECTION 2 REPORT 

Court affirmed the grant of summary judgment 

in favor of defendants on a claim that a group 

o f twen ty-one Japanese televis i o n 

manufacturers and U.S. subsidiaries had 

engaged in a twenty-year predatory-pricing 

conspiracy,37 noting in the process that “there is 

a consensus among commentators that 

predatory pricing schemes are rarely tried, and 

even more rarely successful.”38 Similarly, 

Cargill contains an extensive discussion of why 

predatory pricing rarely succeeds.39 In 

particular, the Court highlighted two 

significant obstacles to a successful predation 

strategy that are not often overcome. First, 

“[T]o succeed in a sustained campaign of 

predatory pricing, a predator must be able to 

absorb the market shares of its rivals once 

prices have been cut.”40 Second, “It is also 

important to examine the barriers to entry into 

the market, because ‘without barriers to entry it 

would presumably be impossible to maintain 

supracompetitive prices for an extended 

time.’”41 

Three years after Matsushita and Cargill, 

Professors Elzinga and Mills proposed that the 

feasibility of recoupment be used as a 

complement to the Areeda-Turner belowarticle as the two events that most changed the thinking 

regarding predatory pricing). 

37 475 U.S. at 590–92 (“In order to recoup their 

losses, petitioners must obtain enough market power to 

set higher than competitive prices, and then must 

sustain those prices long enough to earn in excess 

profits what they earlier gave up in below-cost prices. 

Two decades after their conspiracy is alleged to have 

commenced, petitioners appear to be far from achieving 

this goal: the two largest shares of the retail market in 

television sets are held by RCA and respondent Zenith. 

. . . The alleged conspiracy’s failure to achieve its ends 

in the two decades of its asserted operation is strong 

evidence that the conspiracy does not in fact exist.” 

(citations omitted) (footnote omitted)). 

38 Id. at 589. But see Cargill, 479 U.S. at 121 (“While 

firms may engage in [predatory pricing] only 

infrequently, there is ample evidence suggesting that 

the practice does occur.”). 

39 See 479 U.S. at 119–21 n.15; id. at 121–22 n.17. 

40 Id. at 119 n.15. 

41 Id. at 120 n.15 (quoting Matsushita, 475 U.S. at 

591). 

average-variable-cost requirement.42 Under 

their recoupment-feasibility test, “if a given 

predatory strategy is an economically 

implausible investment, as judged by the 

parameters of the recoupment plan it implies, 

then the alleged predator is exonerated.”43 

Elzinga and Mills viewed this “investment test” 

as “a check on the internal consistency of a 

plaintiff’s allegations.”44 They pointed out that 

in predatory pricing, “[t]he predator’s short-run 

loss is an investment in prospective monopoly 

profits.” Consequently, “predatory pricing is 

attractive to a profit-seeking firm only where it 

expects enough monopoly profit to earn a 

return on its investment in predation that 

equals or exceeds the interest rate that could be 

earned on alternative investments.”45 In 

particular, “If it can be shown that a firm has no 

reasonable prospect for recouping its losses and 

profiting from its investment, then predatory 

claims would be discredited.”46 

In 1993, Brooke Group presented the Supreme 

Court with a direct opportunity to consider the 

then-contemporary legal and economic 

scholarship on predatory pricing, including the 

already extant game theoretic literature.47 The 

plaintiff in Brooke Group, Liggett, contended 

that a rival cigarette manufacturer had “cut 

prices on generic cigarettes below cost . . . to 

force Liggett to raise its own generic cigarette 

prices and introduce oligopoly pricing in the 

economy segment.”48 Viewing the evidence in 

the light most favorable to Liggett, the Court 

held that the rival cigarette manufacturer was 

entitled to judgment as a matter of law since 

“the evidence cannot support a finding that [the 

rival cigarette manufacturer]’s alleged scheme 

was likely to result in oligopolistic price 

coordination and sustained supracompetitive 

42 Kenneth G. Elzinga & David E. Mills, Testing for 

Predation: Is Recoupment Feasible?, 34 ANTITRUST BULL. 

869 (1989). 

43 Id. at 871. 

44 Id. 

45 Id. at 870. 

46 Id. at 872. 

47 See infra Part C(1). 

48 509 U.S. 209, 212 (1993). 
PRICE PREDATION 53 

pricing in the generic segment of the national 

cigarette market.”49 

Relying on the principles set forth in both 

the Areeda and Turner and Elzinga and Mills 

articles, the Court in Brooke Group held that 

there are “two prerequisites to recovery” where 

the claim alleges predatory pricing under 

section 2.50 Plaintiff must prove that (1) the 

prices were “below an appropriate measure”51 

of defendant’s costs in the short term, and 

(2) defendant had “a dangerous probability of 

recouping its investment in below-cost 

prices.”52 The Court elaborated on the 

recoupment prerequisite, concluding that 

“plaintiff must demonstrate that there is a 

likelihood that the predatory scheme alleged 

would cause a rise in prices above a 

competitive level that would be sufficient to 

compensate for the amounts expended on the 

predation, including the time value of the 

money invested in it.”53 

To prevail on a predatory-pricing claim, 

plaintiff must prove that (1) the prices 

were below an appropriate measure of 

defendant’s costs in the short term, and 

(2) defendant had a dangerous 

probability of recouping its investment 

in below-cost prices. 

By establishing these basic prerequisites, 

Brooke Group brought needed rigor and order 

to predatory-pricing law. Importantly, while 

the Court in Brooke Group recognized that there 

can be occasions when above-cost pricing 

theoretically could hurt consumers, it also 

concluded that there is no reliable way to 

distinguish between above-cost predatory 

pricing and legitimate price discounting.54 

49 Id. at 243. 

50 Id. at 222–27. 

51 Id. at 222. 

52 Id. at 224. 

53 Id. at 225. 

54 See id. at 223 (“As a general rule, the exclusionary 

effect of prices above a relevant measure of cost either 

reflects the lower cost structure of the alleged predator 

. . . or is beyond the practical ability of a judicial 

tribunal to control without courting intolerable risks of 

Thus, any rule permitting findings of abovecost predation, the Court reasoned, could 

discourage desirable price competition. The 

Court concluded that above-cost predatorypricing schemes may be “beyond the practical 

ability of a judicial tribunal to control”55 and 

created a safe harbor for pricing above cost. 

Also importantly, by limiting liability to 

prices below a short-run measure of 

incremental cost, the Court implicitly rejected 

the idea that liability in this context could be 

based on a failure to maximize profits.56 

Evidence that defendant would have been 

better off at least in the short run by shutting 

down production provides a reasonable 

indication that there might be harmful 

exclusion. It is a far different step—and one the 

Court rejected—to base liability on an ex post 

evaluation of the relative profitability of 

another potential course of action that 

defendant might not have even considered at 

the time.57 

Some have suggested that since Brooke Group 

it has become unnecessarily difficult for 

plaintiffs to prove predatory pricing.58 Another 

commentator, however, suggests that this view 

is unsupported, arguing that, even under Brooke 

Group, plaintiffs still “can strategically misuse 

predatory pricing law to coerce more efficient 

rivals to forgo . . . price cuts.”59 

chilling legitimate price cutting.”). 

55 Id. The Court strongly reiterated this conclusion 

in Weyerhaeuser, 127 S. Ct. 1069, 1074 (2007), and Trinko, 

540 U.S. 398, 414 (2004). 

56 Brooke Group, 509 U.S. at 223. 

57 See June 22 Hr. Tr., supra note 4, at 52 (Melamed). 

58 Bolton et al., supra note 14, at 2241–49; Edlin,supra 

note 20, at 941–942. 

59 Crane, supra note 8, at 1; see also id. at 4–5 (noting 

that “although it is accepted wisdom that no predatory 

pricing plaintiff has won a verdict since Brooke Group 

Ltd. v. Brown & Williamson Tobacco Corp., plaintiffs 

have recently won some predatory pricing cases and 

procured substantial settlements in others. 

Additionally, regardless of their low probability of 

success, plaintiffs continue to file a significant number 

of federal predatory pricing cases, suggesting that 

predatory pricing complaints may afford plaintiffs 

strategic advantages whether or not they ultimately 

prevail.”) (footnote omitted). 
 

54 SECTION 2 REPORT 

Since Brooke Group, a significant issue in the 

lower courts has been defining the “appropriate 

measure” of cost, an issue the Court expressly 

did not resolve in Brooke Group. In 2003, the 

Tenth Circuit noted in United States v. AMR 

Corp., “Despite a great deal of debate on the 

subject, no consensus has emerged.”60 

In AMR, the Tenth Circuit affirmed a grant 

of summary judgment in favor of an 

established airline that allegedly engaged in a 

scheme of price cutting and predatory-capacity 

additions designed to drive out a start-up 

airline. The Tenth Circuit held that the 

government had not established“pricing below 

an appropriate measure of cost.”61 

The Court “decline[d] to dictate a definitive 

cost measure for all cases.”62 It observed that 

average variable cost is a “commonly accepted 

proxy for marginal cost in predatory pricing 

cases,”63 citing Areeda and Turner’s 1975 

article. But it also cautioned that “[w]hatever 

the proxy used to measure marginal cost, it 

must be accurate and reliable in the specific 

circumstances of the case at bar.”64 

In particular, the court emphasized that 

“[s]ole reliance on AVC [average variable cost] 

as the appropriate measure of cost may obscure 

the nature of a particular predatory scheme 

and, thus . . . we do not favor AVC to the 

exclusion of other proxies for marginal cost.”65 

The court rejected several proposed measures 

of incremental costs and revenues attributable 

to allegedly predatory capacity additions in 

part because they would be equivalent to 

applying an average total cost test “implicitly 

ruled out by Brooke Group’s mention of 

incremental costs only.”66 

In another recent case in which an 

established air carrier allegedly engaged in 

predation against a new competitor, the Sixth 

Circuit took a different approach. Applying a 

60 335 F.3d 1109, 1115 (10th Cir. 2003). 

61 Id. at 1120. 

62 Id. at 1116. 

63 Id. at 1116 & n.7. 

64 Id. at 1116. 

65 Id. 

66 Id. at 1119. 

“modified version of the Areeda-Turner test,” 

the court seemed open to the possibility of a 

price being illegal under section 2 even if it is 

above average variable cost, so long as it is 

below average total cost: 

If the defendant’s prices were below 

average total cost but above average 

variable cost, the plaintiff bears the burden 

of showing defendant’s pricing was 

predatory. If, however, the plaintiff proves 

that the defendant’s prices were below 

average variable cost, the plaintiff has 

established a prima facie case of predatory 

pricing and the burden shifts to the 

defendant to prove that the prices were 

justified without regard to any anticipated 

destructive effect they might have on 

competitors.67 

C. Analysis 

Six key issues animate the structuring of a 

rule under section 2 that provides clear and 

sound guidance regarding predatory pricing: 

(1) the frequency of predatory pricing, (2) 

treatment of above-cost pricing, (3) cost 

measures, (4) recoupment, (5) potential 

defenses, and (6) equitable remedies. This part 

of the chapter describes the legal and economic 

analysis pertinent to each of these issues. 

1. Frequency of Predatory Pricing 

As one commentator notes, “A key premise 

in developing an enforcement policy for 

predatory pricing is the expected frequency 

and severity of its occurrence.”68 Some 

commentators maintain that the Court’s 

statement in Matsushita that “predatory pricing 

schemes are rarely tried, and even more rarely 

successful”69 is “not justified by the available 

data”70 and that there is “little reason to accept 

the comforting view that predation very rarely 

67 Spirit Airlines, Inc. v. Nw. Airlines, Inc., 431 F.3d 

917, 938 (6th Cir. 2005). 

68 Bolton et al., supra note 14, at 2243. 

69 475 U.S. 574, 589 (1986). 

70 Richard O. Zerbe, Jr., Monopsony and the RossSimmons Case: A Comment on Salop and Kirkwood, 72 

ANTITRUST L.J. 717, 717 (2005); see also Zerbe & 

Mumford, supra note 30, at 955–64, 982–85 (noting that 

“there is theoretical and empirical evidence to refute” 

the Court’s statement). 
 

 

PRICE PREDATION 55 

or never occurs in reality.”71 However, others 

argue that regardless of how often predatorypricing schemes are attempted, successful 

predation—predation that causes consumer 

harm—is indeed rare.72 

This controversy over the frequency and 

severity of predatory pricing has existed since 

at least 1958.73 That year, economist John 

McGee published a seminal article arguing that 

predatory pricing is not a rational business 

strategy, and hence is rare or nonexistent,74 

because the monopolist, by cutting prices, loses 

more than its prey: “To lure customers away 

from somebody, [the monopolizing firm] must 

be prepared to serve them himself. The 

monopolizer thus finds himself in the position 

of selling more—and therefore losing more— 

than his competitors.”75 Thus, in the words of 

Judge Bork, “predatory price cutting is most 

unlikely to exist,” and we should instead “look 

for methods of predation which do not require 

the predator to expand output and incur 

71 William J. Baumol, Principles Relevant to Predatory 

Pricing, in SWEDISH COMPETITION AUTHORITY,THE PROS 

AND CONS OF LOW PRICES 15, 35 (2003); see also June 22 

Hr’g Tr., supra note 4, at 58 (Bolton) (“[T]here has been 

new scholarship started in the 1980s, rigorous economic 

scholarship based on rigorous game theory analysis 

showing exactly how predatory pricing strategy could 

be rational, and . . . slowly, this literature is being 

brought in, is being acknowledged, and is being 

recognized, and so . . . today, we should be less 

skeptical about the rationale for predatory pricing than 

we have been and that the Supreme Court has been in 

its Brooke decision and its Matsushita decision, which 

was based on older writing which couldn’t be 

articulated using the tools of modern game theory.”); 

Thomas B. Leary, The Dialogue Between Students of 

Business and Students of Antitrust: A Keynote Address, 47 

N.Y.L. SCH. L. REV. 1, 13 (2003). 

72 See Kenneth G. Elzinga, Remarks 3 (June 23, 2006) 

(hearing submission) (“In my experience, if one plays 

with the math behind most alleged episodes of 

predatory pricing, it is difficult to come up with 

examples where recoupment is mathematically 

possible.”). See generally JOHN R. LOTT, JR., ARE 

PREDATORY COMMITMENTS CREDIBLE? 4–10 (1999). 

73 See AREEDA & HOVENKAMP, supra note 1, ¶ 723b, 

at 273 & nn.7–9. 

74 McGee, supra note 10. 

75 Id. at 140. 

disproportionately large costs.”76 

Modern economic game theory models, 

developed in the 1980s, counter the view that 

predatory pricing cannot be a rational business 

strategy.77 These models provide theoretical 

support for the proposition that a monopolist 

may be willing to trade off current and future 

profits under certain circumstances. When it 

induces the exit of a recent entrant or deters 

future entrants, according to these models, 

predatory pricing can be a successful and 

rational strategy that maximizes long-run 

profits. As one commentator explains: 

Thus, for example, a firm in an industry 

with rapid product change might cut prices 

sharply in answer to new entry in order to 

discourage the new entrant from 

continuing an active product development 

programme. Whether the entrant attributes 

its lack of profitability to its high costs, to 

weak market demand, to overcapacity in 

the industry, or to aggressive behaviour by 

its competitor, it will properly reduce its 

estimate of its future profits. If its capital 

has other good uses, this might lead it to 

withdraw from the industry. If not, it may 

nevertheless be dissuaded from making 

new investments in and developing [n]ew 

products for the industry. At the same 

time, other firms may be deterred from 

entering the industry. If any of these things 

happen, the predator benefits.78 

Other economists, however, are less 

sanguine about the ability of modern game 

76 BORK, supra note 22, at 155; see also Frank H. 

Easterbrook, When Is It Worthwhile to Use Courts to 

Search for Exclusionary Conduct?, 2003 COLUM. BUS. L. 

REV. 345, 346–47 (“Claims that the long run will depart 

from the short run are easy to make but hard to prove. 

. . . If monopolistic prices happen later, prosecute 

then.”); Frank H. Easterbrook, Predatory Strategies and 

Counterstrategies, 48 U. CHI. L. REV. 263, 263–64 (1981) 

[hereinafter Predatory Strategies] (“[T]here is no 

sufficient reason for antitrust law or courts to take 

predation seriously.”). 

77 See, e.g., Paul Milgrom & John Roberts, Predation, 

Reputation, and Entry Deterrence, 27 J.ECON.THEORY 280, 

303 (1982); David M. Kreps & Robert Wilson,Reputation 

and Imperfect Information, 27 J.ECON.THEORY 253 (1982). 

78 Paul Milgrom, Predatory Pricing, in 3 THE NEW 

PALGRAVE:A DICTIONARY OF ECONOMICS 937, 938 (John 

Eatwell et al. eds., 1987) (emphasis in original). 
 

 

56 SECTION 2 REPORT 

theoretic models to distinguish between predatory 

pricing and benign price discounting. Thus, 

one commentary argues, “Although strategic 

theories of predatory pricing are exemplary in 

their coherence and rigor, their potential to add 

value to antitrust policy is much more modest 

than the authors admit.”79 This is because the 

strategic theories of predatory pricing that 

underlie these game theoretic models “are so 

fragile,” relying on strict assumptions that may 

not be met in the real world.80 

One panelist suggested that these economic 

models could help identify predatory pricing,81 

while acknowledging that the “formal 

economic proof of the theories is complex.”82 

Most panelists, however, expressed concern 

regarding the practical utility of many of these 

models. As one panelist put it, “[W]e should 

take the learning of these models and figure out 

what they mean in terms of implementable 

rules.”83 He also noted, 

[W]e come back to the question . . . [of] how 

to translate it into something that a 

businessperson, who has to be counseled, 

will be able to understand in day-to-day 

operations, and how [a] Court [will] be able 

to take these principles of game theory, 

79 Kenneth G. Elzinga & David E. Mills, Predatory 

Pricing and Strategic Theory, 89 GEO. L.J. 2475, 2475 

(2001). 

80 Id. at 2494; see also id. at 2493–94 (noting that they 

are “pristine theoretical existence proofs” and 

“require[] more factual support than the authors admit” 

and require compliance with strict assumptions that 

may not be likely to be met in the real world); id. at 2478 

(“These theories typically assume an extremely simple 

market structure. . . . While this stylized market 

structure yields sufficient conditions to sustain the 

plausibility of predatory pricing, the plausibility does 

not transfer automatically to other generally more 

complex market structures.”); id. at 2477–78 (“The 

foundational assumption upon which most strategic 

theories of predation rest is either asymmetric 

informationor asymmetric access to financial resources. 

. . . Before the authority of a strategic theory can be 

invoked in a particular dispute, it must be established 

that the information or financial resource condition in 

the market square[s] with the theory.” (internal 

quotation marks omitted)). 

81 See June 22 Hr’g Tr., supra note 4, at 58 (Bolton). 

82 Bolton et al., supra note 14, at 2248. 

83 June 22 Hr’g Tr., supra note 4, at 67–68 (Ordover). 

subgame perfect[] Nash equilibria and all 

these things, and translate it into some 

simple rules that . . . thou shall not do 

what?84 

As Judge Posner notes, “[R]ecent scholarship 

has brought to light a nontrivial number of 

cases of predatory pricing.”85 As another 

commentary puts it, “Even were empirical 

evidence lacking, one should be cautious in 

saying that predation does not exist today since 

theory suggests that it can occur.”86 Indeed, the 

84 Id. at 67 (Ordover); see also id. at 74 (Melamed) 

(noting the difficulty of implementing a game theory 

model); Sherman Act Section 2 Joint Hearing: Business 

Testimony Hr’g Tr. 187, Feb. 13, 2007 [hereinafter Feb. 

13 Hr’g Tr.] (Sewell) (“The laws [to which] we’re 

seeking to conform need to be understandable by the 

people who are asked to adhere to them.”). 

85 POSNER, supra note 2, at 214; see also Malcolm R. 

Burns, New Evidence of Price-Cutting, 10 MANAGERIAL & 

DECISION ECON. 327, 327 (1989) (letters between officers 

of the tobacco trust show predatory intent); Malcolm R. 

Burns, Predatory Pricing and the Acquisition Cost of 

Competitors, 94 J. POL. ECON. 266, 268–69 (1986) (the 

tobacco trust between 1891 and 1901 engaged in 

profitable predation); Kenneth G. Elzinga & David E. 

Mills, Predatory Pricing in the Airlines Industry: Spirit 

Airlines v. Northwest Airlines, in THE ANTITRUST 

REVOLUTION 219, 244 (John E. Kwoka & Lawrence J. 

White eds., 5th ed. 2008) (“[T]he facts in Spirit v. 

Northwest feature the exit of a viable competitor and a 

subsequent increase in prices.”); David Genesove & 

Wallace P. Mullin, Predation and Its Rate of Return: The 

Sugar Industry, 1887–1914, 37 RAND J. ECON. 47, 67 

(2006) (the American Sugar Refining Companyengaged 

in predatory pricing); Fiona Scott Morton, Entry and 

Predation: British Shipping Cartels 1879–1929, 6 J. ECON. 

& MGMT. STRATEGY 679, 714 (1997) (“The evidence on 

price wars in the early liner shipping industry suggests 

they were predatory in nature.”); Balder Von 

Hohenbalken & Douglas S. West, Empirical Tests for 

Predatory Reputation, 19 CAN. J. ECON. 160, 176 (1986) 

(describing empirical evidence that “having a 

reputation for aggressiveness created by earlier spatial 

predation” discourages “new entry by other firms”); 

David F. Weiman & Richard C. Levin, Preying for 

Monopoly? The Case of Southern Bell Telephone Company, 

1894–1912, 102 J. POL. ECON. 103, 103 (1994) (“Southern 

Bell effectively eliminated competition through a 

strategy of pricing below cost in response to entry. . . .”); 

B. S. Yamey, Predatory Price Cutting: Notes and Comments, 

15 J.L. & ECON. 129, 137–42 (1972) (a conference of 

shipowners in the China-England trade in the 1880s 

engaged in predatory pricing). 

86 Zerbe & Mumford, supra note 30, at 956. 
 

PRICE PREDATION 57 

consensus at the hearings, and the predominant 

(but by no means unanimous) view among 

commentators, is that, in certain circumstances, 

predatory pricing can be a rational strategy for 

a firm with monopoly power facing a smaller 

competitor.87 

In certain circumstances, predatory 

pricing can be a rational strategy for a 

firm with monopoly power facing a 

smaller competitor. 

Although theoretically a rational strategy, 

actual evidence on the frequency of predatory 

pricing, nonetheless, is limited. “Since Brooke 

Group was decided in 1993, at least fifty-seven 

federal antitrust lawsuits alleging predatory 

pricing have been filed.”88 Because publicly 

available data about all predatory-pricing 

claims or allegations are limited, it is 

impossible to determine whether this number 

either supports or refutes the conclusion that 

“evidence regarding predation does not 

suggest it is either rare or unsuccessful.”89 In 

addition, as one antitrust scholar notes, “[I]t is 

impossible to be certain how pervasive 

predation would be or how long its effects 

would endure” because “[a]ny studies of 

business behavior today are affected by the fact 

that predatory pricing is illegal.”90 

87 See, e.g., June 22 Hr’g Tr., supra note 4, at 31 

(Bolton) (“I would argue that over time, things have 

moved in the direction of thinking of predatory pricing 

as being more prevalent than we thought and also more 

likely to succeed than we thought before . . . .”); id. at 

55–56 (Elzinga); see also, e.g., CARLTON & PERLOFF, supra 

note 27, at 360 (“[I]t is a mistake to think of price 

predation as inconceivable.”). 

88 Crane, supra note 8, at 6. 

89 Zerbe & Mumford, supra note 30, at 957; see also 

Bolton et al., supra note 14, at 2258–59 (noting that in the 

six years following the 1993 Brooke Group decision, 

defendants won thirty-six of thirty-nine reported 

decisions; two cases settled after plaintiffs’ claims 

survived motions for summary judgment; and the 

disposition of the remaining case was uncertain). 

90 Crane, supra note 8, at 39; see also id. at 38–39 (“The 

incidence of costs of predatory pricing in a regime 

without any predatory pricing prohibition . . . remains 

highly speculative” and “is unlikely to be ascertained 

empirically except by reference to historical case studies 

However, certain market characteristics may 

contribute to potentially successful predatory 

pricing.91 For example, in markets where 

information is imperfect, a predator can 

mislead potential entrants into thinking that 

market conditions are unfavorable when they 

are not or that the predator’s costs are lower 

than they actually are.92 Also, the predator can 

engage in “reputation-effect” predation by 

building a reputation that discourages future 

entrants from entering the market because they 

fear that they will suffer the same fate as earlier 

victims.

93 This may occur when “the entrants 

[are] less than certain that they are correct in 

modeling the established firm as rationally 

choosing between predation and peaceful 

coexistence.”94 Where potential rivals refrain 

from entering simply because they fear the 

“retribution” of the dominant firm,95 the 

dominant firm’s reputation as a predator itself 

operates as an entry barrier.96 

[T]hink of it this way. You are walking 

of particular firms from the time period before the 

adoption of the Sherman Act, since predatory pricing 

has long been illegal . . . .” (footnote omitted)). Accord 

POSNER, supra note 2, at 214; Bolton et al., supra note 14, 

at 2247. 

91 See generally AREEDA & HOVENKAMP, supra note 1, 

¶ 723c. 

92 See Bolton et al., supra note 14, at 2248–49. 

93 The Current State of Economics Underlying Section 2: 

Comments of Michael Katz and Michael Salinger, 

ANTITRUST SOURCE, Dec. 2006, at 1, 5, http://www. 

abanet.org/antitrust/at-source/06/12/Dec06-

BrownBag.pdf [hereinafter Katz & Salinger Comments]; 

Bolton et al., supra note 14, at 2248 (“In reputation effect 

predation . . . a predator reduces price in one market to 

induce the prey to believe that the predator will cut 

price in its other markets or in the predatory market 

itself at a later time, thereby enabling multimarket 

recoupment of predatory losses.”). 

94 Milgrom & Roberts, supra note 77, at 302; see also 

Bolton et al., supra note 14, at 2301 n.271. 

95 See Katz & Salinger Comments, supra note 93, at 5. 

96 See Sherman Act Section 2 Joint Hearing: 

Academic Testimony Hr’g Tr. 12, Jan. 31, 2007 

[hereinafter Jan. 31 Hr’g Tr.] (Farrell) (“[E]verybody 

recognizes that if [Spirit] enters and offers the three 

hundred dollar deal, Northwest will cut its price to two 

hundred dollars. . . . So, [Spirit] anticipates that, doesn’t 

enter, and consumers continue to pay five hundred 

dollars.”). 
58 SECTION 2 REPORT 

along and you want to have a picnic, and 

there’s a sign that says, “No trespassing.” . . . 

You throw down your blanket, you have a 

nice picnic, and you leave, right? 

Now you are walking along and there’s 

another field where you want to have a 

picnic and there’s a no trespassing sign, and 

there are about four or five corpses lying 

around. Are you going to have a picnic 

there? I don’t think so.97 

As a result, by predating in one or more 

markets, the monopolist potentially can defend 

many of its other markets from entry, making 

predation more profitable.98 And in any market 

where entry barriers are high, there will be 

greater opportunity for the monopolist to 

recoup whatever investment it makes in belowcost pricing.99 

The Department concurs with the panelists 

and the vast majority of commentators that, 

absent legal proscription, predatory pricing can 

occur in certain circumstances. Accordingly, it 

is necessary to develop rules for distinguishing 

between legitimate discounting and unlawful 

predation. 

2. Above-Cost Pricing 

While acknowledging the theoretical 

possibility that above-cost pricing may 

sometimes reduce welfare, the Court in Brooke 

Group held that above-cost pricing does not 

violate section 2 because condemning it would 

chill desirable discounting: “As a general rule, 

the exclusionary effect of prices above a 

relevant measure of cost either reflects the 

lower cost structure of the alleged predator . . . 

or is beyond the practical ability of a judicial 

tribunal to control without courting intolerable 

risks of chilling legitimate price cutting.”100 

Over a decade later, in Weyerhaeuser, the Court 

pointed out that in Brooke Group, “[w]e were 

particularly wary of allowing recovery for 

97 Sherman Act Section 2 Joint Hearing: Monopoly 

Power Session Hr’g Tr. 191, Mar. 7, 2007 (Stelzer). 

98 See Jonathan B. Baker, Predatory Pricing After 

Brooke Group: An Economic Perspective, 62 ANTITRUST 

L.J. 585, 590 (1994). 

99 AREEDA & HOVENKAMP, supra note 1, ¶ 723c. 

100 Brooke Group Ltd. v. Brown & Williamson 

Tobacco Corp., 509 U.S. 209, 223 (1993). 

above-cost price cutting because such claims 

could, perversely, ‘chil[l] legitimate price 

cutting,’ which directly benefits consumers.”101 

Thus, Brooke Group created a safe harbor for 

above-cost pricing, concluding that reliably 

distinguishing between welfare-enhancing and 

welfare-decreasing above-cost pricing was 

impractical and counterproductive. As one 

commentator notes, “Even though one can 

easily construct theoretical models of abovecost predatory pricing, antitrust authorities 

treat above-cost pricing decisions as a safe 

harbor, not to be challenged.”102 

Some commentators advocate revisiting 

Brooke Group’s safe harbor for above-cost 

pricing. They contend that economic theory 

now can reliably be used to identify and 

efficiently prosecute anticompetitive above-cost 

pricing.103 One economist, for example, asserts 

that above-cost predation is possible “where 

rivals have higher costs than an incumbent 

monopoly.”104 He proposes preventing an 

incumbent monopolist from charging prices 

above its costs if preventing it from doing so 

would facilitate entry by new competitors. 

In markets where an incumbent monopoly 

enjoys significant advantages over potential 

entrants, but another firm enters and 

provides buyers with a substantial discount, 

the monopoly should be prevented from 

responding with substantial price cuts or 

significant product enhancements until the 

entrant has had a reasonable time to 

recover its entry costs and become viable, 

or until the entrant’s share grows enough so 

that the monopoly loses its dominance.105 

However, others strongly disagree. One 

101 Weyerhaeuser Co. v. Ross-Simmons Hardwood 

Lumber Co., 127 S. Ct. 1069, 1074 (2007) (alteration in 

original) (citing Brooke Group, 509 U.S. at 222–23). 

102 Dennis W. Carlton, Does Antitrust Need to Be 

Modernized?, J. ECON. PERSP., Summer 2007, at 155, 160. 

103 Some commentators are particularly concerned 

about possible above-cost predationwith products such 

as software or pharmaceuticals that have large fixed 

costs but very low marginal costs. This is discussed 

further below at part C(3)(c) in connection with longrun average incremental cost. 

104 Edlin, supra note 20, at 963. 

105 Id. at 945. 
PRICE PREDATION 59 

commentator concludes: 

Even when incumbents do have market 

power, restrictions on their ability to adopt 

reactive above-cost price cuts are unlikely 

to achieve the objective of encouraging and 

protecting entry because less efficient 

entrants cannot survive in the long run, and 

entrants who are (or will predictably 

become) more efficient need no 

encouragement or protection.106 

As then-Judge Breyer once explained: 

In sum, we believe that such above-cost 

price cuts are typically sustainable; that 

they are normally desirable (particularly in 

concentrated industrie s); that the 

“disciplinary cut” is difficult to distinguish 

in practice; that it, in any event, primarily 

injures only higher cost competitors; that its 

presence may well be “wrongly” asserted 

in a host of cases involving legitimate 

competition; and that to allow its assertion 

threatens to “chill” highly desirable 

procompetitive price cutting.107 

Most panelists concluded that “[p]rices 

above some measure of cost . . . should not be 

considered predatory.”108 They largely agreed 

that “[administrability] is a serious concern,”109 

that current game theory models “do not give 

a clear reading on cost benchmarks,”110 and that 

it is still not within “the practical ability of a 

106 Einer Elhauge, Why Above-Cost Price Cuts to Drive 

Out Entrants Are Not Predatory—and the Implications for 

Defining Costs and Market Power, 112 YALE L.J. 681, 826 

(2003). 

107 Barry Wright Corp. v. ITT Grinnell Corp., 724 

F.2d 227, 235–36 (1st Cir. 1983) (Breyer, J.). 

108 June 22 Hr’g Tr., supra note 4, at 72. Although 

one panelist disagreed that “prices above average 

variable cost should not be consideredas predatory,” id. 

at 72 (Bolton), he “would not object to a rule that says 

price above average total cost is per se legal as a way of 

implementing an easily administrable rule,” id. at 75. 

109 Id. at 75 (Bolton); see also id. at 99 (Ordover) (“I 

think at this point we have enough learning to try to go 

back to first principles and try to understand what it is 

that we are trying to accomplish, taking full account of 

the [administrability] of whatever provisions are going 

to ultimately be developed . . . .”). 

110 Id. at 73 (Bolton); see id. (Ordover); see also id. 

(Bolton) (adding, however, that focusing on cost may 

not be an effective way of distinguishing between 

procompetitive and anticompetitive effects). 

judicial tribunal to control” above-cost 

predatory pricing“without courting intolerable 

risks of chilling legitimate price cutting.”111 The 

Department sees no reason to revisit Brooke 

Group under these circumstances. 

Most panelists concluded that prices 

above some measure of cost should not 

be considered predatory. 

Moreover, even if beneficial above-cost price 

cutting and deleterious predatory pricing could 

be distinguished after the fact, the Department 

does not believe that there is a practical, readily 

applicable test businesses can use to determine 

whether their above-cost prices are legal at the 

time they are making pricing decisions.112 For 

example, under the approach one commentator 

describes, the legality of above-cost price cuts 

could depend, in part, on whether the price cut 

permits an entrant “reasonable time” to recover 

its “entry costs” or “become viable,” or capture 

sufficient market share so that the price-cutting 

firm “loses its dominance.”113 However, an 

incumbent firm is unlikely to be able to make 

this determination with any confidence, even 

assuming it has all relevant data about its 

rivals, which it usually will not. 

If firms can violate section 2 by pricing 

above cost, this likely will discourage 

111 Brooke Group Ltd. v. Brown & Williamson 

Tobacco Corp., 509 U.S. 209, 223 (1993); see also June 22 

Hr’g Tr., supra note 4, at 74 (Melamed) (“I understand 

the theory, even if I cannot understand the game 

theory, of why an above cost . . . test could be 

predatory. . . . What I don’t understand . . . is how one 

turns that into a legal rule that companies can comply 

with.”); id. at 75 (Bolton). 

112 See June 22 Hr’g Tr., supra note 4, at 67–68, 74 

(Ordover); id. at 74 (Melamed). 

113 See, e.g., Edlin, supra note 20, at 945. This 

commentator notes, however, that “for the sake of 

correctness in application, this Essay usually assumes 

that if an entrant prices twenty percent below an 

incumbent monopoly, the incumbent’s prices will be 

frozen for twelve to eighteen months.” Id. at 945–46. 

“The exact operationalization of the rule,” however, 

“could vary by industry or be decided on a case-by-case 

basis. The price freeze might also be adjusted for 

inflation in periods of high inflation or for substantial 

industry-specific price trends.” Id. at 946 n.19. 
 

 

60 SECTION 2 REPORT 

aggressive price discounting that benefits 

consumers. As was noted at the hearings, 

sometimes firms with monopoly power will not 

lower their prices to consumers because they 

are worried about false condemnations.114 Such 

a result harms consumer welfare and justifies a 

safe harbor for above-cost pricing.115 

The Department believes that above-cost 

pricing should remain per se legal. Aggressive 

price cutting is central to a properly functioning 

market.116 Consequently, it is critical that 

enforcement against predatory pricing avoids 

chilling procompetitive price discounting to the 

extent reasonably possible. The Department, 

therefore, will intervene only in those instances 

where prices are below an appropriate measure 

of cost, in addition to meeting the other 

elements of a price-predation claim. 

The Department believes that abovecost pricing should remain per se legal. 

3. Appropriate Measure of Cost 

a. Analytical Considerations 

The Department believes three factors bear 

on the appropriate measure of cost to use in the 

price-cost test for predatory pricing. First, the 

cost measure should help reveal whether the 

firm made unprofitable sales—or, to be more 

precise, whether the firm’s sales were 

114 See June 22 Hr’g Tr., supra note 4, at 68–69 

(Melamed) (acknowledging some chilling of 

procompetitive discounting but refraining from 

comparing the magnitude of harm from false positives 

and false negatives); see also Crane, supra note 8, at 10. 

115 Cf. Crane, supra note 8, at 32 (“In sum, the 

available information on lawyer fee structures in postBrooke Group predatory pricing cases supports two 

hypotheses regarding the Chicago School predatory 

pricing precedents: First, that the potential for 

substantial plaintiff’s verdicts in predatorypricing cases 

remains, and second, that some firms use predatory 

pricing complaints strategically to diminish price 

competition by competitors.”). Available evidence, 

however, suggests that in recent years liability findings 

on claims involving predatory pricing have been rare. 

See supra Part I(C)(1). 

116 Cf. Matsushita Elec. Indus. Co. v. Zenith Radio 

Corp., 475 U.S. 574, 594 (1986) (noting that “cutting 

prices in order to increase business often is the very 

essence of competition”). 

economically irrational but for their apparent 

exclusionary effect. 

Second, the cost measure should help 

identify situations in which the firm’s pricing 

would force the exit of a rival that could 

produce the additional output resulting from 

the pricing strategy (i.e., the predatory 

increment) as efficiently as the monopolist. An 

efficient firm should not be prohibited from 

reducing its prices based on claims that a rival 

could become equally efficient in the future, as 

such claims are too speculative to support a 

finding of section 2 liability and would sacrifice 

current consumer benefits for uncertain future 

gains.117 

Both of these factors point to a focus on 

some form of incremental cost. Brooke Group118 

and its precursors,119 while not prescribing any 

particular cost measure, nonetheless are 

predicated upon the notion, perhaps best 

expressed by then-Judge Breyer in Barry Wright, 

that “modern antitrust courts look to the 

relation of price to ‘avoidable’ or ‘incremental’ 

costs as a way of segregating price cuts that are 

‘suspect’ from those that are not.”120 This is 

because, in general, if 

a firm charges prices that fail to cover these 

“avoidable” or “incremental” costs—the 

costs that the firm would save by not 

producing the additional product it can sell 

117 Cf. Elhauge, supra note 106, at 784 (suggesting no 

need to protect from incumbent’s above-cost price cuts 

an entrant who will eventually become more, or as, 

efficient as the incumbent since capital markets already 

successfully take that into account); id. at 782–92. 

118 509 U.S. 209, 223 (1993) (“Although Cargill and 

Matsushita reserved as a formal matter the question 

whether recovery should ever be available . . . when the 

pricing in question is above some measure of 

incremental cost, the reasoning in both opinions 

suggests that only below-cost prices should suffice . . . .” 

(citations omitted)(internalquotationomitted)(emphasis 

in original)). 

119 Matsushita, 475 U.S. at 585 n.9 (“We do not 

consider whether recovery should ever be available on 

a theory such as respondents’ when the pricing in 

question is above some measure of incremental cost.” 

(emphasis in original)); Cargill, Inc. v. Monfort of Colo., 

Inc., 479 U.S. 104, 117 n.12 (1986) (same). 

120 Barry Wright Corp. v. ITT Grinnell Corp., 724 

F.2d 227, 232 (1st Cir. 1983) (Breyer, J.). 
 

 

PRICE PREDATION 61 

at that price . . . . [t]hen one would know 

that the firm cannot rationally plan to 

maintain this low price; if it does not expect 

to raise its price, it would do better to 

discontinue production.121 

As a consequence, there is general agreement 

that the appropriate measure of cost in any 

price-cost test for predatory pricing is “some 

kind of incremental cost.”122 

The third factor is administrability. 

Businesses must have rules that they can 

readily apply at the time of their conduct to 

know with a reasonable degree of confidence 

whether their pricing will be deemed 

predatory. As one panelist stressed, it is 

valuable in “saying to the client, when I’m 

talking about costs, ‘What are the costs you are 

incurring to engage in the strategy at issue that 

you wouldn’t otherwise have incurred?’ Clients 

understand that question, and it’s not always a 

trivial question, but I think it’s one they can 

answer.”123 In addition, courts and enforcers 

must be able to assess whether the rules were 

applied properly. “A rule that cannot be 

intelligibly applied invites confusion and 

quixotic results . . . .”124 

Panelists emphasized that this third 

consideration is as important as the first two.125 

One panelist noted: 

[I]t is absolutely essential that we take these 

models and we translate them into 

principles that are implementable by the 

business people, by the lawyers and by the 

courts. Otherwise, we are nowhere, and . . . 

what we have been struggling with is trying 

to come to articulation of some principles 

121 Id. 

122 June 22 Hr’g Tr., supra note 4, at 44–45 

(Melamed). 

123 Id. at 46 (emphasis added). 

124 AREEDA & HOVENKAMP, supra note 1, ¶ 736d, at 

392. 

125 June 22 Hr’g Tr., supra note 4, at 74 (Melamed); 

see also id. at 75 (Bolton); Sherman Act Section 2 Joint 

Hearing: Section 2 Policy Issues Hr’g Tr. 77–79, May 1, 

2007 [hereinafter May 1 Hr’g Tr.] (Baker) (discussing 

difficulties in administeringprice-cost test in predatorypricing cases); Feb. 13 Hr’g Tr., supra note 84, at 187 

(Sewell). 

that are actually understandable . . . .126 

The issue, then, is what kind of incremental 

cost best serves the above three goals. 

b. Average Total Cost 

Given the above factors, the Department 

agrees with the m any courts and 

commentators concluding that pricing above 

average total cost—total cost divided by total 

output—should be per se legal.127 Moreover, 

even pricing below average total cost 

frequently may be economically rational.128 A 

price below average total cost would often be 

cash-flow positive for an equally efficient 

competitor. Such a rival would find it more 

advantageous in the short run to continue 

producing than to exit. Accordingly, since 

lower prices will always provide short-term 

benefits to consumers, the Department believes 

that merely showing that prices are below 

average total cost should not be sufficient to 

support a finding of liability. 

126 June 22 Hr’g Tr., supra note 4, at 67 (Ordover). 

127 See, e.g., United States v. AMR Corp., 335 F.3d 

1109, 1117 (10th Cir. 2003) (asserting that Brooke Group’s 

focus on incremental costs “implicitly ruled out” abovetotal-cost pricing as a basis for antitrust liability); 

AREEDA & HOVENKAMP, supra note 1, ¶ 723d2, at 280 

(“Dicta in the Supreme Court’s Brooke decision appears 

to have settled this matter for all prices higher than 

average total cost.”); id. ¶ 739c3, at 420 (“But numerous 

lower courts have concluded that condemning prices 

greater than average total cost—that is, fully profitable 

prices—unwisely invites plaintiffs into protracted 

litigation and close questions about the precise location 

of marginal cost and the reasons for such prices. The 

prospect of such litigation serves to deter legitimate, 

pro-competitive price cutting.” (footnote omitted)); see 

also June 22 Hr’g Tr., supra note 4, at 75 (Bolton) (“I 

would not object to a rule that says price above average 

total cost is per se legal as a way of implementing an 

easily administrable rule.”). 

128 June 22 Hr’g Tr., supra at note 4, at 8–9 (Elzinga) 

(“Let’s say . . . that this [television] set was sold by 

Toshiba . . . to Sears for $95, and the average total cost 

was $100, but the average variable cost was $90 . . . . 

Almost everyone at the time believed Toshiba was 

selling below cost. . . . And it took an instinct for 

economic reasoning or a recollection of a price theory 

course to realize that such a price was above the shutdown point, it was cash flow positive, and that Toshiba 

was better off making the sale to Sears than not making 

that sale . . . .”). 
 

 

62 SECTION 2 REPORT 

c. Measures of Incremental Cost 

The four most frequently suggested 

incremental-cost measures are: (1) marginal 

cost, (2) average variable cost, (3) long-run 

average incremental cost, and (4) average 

avoidable cost. Each seeks to ascertain what it 

would cost a firm to make additional units of 

output. 

Marginal Cost. For each unit sold, marginal 

cost is the additional cost of producing that 

unit.129 It refers to short-run marginal cost—the 

change in cost that results from producing a 

unit of output during a period in which “a firm 

does not change its fixed cost-productive assets, 

such as its plant.”130 In other words, fixed costs 

are not included in determining marginal costs. 

Many courts have suggested that marginal 

cost is the theoretically appropriate measure of 

cost for evaluating predatory pricing. For 

example, in AMR the Tenth Circuit observed, 

with qualifications,131 that marginal cost is “the 

ideal measure of cost . . . because ‘[a]s long as a 

firm’s prices exceed its marginal cost, each 

additional sale decreases losses or increases 

profits.’”132 Likewise, a treatise notes that 

“[m]arginal-cost pricing generally maximizes 

market efficiency.”133 Hence, “no price equal to 

129 E.g., Pac. Eng’g & Prod. Co. of Nev. v. 

Kerr-McGee Corp., 551 F.2d 790, 796 n.7 (10th Cir. 1977) 

(citing Areeda & Turner, supra note 5, at 700); AREEDA 

& HOVENKAMP, supra note 1, ¶ 753b3, at 367; CARLTON 

& PERLOFF, supra note 27, at 783 (defining marginal cost 

as “the increment, or addition, to cost that results from 

producing one more unit of output”). 

130 AREEDA & HOVENKAMP, supra note 1, ¶ 735b1, at 

365; see id. ¶ 735b3, at 367. 

131 See infra note 136. 

132 AMR, 335 F.3d at 1116 (alteration in original) 

(quoting Advo, Inc. v. Phila. Newspapers, Inc., 51 F.3d 

1191, 1198 (3d Cir. 1995)); see also Spirit Airlines, Inc. v. 

Nw. Airlines, Inc., 431 F.3d 917, 937–38 (6th Cir. 2005); 

Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 

532 (5th Cir. 1999); Kelco Disposal, Inc. v. BrowningFerris Indus. of Vt. Inc., 845 F.2d 404, 407 (2d Cir. 1988), 

aff’d on other grounds, 492 U.S. 257 (1989); McGahee v. N. 

Propane Gas Co., 858 F.2d 1487, 1504 (11th Cir. 1988); 

Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 729 

F.2d 1050, 1056 (6th Cir. 1984); MCI Commc’ns Corp. v. 

AT&T, 708 F.2d 1081, 1119–23 (7th Cir. 1983). 

133 AREEDA & HOVENKAMP, supra note 1, ¶ 739a, at 

412–13. 

or exceeding properly defined and reasonably 

anticipated marginal cost should be deemed 

unlawful under the antitrust laws.”134 One 

panelist also said that marginal cost “really i[s] 

the right test.”135 

However, as Areeda and Turner pointed out 

as early as 1975, marginal cost is difficult to 

determine in most instances.136 In addition, 

because marginal cost indicates only the cost of 

a single unit, comparing price with marginal 

cost does not indicate whether the alleged 

predation is causing the firm to lose money on 

anything but that single unit—normally the last 

unit produced. 

Average Variable Cost. Average variable 

cost is the total of all the costs that vary when 

there is a change in the quantity of a particular 

good produced, divided by the quantity of the 

goods produced.137 Average variable cost 

excludes all fixed costs.138 Typical costs that vary 

with changes in output are materials, fuel, labor, 

repair and maintenance, use depreciation, and 

per-unit royalties and license fees.139 

A treatise notes that “[n]umerous decisions 

have concluded that [average variable cost] is at 

least the presumptive baseline for determining 

predation.”140 Average variable cost is favored 

both as a more workable proxy for marginal 

cost141 and because it is instructive in and of 

134 Id. 

135 Feb. 13 Hr’g Tr., supra note 84, at 185 (Wark). 

136 See Areeda & Turner, supra note 5, at 716 (noting 

that “[t]he incremental cost of making and selling the 

last unit cannot readily be inferred from conventional 

business accounts”); see also AMR, 335 F.3d at 1116 

(acknowledging that “marginal cost, an economic 

abstraction, is notoriously difficult to measure and 

‘cannot be determined from conventional accounting 

methods’” (quoting Ne. Tel. Co. v. AT&T, 651 F.2d 76, 

88 (2d Cir. 1981))). 

137 AREEDA & HOVENKAMP, supra note 1, ¶ 735b3 

(“Variable costs, as the name implies, are costs that vary 

with changes in output,” and “[t]he average variable 

cost is the sum of all variable costs divided by output.” 

(internal quotation marks omitted)). 

138 See Bolton et al., supra note 14, at 2271–72. 

139 AREEDA & HOVENKAMP, supra note 1, ¶ 735b3, at 

366. 

140 Id. ¶ 740a, at 425. 

141 See AMR, 335 F.3d at 1116; Stearns Airport Equip. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRICE PREDATION 63 

itself in evaluating allegedly predatory 

pricing.142 

However, a major shortcoming of average 

variable cost is that it measures the average cost 

of the entire output, not just of the incremental 

output that is the focus of the predation 

claim.143 Moreover, using average variable cost 

frequently requires difficult determinations of 

whether a particular cost is, in the 

circumstances involved, fixed or variable. 

Only the latter is included in calculating the 

average variable cost. But ascertaining whether 

a particular expenditure should be classified as 

fixed or variable is often difficult or at least 

seemingly somewhat arbitrary.144 For example, 

the Second Circuit has held that “the general 

legal rule is that depreciation caused by use is 

a variable cost, while the depreciation through 

obsolescence is a fixed cost,” and “the 

characterization of legitimately disputed costs 

is a question of fact for the jury.”145 

Co. v. FMC Corp., 170 F.3d 518, 532 (5th Cir. 1999); see 

also Areeda & Turner, supra note 5, at 718 (“[D]espite 

the possibility that average variable cost will differ from 

marginal cost, it is a useful surrogate for predatory 

pricing analysis”); Feb. 13 Hr’g Tr., supra note 84, at 185 

(Wark) (“I think it’s important to recognize that average 

variable cost is really a proxy for marginal cost because 

that really i[s] the right test.”). 

142 See William J. Baumol, Predation and the Logic of 

the Average Variable Cost Test, 39 J.L. & ECON. 49, 55–57 

(1996); cf. Cascade Health Solutions v. PeaceHealth, 515 

F.3d 883, 910 (9th Cir. 2008) (holding that the 

appropriate measure of costs in a “bundled discounting 

context” is average variable cost). 

143 See Baumol, supra note 142, at 57–59; see also June 

22 Hr’g Tr., supra note 4, at 32 (Bolton) (“price being 

below average variable cost[] is a very poor proxy for 

measuring profit sacrifice, which is what we are trying 

to go after”). 

144 See June 22 Hr’g Tr., supra note 4, at 82–83 

(Elzinga); id. at 83 (Ordover). 

145 Kelco Disposal, Inc. v. Browning-Ferris Indus. of 

Vt., Inc., 845 F.2d 404, 408 (2d Cir. 1988), aff’d on other 

grounds, 492 U.S. 257 (1989); see also U.S. Philips Corp. v. 

Windmere Corp., 861 F.2d 695, 704 (Fed. Cir. 1988) 

(whether advertising expenses were variable or fixed 

costs was a question of fact); Sunshine Books, Ltd. v. 

Temple Univ., 697 F.2d 90, 94–97 (3d Cir. 1982) (whether 

inventoryshrinkage and payroll expensesare variableor 

fixed costs are questions of fact); Ne. Tel. Co. v. AT&T, 

651 F.2d 76, 86 n.12 (2d Cir. 1981) (“Whether a particular 

Long-run Average Incremental Cost. Longrun average incremental cost is the average 

“cost of producing the predatory increment of 

output whenever such costs [are] incurred.”146 

Unlike average variable cost, it includes all 

product-specific fixed costs, “even if those 

costs were sunk before the period of predatory 

pricing.”147 That is, long-run average incremental 

cost by definition includes both recoverable 

and sunk fixed costs. 

Long-run average incremental cost has been 

suggested as the appropriate cost measure 

when predatory conduct involves intellectual 

property. The contention is that “the only 

tenable cost standard” for predatory pricing 

with regard to intellectual property “must be a 

long-run cost measure,”148 because “after the 

product is developed and launched, [average 

avoidable cost] or [average variable cost] may 

approach or equal zero.”149 In computer 

software, for example, once the software 

product has been developed “the short-run 

incremental cost of a program downloaded 

from the Internet is nil.”150 

In many instances, however, long-run 

average incremental cost may identify as 

“predatory” pricing that is actually 

economically rational apart from any 

exclusionary effect. Because long-run average 

incremental cost includes all product-specific 

sunk fixed costs, a firm pricing below that cost 

could generate a positive cash flow (i.e., cover 

its variable costs and make a contribution to its 

already-sunk fixed costs) and thus would not 

necessarily be better off by discontinuing or 

reducing production. Such sales, which a longrun average incremental cost standard might 

condemn as predatory, would therefore be 

potentially profitable, and hence reflect no 

expense, e.g., the cost of a new factory, should be 

classified as variable or fixed depends in part on the time 

under consideration.”). 

146 Bolton et al., supra note 14, at 2272. 

147 Id. at 2272. “Sunk cost” is “the portion of fixed 

costs that is not recoverable.” CARLTON &PERLOFF, supra 

note 27, at 785. 

148 Bolton et al., supra note 14, at 2273. 

149 Id. at 2272. 

150 Id. 
 

64 SECTION 2 REPORT 

more than economically rational competition, 

not predation.151 

Average Avoidable Cost. Average avoidable 

cost consists of all costs, including both variable 

costs and product-specific fixed costs, that 

could have been avoided by not engaging in 

the predatory strategy. Unlike long-run 

average incremental cost, average avoidable 

cost omits all fixed costs that were already sunk 

before the time of the predation; consequently, 

average avoidable cost will generally be lower 

than long-run average incremental cost. 

Many have observed that by omitting fixed 

costs that were sunk before the predatory sales, 

average avoidable cost appropriately answers 

the question about avoidable losses.152 The 

absence or presence of avoidable losses is the 

best indicator of whether the firm made or lost 

money on the additional increment of product, 

which Brooke Group and Weyerhaeuser made 

clear is the critical question in predatorypricing cases. Moreover, by including all costs 

that the firm could have avoided by not 

producing the additional units, average 

avoidable cost circumvents the difficult issue of 

whether a particular cost is fixed or variable. 

This obviates the frequently thorny expense 

classification that the use of average variable 

cost often entails. These considerations are no 

doubt factors in the recent decision of several 

foreign competition authorities to use average 

avoidable cost as their preferred measure in 

predatory-pricing cases.153 

151 See generally Elzinga & Mills, supra note 79, at 

2484 (“Adopting . . . [the long-run average incremental 

cost standard] would be inconsistent with the generally 

accepted view that predatory pricing means pricing 

that would not be remunerative except for its 

exclusionary effect.”); AREEDA & HOVENKAMP, supra 

note 1, ¶ 741e, at 449–55 (noting that preexisting capital 

costs “are not part of the cost of predation, because 

those costs remain the same”). 

152 See CARLTON & PERLOFF, supra note 27, at 29 (“A 

sunk cost is like spilled milk. Once it is sunk, there is 

no use worrying about it, and it should not affect any 

subsequent decisions. . . . Costs, including fixed costs, 

that are not incurred if operations cease are called 

avoidable costs.”). 

153 See COMPETITION BUREAU, CAN., ENFORCEMENT 

GUIDELINES: PREDATORY PRICING 14–15 (2008), available 

at http://www.competitionbureau.gc.ca/epic/site/cbIllustrative Application of 

Different Cost Measures 

The following example illustrates 

some of these different cost 

measures. Suppose a dominant 

firm produces 1,500 units at a 

variable cost of $8 per unit with no 

fixed costs. A new firm enters the 

market. The dominant firm 

produces an additional 500 units at 

a variable cost of $10 per unit and 

sells 2,000 units at a price of $9.50 

per unit. Since the dominant firm 

would have sold 1,500 units absent 

entry, the potentially predatory 

increment is 500 units. The 

dominant firm’s marginal cost (the 

cost of producing the last good) is 

$10, its average variable cost is 

$8.50 per unit,154 and its average 

avoidable cost is $10 per unit.155 

The firm’s $9.50 per unit price is 

thus greater than its average 

variable cost, but less than its 

marginal cost and its average 

avoidable cost and is potentially 

predatory. 

In this example, all the costs included in 

average avoidable cost are variable. There can 

be instances where some fixed costs would be 

included in average avoidable cost, such as if 

some fixed costs were incurred to produce the 

predatory increment, but would have been 

avoided if that increment had not been 

produced. For example, suppose that the 

dominant firm had a factory capable of 

producing 1,500 units and that to produce the 

additional 500 units it had to expand the 

bc.nsf/vwapj/Predatory_Pricing_Guidelines-e.pdf/$ 

file/Predatory _Pricing_Guidelines-e.pdf; 

DIRECTORATE-GEN.FORCOMPETITION,EUROPEANCOMM’N, 

DISCUSSION PAPER ON THE APPLICATION OF ARTICLE 82 OF 

THE TREATY TO EXCLUSIONARY ABUSES 31 (2005), available 

at http://ec.europa.eu/comm/competition/ 

antitrust/art82/discpaper2005.pdf. 

154 (1,500 units at $8 per unit + 500 units at $10 per 

unit) divided by 2,000 units. 

155 (500 units at $10 per unit) divided by 500 units. 
 

 

 

PRICE PREDATION 65 

factory. The cost of expansion would be 

included in average avoidable cost. In contrast, 

long-run average incremental cost would 

include the cost of both the initial factory and 

the expansion. 

d. Emerging Consensus Support

 for Average Avoidable Cost 

The emerging consensus is that average 

avoidable cost typically is the best cost measure 

to evaluate predation claims.156 However, there 

is not complete unanimity on this issue. 

One panelist, although willing to use 

average avoidable cost to define a level below 

which price should be presumptively 

unlawful,157 urged that prices above average 

avoidable cost but below long-run average 

incremental cost be treated as predatory in the 

absence of a plausible efficiency defense.158 He 

argued that a long-run standard is necessary to 

provide meaningful protection against 

predatory pricing in contexts like computer 

software, where costs are minimal after the 

product has been developed and launched.159 

156 See June 22 Hr’g Tr., supra note 4, at 36 (Bolton), 

46 (Melamed); id. at 53–54 (Melamed); id. at 77–80 

(panelists voiced no disagreement that average 

avoidable cost was the “best cost measure,” although 

one panelist questioned this proposition’s phrasing and 

another panelist noted definitional ambiguities in the 

cost measure); Baumol, supra note 142, at 49, 57–59; 

Bolton et al., supra note 14, at 2271–72; see also Gregory 

J. Werden, The American Airlines Decision: Not with a 

Bang but a Whimper, ANTITRUST, Fall 2003, at 32, 34–35; 

UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITIONNETWORK,REPORT ONPREDATORY PRICING 

3, 10–11 (2008), available at http://www. 

internationalcompetitionnetwork.org/media/library/ 

unilateral_conduct/FINALPredatoryPricingPDF.pdf 

(“Themostcommonly cited measure is average variable 

cost, although there appears to be a growing trend 

toward the use of average avoidable cost.”); see supra 

note 153. 

157 See Bolton et al., supra note 14, at 2271; June 22 

Hr’g Tr., supra note 4, at 36–37 (Bolton). 

158 See June 22 Hr’g Tr., supra note 4, at 37 (Bolton); 

Bolton et al., supra note 14, at 2271–74. 

159 See Bolton et al., supra note 14, at 2272–73; cf. Feb. 

13 Hr’g Tr., supra note 84, at 93 (Balto) (arguing that 

average variable cost is a poor test for predatory pricing 

in the context of pharmaceuticals where “all the costs 

are up front”). 

Another commentator, however, maintains 

that, although long-run average incremental 

cost would be relevant for testing whether a 

defendant’s price is compensatory in the long 

run, that is not the appropriate question regarding 

predatory pricing. Rather, he concludes that 

defendant’s average avoidable cost is the 

appropriate cost measure because it focuses on 

the threat to an efficient rival in the short run.160 

The Department agrees that average 

avoidable cost is the most appropriate cost 

measure to use when evaluating an alleged 

predatory-pricing scheme because it focuses on 

the costs that were incurred when the 

predatory pricing was pursued. Predatory 

pricing, if it is to have an exclusionary effect, 

must result in additional sales for the predator 

that were taken away from its prey. When 

price is set below average avoidable cost, the 

firm is experiencing a negative cash flow on its 

incremental sales at that price. Prices below 

average avoidable cost should trigger antitrust 

inquiry because they suggest that the firm is 

making sales that are unprofitable and may 

reflect an effort to exclude. Prices that are set 

above average avoidable cost, however, may 

enhance the firm’s profits irrespective of any 

exclusionary effects. 

The illustration demonstrates the superiority 

of average avoidable cost over both marginal 

cost and average variable cost as the 

appropriate measure for predatory pricing. 

The dominant firm made 500 additional units 

when the new firm entered. It was not the 

500th unit that caused the new firm’s demise. 

Rather, it was all 500 new units—the whole 

additional incremental lot. Average avoidable 

cost measures what it cost to make those 

additional units. That is a better measure of 

what it cost the firm to make the alleged 

predatory incremental sales than the cost of the 

last unit of that increment. 

Likewise, it was not the original production 

quantity of the dominant firm that caused the 

entrant’s demise. It was the 500 additional 

units the dominant firm produced after the new 

firm arrived on the scene. Yet, average variable 

160 See Baumol, supra note 142, at 58–59. 
 

 

 

 

 

 

 

 

66 SECTION 2 REPORT 

cost reflects what it cost the dominant firm to 

make each unit of the combined original and 

incremental production. Average avoidable 

cost, in contrast, focuses on what it cost the 

dominant firm to make just the incremental 

amount. 

Moreover, as long as the rival firm can cover 

its average avoidable cost, selling its goods will 

be more profitable than exiting the market or 

not entering.161 The consequence is that an 

equally efficient rival pricing below long-run 

average incremental cost, but above average 

avoidable cost, will remain in the market and 

compete against the alleged predator. Only 

when price falls below average avoidable cost 

will the equally efficient rival exit the market. 

Panelists cautioned it may be difficult to 

implement an average avoidable cost 

standard.162 But the Department believes that 

average avoidable cost is easier to calculate and 

theoretically more appropriate than either 

marginal cost—with its abstract “single, last 

unit”—or average variable cost—with its 

difficult separation of variable from fixed 

costs.163 Although the difficulties presented by 

the use of an average avoidable cost standard 

should not be understated, panelists suggested 

that the basic concept of identifying those costs 

that would be avoided in the absence of an 

alleged predatory strategy was something that 

businesses understand and can analyze.164 

The hearings focused particular attention on 

one implementation issue—whether avoidable 

costs should include any revenues forgone by 

161 See id. at 58. 

162 See June 22 Hr’g Tr., supra note 4, at 83 (Ordover). 

163 Cf. id. at 82 (Elzinga) (noting the potential 

sensitivity of average variable cost to choice of 

accounting convention). But see Feb. 13 Hr’g Tr., supra 

note 84, at 187 (Sewell) (stating that “average variable 

cost is a measure which is widely understood by 

business people . . . it’s a metric that exists for other 

than just antitrust enforcement purposes . . . and 

therefore has some additional validity”). 

164 See June 22 Hr’g Tr., supra note 4, at 46 

(Melamed); id. at 79 (Ordover) (noting that “these 

avoidable costs which we looked at at the route level 

are typically the kind of costs business people look at 

when they make business decisions in the airline 

business”). 

reducing price on sales that the firm would 

have made without the predatory scheme. 

Although panelists generally agreed that 

opportunity costs should be included in the 

calculation of avoidable costs, they disagreed 

on whether these lost “inframarginal revenues” 

should be considered. One panelist contended 

that, theoretically, lost inframarginal revenues 

should be taken into account,

165 although he 

expressly recognized a “real question” as to 

whether this would be administrable.166 

Another panelist argued that “inframarginal 

revenues . . . shouldn’t be treated as an 

opportunity cost, at least not for this purpose, 

because they are not a cost. . . . They are simply a 

transfer payment actually from producer to 

.”167 consumer . . . Taking into account 

inframarginal revenues, he continued, requires “a 

profit maximization test . . . and that is in most 

cases going to be virtually impossible . . . for the 

Court to figure out and surely impossible for 

the firm to figure out in real time when it’s 

trying to comply with the law.”168 Moreover, a 

commentator has argued that the loss of 

inframarginal revenues should be ignored 

because “it is irrelevant to whether the lower 

price, in itself, is or is not a threat to an efficient 

rival.”169 

Furthermore, there is no support in the case 

law for including lost inframarginal revenues 

as a cost.170 AMR, for example, notes that the 

165 Id. at 84–85 (Bolton);see also Jan. 31 Hr’g Tr., supra 

note 96, at 33 (Edlin) (“The [AMR trial] Judge thought 

there that the extra plane was profitable if you ignore 

effects on other planes. I suggest that everyone reread 

footnote 13 of that case over and over and over again if 

you think that the extreme sacrifice test might make 

sense, as the Judge did.”). 

166 June 22 Hr’g Tr., supra note 4, at 84 (Bolton). 

167 Id. at 53 (Melamed). 

168 Id. at 52. 

169 Baumol, supra note 142, at 70–71. 

170 See United States v. AMR Corp., 335 F.3d 1109, 

1118–19 (10th Cir. 2003) (treating as “invalid as a matter 

of law” a cost test that “simply performs a ‘before-andafter’ comparison of the route as a whole, looking to 

whether profits on the route as a whole decline after 

capacity was added, not to whether the challenged 

capacity additions were done below cost” because such 

a test treats foregone profits as costs (citation omitted)). 
 

 

 

PRICE PREDATION 67 

Supreme Court’s predatory-pricing jurisprudence 

rejects requiring a firm to maximize profits.

171 

A firm failing to maximize profits could 

nevertheless still be attaining a positive cashflow, and hence acting rationally irrespective of 

the impact of the firm’s conduct on rivals.172 

The Department concludes that 

consideration of foregone revenues is neither 

appropriate nor likely to be administrable. The 

Department consequently will not consider the 

lost revenues on inframarginal sales as a cost 

when evaluating predatory-pricing claims.173 

Given the above, when the Department can 

determine the predatory increment, it generally 

will rely on average avoidable cost as the 

appropriate measure of incremental cost under 

the Brooke Group test. The Department believes 

average avoidable cost typically will most 

accurately reflect the incremental cost of the 

alleged predatory output increase, and 

therefore will most accurately depict whether 

sales are beneficial to the firm, apart from any 

exclusionary effect, and whether the pricing 

strategy could cause the exit in the short run of 

an equally efficient competitor. Furthermore, 

average avoidable cost tends to be a more 

administrable standard than the other available 

cost measures and business-decision makers 

readily understand the concept. However, if 

the predatory increment is indeterminate and 

average avoidable cost is difficult to assess, the 

Department will consider other measures of 

171 Id. at 1118–19. See also Stearns Airport Equip. 

Co., Inc. v. FMC Corp., 170 F.3d 518, 533 n.14 (5th Cir. 

1999); MCI Comm’ns Corp. v. AT&T, 708 F.2d 1081, 

1114 (7th Cir. 1983). 

172 Cf. June 22 Hr’g, supra note 4, at 9 (Elzinga). 

173 The Department will, however, consider the 

foregone value of the possibility of renting or leasing an 

owned fixed asset in determining the cost the firm 

incurred in producing the putatively predatory 

increment. See generally Baumol, supra note 142, at 

70–71 (noting that “a price of firm F that does not cover 

the opportunity cost of that firm’s avoidable investment 

can constitute a threat to a more efficient rival and 

should be considered to fail the generalized AreedaTurner Test”). In that situation, there is a readily 

available means to ascertain the firm’s cost of the asset 

used to produce the purportedly predatory increment. 

This does not involve constructing hypothetical costs 

for the firm or imputing lost profits to it. 

cost, with average variable cost as typically the 

next best alternative.174 

When the Department can determine the 

predatory increment, it generally will rely 

on average avoidable cost in determining 

whether prices are predatory. 

4. Recoupment 

“Predatory pricing is a three-stage process: 

Low prices, followed by the exit of producers 

who can no longer make a profit, followed by 

monopoly prices.”175 The Supreme Court 

observed in Brooke Group that, unless 

recoupment is feasible, “predatory pricing 

produces lower aggregate prices in the market, 

and consumer welfare is enhanced.”176 Thus, 

the Court held that a plaintiff in a section 2 

predatory-pricing case must demonstrate that 

the dominant firm had “a dangerous 

probability[] of recouping its investment in 

below-cost prices.”177 

One panelist at the hearings was “very 

skeptical” about retaining the recoupment 

requirement as an element of the offense.178 He 

argued that this requirement “clearly 

complicates the proceedings,”179 explaining that 

“[i]t’s not necessary in order to identify 

anticompetitive conduct, because if we think 

we got the price-cost test right and the guy is 

selling below cost, you can . . . infer that he 

174 See generally id. at 55–58 (“I will argue now that 

the Areeda-Turner test is entirely defensible as a 

criterion to determine whether the price at issue 

constitutes a threat to efficient rivals of firm F. But I 

will show that for this purpose it is average variable 

cost or a near relative of [average variable cost], rather 

than marginal cost, that provides the requisite 

information.”); Hovenkamp, supra note 1, at 23–24. 

175 Wallace v. IBM, 467 F.3d 1104, 1106 (7th Cir. 

2006) (Easterbrook, J.). 

176 509 U.S. 209, 224 (1993). But see Katz & Salinger 

Comments, supra note 93, at 6 (noting that, as a logical 

matter, even without successful recoupment, predatory 

pricing could, under certain circumstances, harm 

consumers). 

177 509 U.S. at 224. 

178 June 22 Hr’g Tr., supra note 4, at 49–50 (Melamed). 

179 Id. at 49. 
 

68 SECTION 2 REPORT 

expects to recoup.”180 

However, as Professors Elzinga and Mills 

have pointed out, the recoupment requirement 

serves as a valuable reality check—if a firm is 

unlikely to be able to recoup, then it raises the 

question of why the firm would have tried to 

engage in predatory pricing.181 It appropriately 

leads courts to inquire into alternative 

explanations for the lower prices. For example, 

lower prices may simply be some type of 

procompetitive discounting.182 As one panelist 

noted, failing the recoupment test “can dispose 

of a large fraction of predatory pricing cases . . . 

[because] at the end of the day, [that] indicates 

that there is really not harm to consumer 

welfare; there is not exclusion that you need to 

be concerned about.”183 

This reality check is particularly important 

because predatory pricing contains a key 

temporal element: a monopolist incurs shortterm losses in the expectation of recouping 

those losses in the future by raising prices.184 

Thus, the Brooke Group Court went to some 

length to set out the analytic framework for 

deciding whether a firm could recoup shortterm losses.185 The Court held that assessment 

of recoupment “requires an estimate of the cost 

of the alleged predation and a close analysis of 

both the scheme alleged by the plaintiff and the 

structure and conditions of the relevant 

market.”186 

180 Id. at 50. 

181 Elzinga & Mills, supra note 42, at 870–72, 893; see 

also Bolton et al., supra note 14, at 2263; Katz & Salinger 

Comments, supra note 93, at 6. 

182 Cf. June 22 Hr’g Tr., supra note 4, at 71–72 

(Bolton) (stating that recoupment is “the right question 

to ask”). 

183 Sherman Act Section 2 Joint Hearing: Conduct as 

Related to Competition Hr’g Tr. 70, May 8, 2007 

[hereinafter May 8 Hr’g Tr.] (Rule). 

184 See June 22 Hr’g Tr., supra note 4, at 10 (Elzinga) 

(“[T]he recoupment returns for the aspiring monopolist 

must be enjoyed for a longer time period than the time 

frame in which the aspiring monopolist shouldered the 

cost of the predation strategy . . . .”); Predatory Strategies, 

supra note 76, at 266–69. 

185 See Brooke Group Ltd. v. Brown & Williamson 

Tobacco Corp., 509 U.S. 209, 225–26 (1993). 

186 Id. at 226. 

A panelist indicated that recoupment is 

most likely when there is asymmetry between 

conditions of exit from, and entry into, a 

particular market—in other words, when exit 

from the market is easy, but entry is difficult.187 

In that situation, a predator is more likely to 

recoup its investment in below-cost pricing. 

Once its prey exits quickly, the predator may 

enjoy the payoff of its relatively low-cost 

investment without fear of subsequent entry 

rapidly eroding its monopoly profits. 

In assessing whether recoupment is likely, 

courts since Brooke Group have also considered 

reputation effects. For example, the Tenth 

Circuit recognized that a firm might engage in 

predation in one market to prevent the target of 

the predation from expanding to compete in a 

separate market.188 Similarly, the Third Circuit 

explained that predation makes sense when a 

monopolist operates in several related markets 

because “the predator needs to make a 

relatively small investment (below-cost prices 

in only a few markets) in order to reap a large 

reward (supra-competitive prices in many 

markets).”189 As these cases suggest, consideration 

of out-of-market effects can be significant 

because the predator’s low prices in only one 

market may induce the prey or other 

competitors to believe that the predator will 

reduce prices in other monopolized markets in 

the future, discouraging entry there as well.190 

187 See June 22 Hr’g Tr., supra note 4, at 13 (Elzinga); 

see also Kenneth G. Elzinga, When Does Predatory Pricing 

Work? 1 (n.d.) (hearing submission). 

188 See Multistate Legal Studies, Inc. v. Harcourt 

Brace Jovanovich Legal and Prof’l Publ’ns, Inc., 63 F.3d 

1540, 1549 n.6 (10th Cir. 1995). 

189 Advo, Inc. v. Phila. Newspapers, Inc., 51 F.3d 

1191, 1196 n.4 (3d Cir. 1995); accord AREEDA & 

HOVENKAMP, supra note 1, ¶ 727g, at 337 (stating that a 

firm that operates in numerous markets may predate in 

only one to acquire or maintain “higher prices in all the 

others as well”); see also Bolton et al., supra note 14, at 

2267–68 (recoupment “may occur in either the 

predatory market or in a strategically related market 

where the effects of the predation are felt”); id. at 2300 

(“Reputation effects may be present when the predator 

sells in two or more markets or in successive time 

periods within the same market.”). 

190 See Baker, supra note 98, at 590–91; Bolton et al., 

supra note 14, at 2248–49, 2267–68; see also June 22 Hr’g 
 

 

 

 

PRICE PREDATION 69 

Panelists generally agreed that, in principle, 

reputation effects should be taken into account 

when considering predatory-pricing claims.191 

At the same time, however, panelists voiced 

substantial concern about the administrability 

of considering reputation effects. While one 

panelist asserted that reputation effects could 

conceivably be assessed by analyzing 

“[c]ircumstantial evidence,”192 other panelists 

cautioned that such effects may depend on 

factors that are difficult, if not impossible, to 

measure. “What we don’t know in real life is 

how many of these new entrants do you have to 

kill . . . before somebody finally realizes, hey, 

I’m not coming in . . . .”193 Thus, while courts 

may be able to evaluate reputation effects in 

assessing the probability of recoupment, they 

must exercise great care when doing so, or 

otherwise risk exceeding their “practical ability 

. . . to control [predatory pricing] without 

courting [the] intolerable risks of chilling 

legitimate price cutting.”194 

Tr., supra note 4, at 22 (Ordover); id. at 36 (Bolton). 

191 See, e.g., June 22 Hr’g Tr., supra note 4, at 63 

(Bolton) (“We have to look at the deterrent effect of 

episodic, very rare predatory pricing.”); id. at 86–92 

(multiple panelists). 

192 Id. at 87 (Bolton); see also Aaron S. Edlin & Joseph 

Farrell, The American Airlines Case: A Chance to Clarify 

Predation Policy (2001), in THE ANTITRUST REVOLUTION 

502, 518–19 (John E. Kwoka & Lawrence J. White eds., 

2004) (observing that “there is apt to be a reason why a 

firm is in multiple markets, so there will usually be 

some link”). 

193 June 22 Hr’g Tr., supra note 4, at 89–90 (Ordover) 

(adding, “I just don’t see how I can translate that into an 

administrable test for the courts and for counsel . . . .”); 

see also id. at 48–49 (Melamed) (noting that while “the 

recoupment requirement is central to and a great 

contribution to predatory pricing law,” demanding 

stringent quantification as some have suggested 

“clearly complicates the proceedings, increases costs” 

and “may be an impossible burden for the plaintiff in a 

multi-market reputation effect recoupment story”); cf. 

id. at 88 (Elzinga) (“[O]nce you start bringing in 

reputation effects as a potential hammer for antitrust 

plaintiffs, what is the consequence of that for all the 

good things that reputations do . . . to keep people, even 

for their own good, out of markets in which they have 

no business competing because they will not be efficient 

utilizers of society’s scarce resources in those 

settings?”). 

194 Brooke Group Ltd. v. Brown & Williamson 

The Department believes that the 

recoupment requirement, when properly 

applied, serves as a valuable screening device 

to identify implausible predatory-pricing 

claims. In many instances, the obvious inability 

of a firm to recoup any losses may obviate the 

more difficult task of determining whether 

prices were below cost.195 Further, the 

recoupment requirement may help ensure that 

procompetitive price discounting is not unduly 

chilled. Although acknowledging the difficulties inherent in doing so, the Department may, 

in appropriate circumstances, consider both inmarket and out-of-market effects when 

assessing recoupment.196 

The recoupment requirement serves as 

a valuable screening device to identify 

implausible predatory-pricing claims. 

5. Potential Defenses 

Even when recoupment appears plausible, 

below-cost pricing is not necessarily proof of 

Tobacco Corp., 509 U.S. 209, 223 (1993). 

195 See A.A. Poultry Farms, Inc. v. Rose Acre Farms, 

Inc., 881 F.2d 1396, 1401 (7th Cir. 1989) (Easterbrook, J.) 

(“Only if market structure makes recoupment feasible 

need a court inquire into the relation between price and 

cost.”); see also June 22 Hr’g Tr., supra note 4, at 70 

(Ordover) (stating sometimes “there is no need to 

somehow construct this potentially complicated 

analytics” because industry structure is such that “you 

know, quick as a bunny, somebody else is going to 

show up who may be even [a] more competitively 

advantaged rival”); id. at 71 (Elzinga) (“I do not think 

you need to do a recoupment analysis for many 

predation allegations, because entry conditions or 

prices and costs will tell you you needn’t take that extra 

step.”). 

196 For an example of an approach to considering 

out-of-market effects in assessing the likelihood of 

recoupment, see Bolton et al., supra note 14, at 2302–04 

(articulating a four-part test: (1) a dominant multimarket firm or a predator that “faces localized or 

product-limited competition or potential competition, 

or alternatively operating within a single market . . . 

and faces probable successive entry over time,” (2) the 

reputation effect either reinforces another predatory 

strategy or is based on the perceived probability that 

the predator will repeat its conduct in the future, (3) the 

“predator deliberately pursues a reputation effects 

strategy,” and (4) potential entrants observe the exit or 

other adverse effect). 
70 SECTION 2 REPORT 

anticompetitive predation. Certain defenses 

may justify below-cost pricing. Although the 

Department will not accept a meetingcompetition defense, as discussed below, the 

Department will consider efficiency defenses in 

appropriate circumstances. 

a. Meeting Competition 

There is a substantial question regarding 

whether the antitrust laws should ever prohibit 

a firm from matching a rival’s prices. In United 

States v. AMR Corp., the trial court held in the 

alternative that defendant was entitled to 

summary judgment because “it is 

uncontroverted that American’s prices only 

matched, and never undercut, the fares of the 

new entrant.”197 The court reasoned that “[t]he 

meeting competition defense to Section 2 

liability is predicated on a similar statutory 

defense to price discrimination claims under 

the Robinson-Patman Act.”198 In contrast, the 

United States on appeal argued that “[t]here is 

nothing in [the] text of the Sherman Act that 

speaks of such a defense” and that “such a 

defense would make Brooke Group’s below-cost 

pricing prerequisite superfluous when it is 

most important: when an entrenched,high-cost 

monopolist faces new, more efficient 

competition.”199 

The Tenth Circuit “decline[d] to rule that the 

‘meeting competition’ defense applies in the § 2 

context” but did note that “[t]here may be 

strong arguments for application of the meeting 

competition defense in the Sherman Act context 

by analogy to the Robinson-Patman context.”200 

On the other hand, the trial court in Spirit 

Airlines ruled there was no such defense, 

“respectfully declin[ing] to follow AMR Corp. 

on this point,” because “[a]lthough Brooke 

Group does not formally and expressly reject 

the possibility of a ‘matching competition’ 

defense, it does adopt an economic model 

197 140 F. Supp. 2d 1141, 1204 (D. Kan. 2001). 

198 Id. 

199 Brief for Appellant United States of America at 

67, United States v. AMR Corp., 335 F.3d 1109 (10th Cir. 

2003) (No. 01-3202), available at http://www.usdoj. 

gov/atr/cases/f9800/9814.pdf. 

200 AMR, 335 F.3d at 1120 n.15. 

which is at odds with the assumptions 

underlying such a defense.”201 

Panelists did not agree on whether there 

should be a meeting-competition defense to 

predatory-pricingclaims. One panelist asserted 

there should be no safe harbor for pricing 

below cost to meet competition.202 Another 

panelist had previously written that “[a] 

monopoly or dominant firm should not be 

permitted to sell below its short-run costs to 

meet the price of a new entrant or smaller 

rival.”203 “To allow a predator to price below 

its short-run cost frustrates a market test based 

on . . . relative efficiency,” he explained, 

because “[i]f the rival’s price is sustainable, it 

will almost surely be above short-run cost.”204 

On the other hand, one panelist asserted there 

should be a general meeting-competition 

defense under section 2 since “[s]uch a rule 

would provide a clear line, and matching a 

competitor’s price in hopes of competing for 

every last customer is exactly what competitors 

are supposed to do.”205 He added that a 

“competitor that cannot survive at the price 

point it has chosen is not the type of efficient 

competitor the antitrust laws should be 

protecting.”206 

Panelists also expressed concern regarding 

the administrability of a meeting-competition 

defense: 

[W]hat do we mean by meeting the 

competition? Is matching the price of the 

entrant meeting the competition? Is that 

201 Spirit Airlines, Inc. v. Nw. Airlines, Inc., No. 00-

71535, 2003 WL 24197742, at 12 & n.15 (E.D. Mich. Mar. 

31, 2003), rev’d on other grounds, 431 F.3d 917 (6th Cir. 

2005). 

202 June 22 Hr’g Tr., supra note 4, at 93 (Melamed). 

203 Bolton et al., supra note 14, at 2276 n.198. 

204 Id. At the hearings, however, this panelist stated, 

“If meeting the competition is a best response, then this 

should be a defense.” June 22 Hr’g Tr., supra note 4, at 

92 (Bolton). Another panelist responded, “If it’s the 

best response, then it would seem . . . that the revenues 

generated by the response are in excess of the avoidable 

costs, in which case it passes the price-cost test, but if 

that’s not the case, if it fails that test, it’s an inefficient 

response.” Id. at 93 (Melamed). 

205 Feb. 13 Hr’g Tr., supra note 84, at 180 (Wark). 

206 Id. 
 

PRICE PREDATION 71 

how we define it? I would argue that’s 

dangerous, because the products may not 

be the same. If the incumbent’s product is 

higher quality than the entrant’s, then 

matching the price of the entrant is not 

meeting competition.207 

A meeting-competition defense would be 

difficult to administer and could protect belowcost pricing that harms competition and 

consumers. The Department believes that a 

meeting-competition defense should not apply 

in section 2 predatory-pricing cases. 

The Department believes that a 

meeting-competition defense should 

not apply in section 2 predatory-pricing 

cases. 

b. Efficiency Defenses 

The Department will consider as possible 

defenses to below-cost pricing a persuasive 

showing that the conduct is part of a firm’s 

procompetitive efforts to promote or improve 

its product or reduce its costs and may, in the 

long term, reduce the price consumers pay for 

its goods and services or increase the value of 

those goods or services.208 One panelist 

suggested, 

There are all sorts of reasons that [pricing 

below costs] could be okay . . . I mean, it 

could be that . . . the price is low relative to 

whatever the measure is because the firms 

are making all sorts of investments in 

market share . . . to induce people to try the 

product . . . or . . . create scale economies or 

learning.209 

These efficiency defenses received little 

attention at the hearings, and the Department 

will not attempt in this report to depict all the 

circumstances in which their recognition would 

or would not be appropriate. However, some 

general points can be made here. 

Certain types of efficient conduct, such as 

207 June 22 Hr’g Tr., supra note 4, at 92–93 (Bolton). 

208 See, e.g., AREEDA & HOVENKAMP, supra note 1, 

¶ 742f, at 470–71, id. ¶ 746a, at 491–95. See generally 

Bolton et al., supra note 14, at 2276–82. 

209 May 1 Hr’g Tr., supra note 125, at 78–79 (Baker). 

promotional pricing,210 may not be plausible 

when the firm already has monopoly power or 

a dangerous probability of acquiring monopoly 

power.211 Network externalities, which occur 

“when a consumer’s valuation of a product 

increases with the number of other consumers 

using the product,”212 raise somewhat similar 

issues. When a firm is trying to build an 

installed base and win a standards competition, 

initially pricing below cost may enhance the 

value of and demand for its product.213 When 

a monopolist has already built a large installedbase network, that rationale may not hold.214 

Other efficiencies, such as “learning-by-doing,” 

which occurs when a firm’s cost of production 

“decreases as it produces more because it learns 

how to produce the product more efficiently,”215 

may be plausible for a new product even when a 

firm has achieved monopoly power as to different 

products; the below-cost price of today may 

become an above-cost price in the future, and 

“the prospect of reducing costs in the future” 

210 See Bolton et al., supra note 14, at 2278–79 (noting 

that promotional pricing involves “temporarily 

pric[ing] below . . . cost in order to induce consumers to 

try a new product”). The firm’s expectation in 

engaging in promotional pricing is that “a favorable 

consumption experience induced by prices below cost 

will increase future consumer demand at prices above 

cost.” Id. at 2279. Efficiency is enhanced if this occurs, 

since the firm’s profits stem from customers’ future 

willingness to purchase its product and not the 

elimination of rivals. This “reflects rational, profitmaximizing behavior,” not predation. CARLTON & 

PERLOFF, supra note 27, at 357. 

211 See AREEDA & HOVENKAMP, supra note 1, ¶ 746a, 

at 494 (“When a firm has considerable market power in 

the very product or service being promoted, the 

promotional pricing defense disappears. . . . In contrast 

to new entrants or small rivals, the monopolist has little 

need to resort to extreme price reductions to acquaint 

existing consumers with the merits of its brand.”); cf. id. 

at 492 (“Unless continued over a long period of time, in 

which case it is no longer promotional, promotional 

pricing by new entrants or established firms who lack 

power in the promoted product or service are no threat 

to competition.”). 

212 Bolton et al., supra note 14, at 2281. 

213 See Sherman Act Section 2 Joint Hearing: 

Remedies Hr’g Tr. 95–97, Mar. 29, 2007 (Page). 

214 See Bolton, supra note 14, at 2281–82. 

215 CARLTON & PERLOFF, supra note 27, at 359. 
 

72 SECTION 2 REPORT 

may “justif[y] the lower price as an important 

investment for the firm.”216 Accordingly, the 

Department will consider efficiency claims 

supported by evidence even in settings where 

there is existing monopoly power. 

6. Equitable Remedies 

In cases where predatory pricing is 

established, the next question for an enforcer or 

a court is what to do about it. Chapter 9 of this 

report discusses the topic of section 2 remedies 

in greater detail, but there are aspects of 

equitable remedies in the context of predatorypricing cases that should be noted here. 

Injunctive remedies can pose particularly 

severe difficulties in predatory-pricing cases. 

For instance, an injunction setting a defendant’s 

prices would substitute a court’s or agency’s 

judgment for the workings of the market. 

Summarizing concerns with this approach, one 

panelist observed that he “probably like 

everybody” is “suspicious of having antitrust 

become a price regulatory regime.”217 The 

pricing issues often will be both complex and 

constantly shifting and call to mind the 

Supreme Court’s warning against remedies that 

require a court “to assume the day-to-day 

controls characteristic of a regulatory 

agency.”218 And, of course, in predatorypricing contexts, any errors on the side of 

stringency will suppress legitimate price 

competition. 

The Department believes courts should 

exercise particular care when crafting 

behavioral injunctive relief in privately litigated 

predatory-pricing cases.219 The plaintiff in a 

private predatory-pricing injunctive action is 

typically a rival whose interests may conflict 

with those of consumers or the general public. 

Indeed, it may be in the interest of both plaintiff 

216 Id. 

217 June 22 Hr’g Tr., supra note 4, at 95 (Elzinga). 

218 Verizon Commc’ns Inc. v. Law Offices of Curtis 

V. Trinko, LLP, 540 U.S. 398, 415 (2004) (discussing 

access remedies for refusals to deal). 

219 See May 8 Hr’g Tr., supra note 183, at 159–60 

(Rule) (suggesting that injunctive remedies be available 

only in section 2 cases brought by the federal 

government). 

and defendant to have the court preclude 

defendant from discounting even if consumers 

would be better off with the lower prices. 

Other approaches sometimes may be 

possible. One panelist suggested crafting 

injunctive remedies that do not involve priceregulation regimes: “I don’t think we would 

want to have a remedy that said, defendant, 

don’t sell your widgets for less than $4. But we 

might say don’t sell it for less than whatever we 

think the appropriate cost measure is and in 

effect incorporate into an injunction the 

substantive standard.”220 Compliance issues, 

however, could become complex; the court or 

agency might be called upon over time, for 

example, repeatedly to assess a multitude of 

changing prices against the cost standard.221 

Another suggestion was that courts, where 

possible, consider ways of altering market 

structure to eliminate opportunities for 

continued predatory pricing.222 A drawback to 

this approach, however, is that structural 

remedies may impose large costs of their own; 

a divestiture may harm a firm’s own efficiency 

and not necessarily create an efficient rival.223 

A divestiture also may raise regulatory issues. 

For example, one panelist suggested that 

predatory pricing by an airline might be 

remedied by requiring the airline to divest 

airport-gate leases or landing or take-off rights 

that prevent entry and enable predation to 

220 Id. at 158 (Melamed); see also Gregory J. Werden, 

Remedies for Exclusionary Conduct Should Protect and 

Preserve the Competitive Process, 76 ANTITRUST L.J. 

(forthcoming 2009) (“[A] predatory pricing decree 

should prescribe a particular price-cost comparison. 

Thus, the decree should specify a particular measure of 

the defendant’s cost and indicate how the defendant’s 

accounts are to be employed in constructing that cost 

measure. The decree also should specify how the 

defendant’s price data are to be used in the 

comparison.”). 

221 Cf. Trinko, 540 U.S. at 414–15. 

222 See, e.g., June 22 Hr’g Tr., supra note 4, at 95–96 

(Elzinga) (“It may be that in a genuine predatory 

pricing case . . . you could get at some other part of the 

structure of the market that allows the predatory 

pricing to be a viable marketing strategy.”). 

223 See infra Chapter 9, Part IV(B). 
 

 

 

PRICE PREDATION 73 

succeed.224 However, another panelist responded 

that this remedy raised issues of access pricing 

for those gates. According to this panelist, the 

structural remedy might merely replace a 

difficult price-regulation issue with an even 

more difficult access-regulation issue.225 Thus, 

the Department believes that courts should be 

very cautious in imposing structural remedies 

in predatory-pricing cases. 

D. Conclusion 

The Department believes that predatory 

pricing can harm competition and should be 

condemned in appropriate circumstances. It is 

nonetheless important to develop sound, clear, 

objective, effective, and administrable 

predatory-pricing rules that enable firms to 

know in advance whether their price cutting 

will result in antitrust liability. The development 

of such rules is necessary, feasible, and already 

far along. Such rules must enable enforcers, 

courts, and businesses to determine whether 

the incremental revenue from the pricing 

claimed to be predatory is greater than the 

incremental cost of the additional output. Only 

claims involving prices below average 

avoidable cost, or below a similarly appropriate 

cost measure, combined with a dangerous 

probability of recoupment, should be subject to 

potential liability. Efficiency defenses, when 

supported by evidence, should be considered, 

and, in instances where injunctive relief is 

appropriate, care should be taken to ensure that 

the remedy imposed ultimately benefits 

consumers. 

II. Predatory Bidding 

Predatory bidding involves a buyer of a 

critical input bidding up the price of that input 

and thereby foreclosing rival buyers from 

competing. In certain circumstances, a buyer 

might be able to drive rival purchasers from the 

market. By obtaining monopsony power and 

thereby the ability to purchase its inputs at 

prices below competitive levels, the predatory 

buyer would recoup any losses it might incur 

224 See June 22 H’rg Tr., supra note 4, at 96 (Elzinga). 

225 See id. at 97 (Ordover). 

from “paying too much” in the short run.226 

In effect, predatory bidding is the mirror 

image of predatory pricing.227 When a firm 

engages in predatory pricing, it lowers its price 

to consumers, to the detriment of competing 

sellers. When a firm engages in predatory 

bidding, it raises its price to input suppliers, to 

the detriment of competing input buyers. Just 

as consumers benefit in the short run from 

lower prices charged by a firm that pursues a 

predatory-pricing strategy, input suppliers 

benefit in the short run from higher prices paid 

for inputs by a firm that pursues a predatorybidding strategy. 

Historically, predatory bidding had been a 

minor antitrust issue.228 However, in 2005, the 

Ninth Circuit issued an opinion finding 

Weyerhaeuser liable for timber-buying 

practices that the court deemed predatory.229 

This decision generated substantial interest 

concerning the proper legal standards for 

predatory bidding, which were addressed at 

the hearings.230 The consensus at the hearings 

was that successful predatory bidding is 

relatively rare and should be penalized only 

when bidding up input prices will clearly lead 

to long-run competitive harm. The Supreme 

Court granted certiorari in Weyerhaeuser during 

the course of the hearings.231

 In Weyerhaeuser, a sawmill operator claimed 

that Weyerhaeuser, a rival sawmill operator, 

violated section 2 by predatorily bidding up the 

price for alder sawlogs in the Pacific Northwest. 

The trial court instructed jurors that they could 

find that Weyerhaeuser, which had a sixty-five 

226 See generally John B. Kirkwood, Buyer Power and 

Exclusionary Conduct: Should Brooke Group Set the 

Standards for Buyer-Induced Price Discrimination and 

Predatory Pricing?, 72 ANTITRUST L.J. 625, 652 (2005). 

227 June 22 Hr’g Tr., supra note 4, at 104 (Kirkwood). 

228 See Scott C. Hall, Ross-Simmons v. Weyerhaeuser: 

Antitrust Liability in Predatory Bidding Cases, ANTITRUST, 

Spring 2006, at 55. 

229 Confederated Tribes of Siletz Indians v. 

WeyerhaeuserCo., 411 F.3d 1030 (9th Cir. 2005), vacated and 

remanded sub nom. Weyerhaeuser Co. v. Ross-Simmons 

Hardwood Lumber Co., 127 S. Ct. 1069 (2007). 

230 June 22 Hr’g Tr., supra note 4. 

231 127 S. Ct. 1069. 
 

 

 

 

74 SECTION 2 REPORT 

percent share of the alder sawlog market, had 

acted anticompetitively if they found that 

Weyerhaeuser had “purchased more logs than 

it needed or paid a higher price for logs than 

necessary, in order to prevent the Plaintiffs 

from obtaining the logs they needed at a fair 

price.”232 The jury found for plaintiff, and the 

Ninth Circuit affirmed, concluding that the 

prerequisites for establishing liability for 

predatory pricing set forth in Brooke Group233 

did not control predatory bidding.234 

The Supreme Court unanimously overruled 

the Ninth Circuit, holding that the Brooke Group 

test for predatory pricing—below-cost pricing 

and likelihood of recoupment—also applies to 

predatory bidding. The Court noted that 

“predatory bidding mirrors predatory pricing” 

in respects most significant to its analysis in 

Brooke Group.

235 Just as with predatory pricing, 

the Court found, predatory bidding involves a 

firm suffering short-term losses on the chance 

of recoupin g those losses through 

supracompetitive profits in the future. The 

Court reasoned that no rational business will 

incur such losses unless recoupment is 

feasible,236 and recognized that recoupment 

could occur through lower input or higher 

output prices.

237 It noted that there are many 

benign or even procompetitive reasons why a 

buyer might bid up the price of inputs, ranging 

from merely miscalculating its input needs to 

attempting to increase its market share in the 

output or downstream market. The Court 

stressed that there is “nothing illicit about these 

bidding decisions;” indeed, they are “the very 

essence of competition.”238 Thus: “Given the 

multitude of procompetitive ends served by 

higher bidding for inputs, the risk of chilling 

procompetitive behavior with too lax a liability 

232 411 F.3d at 1036 n.8. 

233 509 U.S. 209 (1993). 

234 411 F.3d at 1037 (concluding that “benefit to 

consumers and stimulation of competition do not 

necessarily result from predatory bidding the way they 

do from predatory pricing”). 

235 127 S. Ct. at 1077. 

236 Id. 

237 Id. at 1076–77 & n.2. 

238 Id. at 1077 (internal quotation marks omitted). 

standard is as serious here as it was in Brooke 

Group.”239 Accordingly, to prevail on a 

predatory-bidding claim, plaintiff must show 

that defendant (1) suffered (or expected to 

suffer) a short-term loss as a result of its higher 

bidding and (2) had a dangerous probability of 

recouping its loss.240 

To prevail on a predatory-bidding 

claim, plaintiff must show that 

defendant (1) suffered (or expected to 

suffer) a short-term loss as a result of its 

higher bidding and (2) had a dangerous 

probability of recouping its loss. 

The Department believes that, as with 

predatory pricing,241 the focus of the price-cost 

analysis should be on the additional output 

generated by the incremental input purchases. 

The Department also believes that, in most 

cases, average avoidable cost is likely to be the 

best measure of the incremental changes in cost 

associated with the increased purchase of 

inputs resulting from the allegedly predatory 

act.242 

Although the exercise of monopsony power 

against input suppliers can be associated with 

the exercise of monopoly power in the output 

market, that does not have to be the case, and 

Weyerhaeuser was a case in which the potential 

anticompetitive effects were confined to the 

input market.243 The Department believes that 

the Sherman Act “does not confine its 

protection to consumers, or to purchasers, or 

to competitors, or to sellers.”244 “The Act is 

comprehensive in its terms and coverage, 

protecting all who are made victims of . . . 

forbidden practices[,] by whomever they may 

be perpetrated.”245 As the Court observed in 

239 Id. at 1078. 

240 Id. 

241 See supra Part I. 

242 Id. 

243 See 127 S. Ct. at 1076 (“[T]his case does not present 

. . . a risk of significantly increased concentration in . . . 

the market for finished lumber.”). 

244 Mandeville Island Farms, Inc. v. Am. Crystal 

Sugar Co., 334 U.S. 219, 236 (1948). 

245 Id. 
 

 

 

 

 

PRICE PREDATION 75 

Weyerhaeuser, “The kinship between monopoly 

and monopsony suggests that similar legal 

standards should apply to claims of 

mono poli zation and to claims of 

monopsonization.”246 Thus, the Department will 

challenge under section 2 conduct that threatens 

harm to the competitive process, whether that 

harm occurs upstream or downstream. 

In this regard, as the Supreme Court 

recognized in Weyerhaeuser, higher input prices 

alone do not indicate harm to the competitive 

process.247 To the contrary, they are often 

indicative of vigorous competition, raising the 

danger that faulty assessments could chill 

procompetitive activity.248 For example, a firm 

might “acquire excess inputs as a hedge against 

the risk of future rises in input costs or future 

input shortages”249 or to “ensure that it obtains 

the input from a particularly reliable or highquality supplier.”250 In those situations, the 

competitive process has not been harmed, and 

antitrust enforcement should not discourage 

the conduct.251 Moreover, even where potential 

harm to competition can be demonstrated, 

appropriate efficiency defenses also need to be 

considered. 

The Supreme Court’s Weyerhaeuser decision 

246 127 S. Ct. at 1076. 

247 Id. at 1077. 

248 See June 22 Hr’g Tr., supra note 4, at 135 (Salop) 

(stating that he was “very worried that there could be 

false positives”). But cf. id. at 106 (Kirkwood) 

(“[A]rguably, there have been no false positives, no 

liability findings [in predatory bidding cases] where it 

appeared that the defendant had not, indeed, harmed 

welfare.”). 

249 Weyerhaeuser, 127 S. Ct. at 1077; see also June 22 

Hr’g Tr., supra note 4, at 158 (McDavid) (stating that a 

firm might decide to “stockpile inventory to preclude 

future shortages or to hedge against a future price 

increase”). 

250 Brief for the United States as Amicus Curiae 

Supporting Petitioner at 16, Weyerhaeuser Co. v. RossSimmons Hardwood Lumber Co., 127 S. Ct. 1069 (No. 

05-381), available at http://www.usdoj.gov/atr/cases/ 

f217900/217988.pdf. 

251 Cf. June 22 Hr’g Tr., supra note 4, at 113 

(Kirkwood) (“[I]f the defendant can show that bidding 

up input prices was profitable, without regard to any 

increase in monopsony power, [then] it should have a 

complete defense.”). 

was a significant step towards the development 

of clear, administrable rules for predatory 

bidding. The Department believes that the 

decision strikes the right balance in ensuring 

that only bidding that harms the competitive 

process will be found to violate section 2. 

 

 

 

 

 

 

CHAPTER 5 

TYING 

I. Introduction 

Tying occurs when a firm “sell[s] one 

product but only on the condition that the 

buyer also purchases a different (or tied) 

product, or at least agrees that [it] will not 

purchase that product from any other 

supplier.”1 As panelists observed, nearly every 

item for sale arguably is composed of what 

could be viewed as distinct tied products, 

making tying one of the most ubiquitous 

business practices from an economic 

perspective.2

 Under prevailing legal precedent, 

1 N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5–6 

(1958); see also, e.g., U.S. DEP’T OF JUSTICE & FED. TRADE 

COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL 

PROPERTY RIGHTS: PROMOTING INNOVATION AND 

COMPETITION 103 (2007), available at http://www.usdoj. 

gov/atr/public/hearings/ip/222655.pdf (“A tying 

arrangement occurs when, through a contractual or 

technological requirement, a seller conditions the sale 

or lease of one product or service on the customer’s 

agreement to take a second product or service.”); 

DENNIS W. CARLTON & JEFFREY M. PERLOFF, MODERN 

INDUSTRIAL ORGANIZATION 675 (4th ed. 2005) (Tying is 

conditioning “the sale of one product . . . upon the 

purchase of another.”). Conduct is sometimes analyzed 

as tying even when the purchase of a second product is 

not required. In an example discussed below, for 

instance, a firm prohibited the use of one of its 

machines with complementary machines made by other 

manufacturers; no second purchase was required. 

Some refer to those practices as tie-outs, as opposed to 

tie-ins. Firms selling more than one product sometimes 

condition the price of one product on whether other 

products are also purchased. While some refer to those 

pricing practices as ties, see, e.g., Michael D. Whinston, 

Tying, Foreclosure, and Exclusion, 80 AM. ECON. REV. 837, 

837 (1990), the Department addresses them in this 

report as bundled discounts, see infra Chapter 6. 

2 See, e.g., Sherman Act Section 2 Joint Hearing: 

Tying Session Hr’g Tr. 13, Nov. 1, 2006 [hereinafter 

Nov. 1 Hr’g Tr.] (Waldman) (“[A]lmost any good you 

can find, defined in some sense, is a tying of various 

goods.”); id. at 31 (Evans) (“[T]ying is ubiquitous, it is 

utterly common.”); id. at 57 (Popofsky) (“Tying . . . is 

ubiquitous in competitive markets.”). 

however, not all items are considered tied 

products. Case law requires two separate 

product markets for a tie to exist.3 

Firms can tie through contracts and by 

bundling. Contractual ties often concern 

purchases made at different times. For instance, 

several cases have addressed contractual 

requirements ties. With requirements ties, a 

firm requires “customers who purchase one 

product . . . to make all their purchases of 

another product from that firm.” 4 

Requirements ties often involve a durable 

product and a complementary product used in 

variable proportions (i.e., different customers 

use the complement in different quantities). An 

example discussed below involves a tie 

between canning machines (the durable, tying 

product) and salt (the complementary, tied 

product used in variable proportions). 

Tying through bundling occurs when a firm 

sells “two or more products” together and does 

not sell one of the products separately.5 As 

several panelists noted, tying through bundling is 

particularly common.6 Computer manufacturers, 

forinstance,bundle different components andoffer 

them as an integrated computer system whose 

components are not all sold individually. That 

physical integration is sometimes called 

technological tying, a term some also use to 

describe the situation where a firm designs its 

3 See, e.g., Jack Walters & Sons Corp. v. Morton 

Bldg., Inc., 737 F.2d 698, 703–04 (7th Cir. 1984) (Posner, 

J.) (discussing evolution of separate-products 

requirement); see also 10 PHILLIP E. AREEDA ET AL., 

ANTITRUST LAW ¶¶ 1741–42 (2d ed. 2004). 

4 CARLTON & PERLOFF, supra note 1, at 321. 

5 Id. at 321, 324; see also Dennis W. Carlton & 

Michael Waldman, How EconomicsCan Improve Antitrust 

Doctrine Towards Tie-In Sales: Comment on Jean Tirole’s 

“The Analysis of Tying Cases: A Primer,” COMPETITION 

POL’Y INT’L, Spring 2005, at 27, 38. 

6 See supra note 2. 
 

78 SECTION 2 REPORT 

products in a way that makes them 

incompatible or difficult to use with other 

firms’ products.7 

This chapter reviews tying law, discusses 

tying’s potential anticompetitive, procompetitive, and price-discrimination effects, and 

sets forth the Department’s view on certain 

legal issues regarding the treatment of ties. To 

aid the discussion, the following definitions are 

used in this chapter: 

Bundled tie: the simultaneous sale of 

two or more products, one of which is 

not sold separately. 

Contractual tie: a tie achieved through 

contract. 

Requirements tie: a tie whereby 

customers that purchase one product 

must purchase all their requirements of 

another product from the same seller. 

Technological tie: a tie achieved 

through integration of what could be 

viewed as two products. 

Tied product: the product whose 

purchase is required to obtain the tying 

product. 

Tying product: the product that is sold 

only if the tied product is purchased. 

II. Background 

Tying can be challenged under four 

provisions of the antitrust laws: (1) section 1 of 

the Sherman Act, which prohibits contracts “in 

restraint of trade,”8

 (2) section 2 of the Sherman 

Act, which makes it illegal to “monopolize,”9 

(3) section 3 of the Clayton Act, which prohibits 

exclusivity arrangements that may 

“substantially lessen competition,”10 and 

7 See, e.g., 1 HOVENKAMP ET AL., IP AND ANTITRUST 

§ 21.5b2, at 21–104.1 (Supp. 2006). 

8 15 U.S.C. § 1 (2000). 

9 Id. § 2. 

10 Id. § 14. Among other limitations, section 3 

appliesonlyto “goods,wares, merchandise, machinery, 

supplies, or other commodities.” Id. 

(4) section 5 of the FTC Act, which prohibits 

“[u]nfair methods of competition.”11 Although 

the Supreme Court drew a distinction between 

standards governing tying’s legality under the 

Sherman and Clayton Acts shortly after the 

latter’s enactment, those differences faded to 

the point where an antitrust expert asserted in 

1978 that those standards “have become so 

similar that any differences remaining between 

them are of interest to only antitrust 

theologians.”12 In particular, because courts in 

tying cases often rely on tying precedent from 

claims brought under different statutory 

provisions, tying jurisprudence under the 

different statutes is indelibly intertwined.13 

Accordingly, significant tying decisions, even if 

not specifically dealing with section 2, are 

discussed below. 

Judicial treatment of tying has vacillated 

over time. For instance, in its oft-cited dicta in 

Standard Oil Co. of California v. United States 

(Standard Stations), the Supreme Court stated 

that “[t]ying agreements serve hardly any 

purpose beyond the suppression of 

competition.”14 The Court has since “rejected” 

that dictum15 and currently is significantly less 

hostile to tying arrangements, despite 

continued reliance on a rule of per se illegality, 

albeit one subject to conditions. The Court’s 

movement has been informed by economic 

learning and scholarship that have identified 

procompetitive rationales for tying.16 

The Supreme Court’s first tying decision 

under the antitrust laws came in 1918 when it 

11 Id. § 45(a)(1). This report does not address section 

5, which is beyond the scope of this report. 

12 ROBERT H. BORK, THE ANTITRUST PARADOX 366 

(1978). 

13 See, e.g., Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 

U.S. 28, 34–38 (2006) (noting that tying cases have been 

brought under “four different rules of law” and 

discussing tying cases brought under several statutes); 

Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 

9–18 (1984) (relying on tying precedent involving 

claims brought under several different statutes). 

14 Standard Oil Co. of Cal. v. United States (Standard 

Stations), 337 U.S. 293, 305–06 (1949). 

15 Ill. Tool, 547 U.S. at 36. 

16 See infra Part III(B). 
 

 

 

TYING 79 

affirmed dismissal of an action under the 

Sherman Act challenging a contractual tie. In 

that case, United Shoe leased different 

machines performing different parts of the 

shoe-making process and prohibited lessees 

from using United Shoe machines with other 

manufacturers’ machines. The Court upheld 

the arrangement, partly on the ground that 

“best results are obtained” when United Shoe 

machines are used together.17 The Court went 

on to assert that “the leases are simply bargains, 

not different from others, moved upon 

calculated considerations, and, whether 

provident or improvident, are entitled 

nevertheless to the sanctions of the law.”18 

Four years later, in a second tying case 

involving United Shoe, the Court condemned 

essentially the same provisions under the 

Clayton Act, holding that “[t]he Sherman Act 

and the Clayton Act provide different tests of 

liability.”19 Acquiring or maintaining a 

monopoly appeared to be the theory of 

competitive harm, as the Court held that 

United Shoe’s “tying agreements must 

necessarily lessen competition and tend to 

monopoly.”20 Although the Supreme Court did 

not delineate the markets at issue, the lower 

court stated that United Shoe leased patented 

“auxiliary machines” on the condition that they 

be used only with United Shoe’s “principal 

machines.” The principal machines performed 

the “fundamental operations” of shoe making 

and faced some low-price competition while 

the auxiliary machines performed minor roles 

in the shoe-making process yet were deemed 

essential by some customers.21 

17 United States v. United Shoe Mach. Co. of N.J., 

247 U.S. 32, 64 (1918). 

18 Id. at 66. 

19 United Shoe Mach. Corp. v. United States, 258 

U.S. 451, 459 (1922); see also H.R. REP. NO. 63-627, pt. 1, 

at 13 (1914) (United Shoe’s “exclusive or ‘tying’ contract 

made with local dealers becomes one of the greatest 

agencies and instrumentalities of monopoly ever 

devised by the brain of man.”). 

20 258 U.S. at 457. 

21 United States v. United Shoe Mach. Co., 264 F. 

138, 142–43, 146 (E.D. Mo. 1920), aff’d, 258 U.S. 451 

(1922). 

After its second United Shoe decision, the 

Court routinely condemned ties for a period of 

time. In 1936, the Court addressed a 

requirements tie and affirmed an injunction 

under the Clayton Act prohibiting IBM from 

enforcing a lease provision whereby lessees of 

IBM tabulating machines agreed to buy 

tabulating cards needed to use the machines 

only from IBM.

22 The Court held that the tie 

had been “an important and effective step” in 

creating “a monopoly in the production and 

sale of tabulating cards suitable for [IBM’s] 

machines.”23 

In its next significant tying decision, the Court 

affirmed a judgment enjoining International Salt 

from enforcing a requirements tie in which lessees 

ofInternationalSalt’s canningmachines agreed to 

buy the salt needed to use the machines only 

from International Salt.24 As in IBM, the Court 

identified harm to the market for the tied 

product (salt) as the competitive concern: 

International Salt was found to have violated 

the Clayton Act and the Sherman Act by 

“contracting to close [the] market for salt 

against competition.”25 The Court rejected 

International Salt’s argument that a trial was 

needed to determine whether the tie could 

result in a monopoly in the salt market, finding 

that the likelihood of a salt monopoly was 

“obvious” because the “volume of business 

affected”—annual sales of salt used in the 

machines were about $500,000 (about $4.5 

million in today’s dollars)—could not be said 

“to be insignificant or insubstantial.”26 

Significantly, the Court also stated that tying 

was “unreasonable, per se,” when it 

“foreclose[d] competitors from any substantial 

market.”27 

The following year, the Court upheld, under 

sections 1 and 2 of the Sherman Act, an 

injunction prohibiting movie distributors from 

22 IBM v. United States, 298 U.S. 131, 140 (1936). 

23 Id. at 136. 

24 Int’l Salt Co. v. United States, 332 U.S. 392, 396 

(1947). 

25 Id. 

26 Id. 

27 Id. 
 

80 SECTION 2 REPORT 

block-booking—that is, from licensing “one 

feature or group of features on condition that 

the exhibitor will also license another feature or 

group of features”28—on the ground that the 

antitrust laws prohibit “a refusal to license one 

or more copyrights unless another copyright is 

accepted.”29 The Court found that the “trade 

victims of this conspiracy have in large 

measure been the small independent operators” 

of movie theaters, which were unable to 

compete successfully against “large empires of 

exhibitors,”30 because block-booking prevented 

independents from “bidding for single features 

on their individual merits.”31 

Ten years later, the Court reviewed 

Northern Pacific Railway’s sale of land adjacent 

to its tracks on the condition that, whenever 

Northern Pacific’s shipping rates were at least 

as low as its competitors’ rates, the purchaser 

used Northern Pacific to ship “commodities 

produced or manufactured on the land.”32 

Inferring Northern Pacific’s “great power”33 in 

the market for land (i.e., the tying product) 

from these preferential shipping provisions, the 

Court condemned the tie, holding that the 

Sherman Act does not “requir[e] anything more 

than sufficient economic power [in the tying 

market] to impose an appreciable restraint on 

free competition in the tied product.”34 

In United States v. Loew’s Inc., the Court 

returned to the subject of block-booking, 

condemning movie distributors’ refusal to 

license individual films to television stations as 

an impermissible tie that compelled television 

stations to license “inferior” films to obtain 

“desirable pictures.”35 The Court identified the 

underlying harm to competition in the 

movie-distribution market: “[t]elevision stations 

28 United States v. Paramount Pictures, Inc., 334 U.S. 

131, 156 (1948). 

29 Id. at 159. 

30 Id. at 162. 

31 Id. at 156–57. 

32 N. Pac. Ry. Co. v. United States, 356 U.S. 1, 3 

(1958). 

33 Id. at 8. 

34 Id. at 11. 

35 371 U.S. 38, 40 (1962). 

forced by appellants to take unwanted films 

were denied access to films marketed by other 

distributors who, in turn, were foreclosed from 

selling to the stations.”36 

Thus, the Supreme Court treated ties harshly 

for decades. That began to change, however, in 

the 1970s. In 1977, the Court upheld a tying 

arrangement on the merits, ending fifteen years 

of litigation under sections 1 and 2 of the 

Sherman Act concerning U.S. Steel’s extension 

of favorable credit terms to a housing 

developer on the condition that the developer 

use U.S. Steel’s prefabricated homes.37 In an 

earlier decision, the Court had reversed the trial 

court’s entry of summary judgment in favor of 

U.S. Steel,38 and the trial court entered 

judgment for the developer on remand. The 

Court subsequently reversed on the ground 

that the developer had failed to prove that U.S. 

Steel had “some advantage not shared by [its] 

competitors” in the credit market.39 

The Court permitted another tie in 1984 in a 

section 1 action brought by an anesthesiologist 

seeking hospital staff privileges.40 The hospital 

had denied the anesthesiologist privileges on 

the ground that it had granted to others the 

exclusive right to perform anesthesiology 

services at the hospital. The anesthesiologist 

sued, claiming that the arrangement resulted in 

an impermissible tie between anesthesiology 

services and “other hospital services provided 

by” the hospital.41 The Court upheld the 

arrangement, citing plaintiff’s failure to offer 

“evidence that any patient” was unable to use 

a competing hospital “that would provide him 

with the anesthesiologist of his choice.”42 

In reaching that conclusion, the Court set 

forth a detailed framework for evaluating a tie’s 

36 Id. at 49. 

37 U.S. Steel Corp. v. Fortner Enters., Inc., 429 U.S. 

610, 622 (1977). 

38 Fortner Enters., Inc. v. U.S. Steel Corp., 394 U.S. 

495, 500–04 (1969). 

39 429 U.S. at 620. 

40 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 

U.S. 2, 32 (1984). 

41 Id. at 23. 

42 Id. at 30. 
TYING 81 

legality. In so doing, the majority rejected the 

view of the four concurring Justices who 

asserted that the “time has . . . come to abandon 

the ‘per se’ label and refocus the inquiry on the 

adverse economic effects, and the potential 

economic benefits, that the tie may have.”43 

The Court stated that tying arrangements were 

subject to a rule of per se illegality: “It is far too 

late in the history of our antitrust jurisprudence 

to question the proposition that certain tying 

arrangements pose an unacceptable risk of 

stifling competition and therefore are 

unreasonable ‘per se.’”44 Although the action 

arose under the Sherman Act, the Court noted 

that its per se rule “reflects congressional 

policies underlying the antitrust laws,” 

specifically Congress’s “great concern about the 

anticompetitive character of tyin g 

arrangements” expressed during deliberations 

about the Clayton Act.45 

But the Court stated that the per se rule 

should only apply in the presence of “forcing,” 

which it defined as “the seller’s exploitation of 

its control over the tying product to force the 

buyer into the purchase of a tied product that 

the buyer either did not want at all, or might 

have preferred to purchase elsewhere on 

different terms.”46 The court described forcing 

as “the essential characteristic of an invalid 

tying arrangement.”47 The Court also stated 

that the per se rule applied only when “two 

separate product markets have been linked,” an 

inquiry turning on whether “there is a sufficient 

demand for the purchase of [the tied product] 

to identify a distinct product market in which it 

is efficient to offer [the tied product] 

separately.”48 

43 Id. at 35 (O’Connor, J., concurring). 

44 Id. at 9. 

45 Id. at 10. 

46 Id. at 12. 

47 Id. Other considerations include whether the tie 

forecloses “a substantial volume of commerce,” id. at 16, 

or whether “the seller has some special ability—usually 

called ‘market power’—to force a purchaser to do 

something that he would not do in a competitive 

market,” id. at 13–14. 

48 Id. at 21–22. 

Eight years later, the Court held that a jury 

should decide whether Kodak violated sections 

1 and 2 of the Sherman Act by adopting policies 

effectively precluding independent service 

organizations (ISOs) from obtaining parts 

necessary to service Kodak machines, thereby 

causing some equipment owners that allegedly 

wanted to purchase maintenance and repair 

services from ISOs to purchase those services 

from Kodak instead.49 Kodak maintained that 

its policies were legal because it had valid 

business reasons for adopting them—namely, 

(1) avoiding blame for equipment breakdowns 

“resulting from inferior ISO service,” (2) 

controlling inventory costs, and (3) precluding 

ISOs from free riding on Kodak’s investment in 

equipment development.50 Without specifying 

precisely how Kodak’s defenses fit in the per se 

analysis, the Court concluded that questions of 

fact existed as to “the validity and sufficiency” 

of Kodak’s business justifications.51 

In 2006, the Supreme Court addressed 

Illinois Tool’s requirement that purchasers use 

its patented printing systems only with Illinois 

Tool ink. Rejecting the lower court’s use of a 

presumption that “a patent always gives the 

patentee significant market power” in the 

market for the tying product (here, printing 

systems),52

 the Court held that “in all cases 

involving a tying arrangement, the plaintiff 

must prove that the defendant has market 

power in the tying product.”53 Significantly, 

the Court also stated that it had “rejected” its 

Standard Stations dicta that tying serves “‘hardly 

any purpose beyond the suppression of 

competition.’”54 

The D.C. Circuit’s 2001 United States v. 

Microsoft Corp. decision also is a significant 

49 Eastman Kodak Co. v. Image Technical Servs., 

Inc., 504 U.S. 451, 458 (1992). 

50 Id. at 465, 483–85. 

51 Id. at 483. 

52 Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 

37 (2006). 

53 Id. at 46. 

54 Id. at 35 (quoting Standard Oil Co. of Cal. v. 

United States (Standard Stations), 337 U.S. 293, 305–06 

(1949)). 
82 SECTION 2 REPORT 

tying decision.55 The court found that 

Microsoft’s “contractual and technological” 

bundling of its Internet-browsing software to 

its operating-system software did not 

necessarily constitute an impermissible tie 

under section 1 of the Sherman Act.56 The court 

held that “the rule of reason, rather than per se 

analysis, should govern the legality of tying 

arrangements involving platform software 

products” because these products involved 

“novel” characteristics with “no close parallel 

in prior antitrust cases.”57 Thus, to prevail 

under their section 1 tying claim, plaintiffs in 

that case had to “demonstrate that [the tie’s] 

benefits—if any—are outweighed by the harms 

in the tied product market.”58 

These decisions unfortunately do not 

provide explicit guidance regarding how to 

distinguish between legal and illegal ties.59 One 

treatise, collecting cases and attempting to 

synthesize them, states that under current law 

a tie is illegal when four conditions exist: 

(1) two separate products or services are 

involved, (2) the sale or agreement to sell 

one product or service is conditioned on the 

purchase of another, (3) the seller has 

sufficient economic power in the market for 

the tying product to enable it to restrain 

trade in the market for the tied product, 

and (4) a not insubstantial amount of 

interstate commerce in the tied product is 

affected.60 

The Supreme Court, however, has never 

expressly adopted this formula, nor has it 

expressly delineated how a tie’s procompetitive 

effects should affect its legality. 

III. Analysis 

Tying can harm consumers in some 

55 253 F.3d 34, 84 (D.C. Cir. 2001) (en banc) (per 

curiam). 

56 Id. 

57 Id.; see also id. at 96. 

58 Id. at 96 (citations omitted) (emphasis in original). 

59 See generally 1 SECTION OF ANTITRUST LAW, AM. 

BAR ASS’N,ANTITRUST LAW DEVELOPMENTS 172–207 (6th 

ed. 2007). 

60 Id. at 177; see also id. n.999 (citing cases). 

circumstances.61 For example, a tie may result 

in a firm with monopoly power in one market 

acquiring a monopoly in a second market or 

perpetuating its monopoly in the tying product. 

Theories of competitive harm, however, often 

are based on “highly stylized assumptions that 

are difficult to apply to the factual settings 

courts confront.”62 Those deficiencies lead 

some to be concerned that we still “do not 

understand much about tying” and to question 

how frequently, if ever, tying harms 

competition.63 

Additionally, some of these theories of harm 

focus almost solely on tying’s effect on rivals, 

potentially obscuring tying’s procompetitive 

benefits. Tying has the potential to benefit 

consumers by allowing firms to lower costs and 

better satisfy consumer demand.64 When firms 

tie, manufacturing and retailing costs can be 

lower and purchases for consumers easier than 

they would be if firms sold the products 

separately. This practice can benefit consumers 

overall, even when some consumers prefer 

buying the products separately. 

61 See, e.g., Nov. 1 Hr’g Tr., supra note 2, at 127 

(Evans) (noting that tying “can be used 

anticompetitively only in limited circumstances”); 

Carlton & Waldman, supra note 5, at 30–33. 

62 Keith N. Hylton & Michael Salinger, Tying Law 

and Policy: A Decision-Theoretic Approach, 69 ANTITRUST 

L.J. 469, 470 (2001); see also Nov. 1 Hr’g Tr., supra note 2, 

at 33 (Evans) (stating that “it is very clear from the 

literature that lots of assumptions need to be true in 

order for us to find anticompetitive tying”). 

63 Alden F. Abbott & Michael A. Salinger, Learning 

from the Past: The Lessons of Vietnam, IBM, and Tying, 

COMPETITION POL’Y INT’L, Spring 2006, at 3, 8; see also, 

e.g., Michael D. Whinston, Exclusivity and Tying in U.S. 

v. Microsoft: What We Know, and Don’t Know, J. ECON. 

PERSP., Spring 2001, at 63, 79 (“What is striking about 

the area of . . . tying . . . is how little the current 

literature tells us about what [its] effects are likely to 

be.”). 

64 See, e.g., Nov. 1 Hr’g Tr., supra note 2, at 23, 24 

(Evans) (stating that, “in the absence of contrary 

significant evidence,” the “courts and competition 

authorities should presume that tying is efficient”); 

HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE 200 

(2005) (“After a half century of economic analysis we 

know that [tying is] efficient and procompetitive most 

of the time . . . .”). 
 

 

 

TYING 83 

A. Potential Anticompetitive Effects 

1. Monopolizingthe Tied-Product Market 

In its tying decisions, the Supreme Court 

often has identified harm to competition in the 

tied-product market as the concern: tabulating 

cards in IBM, salt in International Salt, 

prefabricated homes in Fortner, and maintenance 

services in Kodak. Some commentators question 

whether monopolization of the tied product 

was threatened in these cases. Judge Bork’s 

assessment of International Salt—where the 

Court found “the tendency of the arrangement 

to accomplishment of monopoly . . . 

obvious”65—is typical: “It is inconceivable that 

anybody could hope to get a monopoly, or 

anything remotely resembling a monopoly, in 

a product like salt by foreclosing the utterly 

insignificant fraction of the market represented 

by the salt passing through [International 

Salt’s] leased machines.”66 

Commentators also contend that a 

monopolist may not have any incentive to 

monopolize a complementary product market. 

First, a monopolist is likely to prefer 

competition in the complementary product 

market because a lower price for the 

complement will lead to increased demand for 

the monopoly product.67 Second, under certain 

circumstances, a monopolist cannot increase its 

profits by monopolizing another market 

through a tie. Specifically, commentators agree 

that, in certain circumstances, a firm cannot 

increase its profits by tying a monopoly 

product and a complement that is always used 

in fixed proportions with the monopoly 

product.68 

65 Int’l Salt Co. v. United States, 332 U.S. 392, 396 

(1947). 

66 BORK, supra note 12, at 367. 

67 See, e.g., RICHARD A. POSNER, ANTITRUST LAW 199 

(2d ed. 2001). 

68 Put another way, a firm with monopoly power in 

the tying-product market can, under certain conditions, 

maximize its profits without tying, by pricing the tying 

good appropriately. See, e.g., Schor v. Abbott Labs., 457 

F.3d 608, 611–13 (7th Cir. 2006) (Easterbrook, J.); Nov. 

1 Hr’g Tr., supra note 2, at 16–17 (Waldman); BORK, 

supra note 12, at 373; Aaron Director & Edward H. Levi, 

Law and the Future: Trade Regulation, 51 NW. U. L. REV. 

In some circumstances, though, a 

monopolist may have an incentive to use tying 

to obtain a monopoly in a second market. For 

instance, a monopolist may have an incentive to 

use a tie to monopolize a second market if some 

consumers of the tied product do not purchase 

the monopoly product.69 This incentive may 

arise when production of the tied product 

exhibits scale economies: using a tie can 

effectively bar rivals in the tied-product market 

from selling to many customers that buy the 

tying product and therefore may deprive those 

rivals of sufficient sales to achieve scale 

efficiency in the tied-product market. That 

may, in turn, induce rivals’ exit from the tiedproduct market (or keep them inefficiently 

small) and thus create a monopoly in the tiedproduct market. For instance, the only hotel on 

an island may tie accommodations and meal 

packages to its guests. If there are an 

insufficient number of island residents to 

support a second restaurant, the hotel may be 

able to extract greater profit through its tie of 

accommodations and meals because the tie 

enables the hotel also to monopolize restaurant 

services. The hotel thus would extract 

monopoly profits from not only its guests (the 

purchasers of the original monopoly 

product—accommodations) but also island 

residents (who would buy only the second 

product—restaurant food).70 Similarly, a firm 

may tie to deter entry into the tied-product 

market; if a potential entrant does not expect 

sufficient profits, it may decide not to enter 

because of the tie.71 

281, 290 (1956); Whinston, supra note 1, at 838. 

69 See, e.g., Nov. 1 Hr’g Tr., supra note 2, at 16–17 

(Waldman) (noting the incentive of a monopolist to tie 

in order to achieve a second monopoly in the market for 

a “complementary good” that is not consumed with the 

original monopolyproductfor “some uses”); Whinston, 

supra note 1, at 840. 

70 See Dennis W. Carlton, A General Analysis of 

Exclusionary Conduct and Refusal to Deal—Why Aspen 

and Kodak Are Misguided, 68 ANTITRUST L.J. 659, 667–68 

(2001). 

71 See, e.g., Whinston, supra note 1, at 844; cf. Jay Pil 

Choi & Christodoulos Stefanadis,Tying, Investment, and 

the Dynamic Leverage Theory, 32 RAND J. ECON. 52, 70 

(2001); Barry Nalebuff, Bundling as an Entry Barrier, 119 
 

 

 

 

84 SECTION 2 REPORT 

Moreover, even when the monopoly 

product (i.e., the tying product) and the second 

product (i.e., the tied product) are always used 

together, a monopolist may tie to earn 

monopoly profits in the tied-good market that 

are not currently available but will be in the 

future. For example, a monopolist might have 

an incentive to tie its product to a 

complementary product if, in the future, 

consumers would incur costs in switching to a 

different manufacturer’s complementary 

product. In other words, a monopolist may 

have an incentive to extract those switching 

costs. A monopolist also might have an 

incentive to tie products when the 

complementary product will be upgraded in 

the future.72 

2. Maintaining a Monopoly in the

 Tying-Product Market 

There was consensus at the hearings that 

tying could allow a monopolist to maintain its 

monopoly in the tying product to the detriment 

of consumers.73 For instance, a monopolist 

could tie a monopoly product to a 

Q.J. ECON. 159, 183 (2004). 

72 Nov. 1 Hr’g Tr., supra note 2, at 17 (Waldman); see 

also, e.g., Carlton & Waldman, supra note 5, at 32 (noting 

that a firm may have incentive to obtain a monopoly in 

tied-product market characterized by “product 

upgrades and switching costs”); Dennis W. Carlton & 

Michael Waldman, Tying, Upgrades, and Switching Costs 

in Durable-Goods Markets 3 (Nat’l Bureau of Econ. 

Research, Working Paper No. 11407, 2005), available at 

http://www.nber.org/papers/w11407. 

73 See, e.g., Nov. 1 Hr’g Tr., supra note 2, at 18 

(Waldman) (noting that tying can “increase or preserve 

. . . market power in that initial monopolized market”); 

id. at 65–66 (Feldman) (noting that tying can involve the 

monopolist “trying to protect its original monopoly 

from the next generation of products”); id. at 87 (Willig) 

(noting that one theory of harm is “the potential for 

harm to competition in the market for . . . the tying 

good”); POSNER, supra note 67, at 202; Dennis W. 

Carlton & Michael Waldman, The Strategic Use of Tying 

to Preserve and Create Market Power in Evolving Industries, 

33 RAND J. ECON. 194, 198–212 (2002); Robin Cooper 

Feldman, Defensive Leveraging in Antitrust, 87 GEO. L.J. 

2079, 2079 (1999) (noting that tying can “prevent 

erosion of the primary monopoly”); Nalebuff, supra 

note 71, at 183 (noting that tying may allow a firm with 

monopolies in two related markets to maintain both 

monopolies). 

complementary product to preclude another 

firm from entering the complementary-good 

market, because, under certain conditions, the 

potential rival will be unable to obtain the scale 

necessary to make entry worthwhile. Because 

it does not enter the complementary-good 

market, the potential rival might then have no 

incentive to enter the monopoly-good market 

either. The monopolist would be using ties, in 

this situation, to maintain its monopoly and its 

future profits in the monopoly-product market. 

That appears to have been the theory of harm in 

the Supreme Court’s first decision finding an 

illegal tie under the antitrust laws: United 

Shoe’s practices may have delayed erosion of 

United Shoe’s monopoly in the shoe-making 

machinery market.74 

B. Potential Procompetitive Effects 

In early tying decisions, the Supreme Court 

often noted tying’s potentially procompetitive 

effects, but it quickly dismissed them. IBM, for 

instance, claimed that it required use of its 

cards in its tabulating machines because the 

machines would not work if defective cards 

were used, causing consumer dissatisfaction 

with the machine.75 Without ruling on whether 

an “exception” to the prohibition against tying 

could ever be allowed,76 the Court rejected the 

defense on the ground that “others are capable 

of manufacturing cards suitable for use.”77 

Likewise, the Court rejected International Salt’s 

claim that use of its salt allowed it to minimize its 

repair costs on the leased machines on the 

ground that other salt manufacturers could 

produce salt meeting the machines’ 

“specifications.”78 In later cases, the Court 

gradually began incorporating potentially 

procompetitive effects into its analysis.79 

74 See supra text accompanying notes 19–21. 

75 IBM v. United States, 298 U.S. 131, 138–39 (1936). 

76 Id. at 140. 

77 Id. at 139. 

78 Int’l Salt Co. v. United States, 332 U.S. 392, 398 

(1947). 

79 See, e.g., Eastman Kodak Co. v. Image Technical 

Servs., Inc., 504 U.S. 451, 483 (1992) (stating that liability 

on the section 2 claim “turns . . . on whether ‘valid 

business reasons’ can explain Kodak’s actions” (quoting 
 

 

 

TYING 85 

Economists now recognize that tying offers 

many potential efficiencies.80 A firm that uses 

ties can have lower costs—sometimes 

significantly lower—than if it offered each 

product separately.81 As one panelist noted, 

“[T]here are fixed costs of offering different 

product combinations, and that necessarily 

limits the variants offered by firms.”82 For a 

variety of reasons, only offering two products 

together may cost less than also offering them 

separately, and if relatively few consumers 

strongly prefer to purchase one without the 

other, it may not be profitable to incur the 

additional costs of catering to that limited 

demand. 

Tying may also reduce a consumer’s costs,83 

including the cost of negotiating terms of sale, 

transportation costs, and integration costs.84 

Although a tie reduces consumers’ options, it 

may nevertheless make them better off. In 

addition, tying may benefit consumers by 

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 

U.S. 585, 605 (1985))); see also Jerrold Elecs. Corp. v. 

United States, 365 U.S. 567 (1961) (mem.) (per curiam) 

(summarily affirming judgment where trial court 

found, among other things, that tying cable equipment 

and a service contract was, at the time of the initial rollout, reasonable because of the need to ensure adequate 

service to protect good will), aff’g 187 F. Supp. 554, 557 

(E.D. Pa. 1960); Times-Picayune Publ’g Co. v. United 

States, 345 U.S. 594, 623 (1953) (noting an alleged tie’s 

potential cost savings). 

80 See, e.g., Nov. 1 Hr’g Tr., supra note 2, at 12 

(Waldman) (noting “many efficiency reasonsassociated 

with tying”). 

81 See, e.g., David S. Evans & Michael Salinger, Why 

Do Firms Bundle and Tie? Evidence from Competitive 

Markets and Implications for Tying Law, 22 YALE J. ON 

REG. 37, 83–84 (2005); Roy W. Kenney & Benjamin 

Klein, The Economics of Block Booking, 26 J.L. & ECON. 

497, 523 (1983). 

82 Nov. 1 Hr’g Tr., supra note 2, at 32 (Evans). 

83 Id. at 13 (Waldman) (identifying reduction of 

consumer “search and sorting” costs as a potential 

benefit of tying). 

84 See, e.g., 9 PHILLIP E. AREEDA & HERBERT 

HOVENKAMP, ANTITRUST LAW ¶ 1717b2, at 185 (2d ed. 

2004) (explaining how tying can result in “consumers . . . 

receiv[ing] greater value for the same expenditure as 

before the tie”). 

improving or controlling quality.85 

The existence and magnitude of any 

procompetitive effects, however, depend on the 

specific circumstances of the tie at issue. 

Quantifying any cost savings is “difficult 

because . . . it is not clear that one could isolate 

and measure cost savings” from business 

records.86 As some have observed, evidence of 

similar business practices “in industries that 

resemble the monopolist’s but are competitive” 

may shed light on whether the tie is likely to 

generate some efficiencies.87 Examination of 

other markets in any depth, however, would 

present significant administrability concerns. 

C. Price Discrimination 

Different customers typically have different 

preferences for a firm’s products and thus are 

willing to pay different prices. For instance, 

one customer might be willing to pay $20 a 

month for access to a sports television network, 

while another might be willing to pay only $10. 

When a firm eng a g es in pric e 

discrimination—that is, charging different 

customers different prices, as opposed to 

charging a uniform price—it is typically 

attempting to extract from customers more of 

what each is willing to pay. When a 

monopolist is able to engage in perfect price 

discrimination—that is, to charge each 

customer the most it is willing to pay—the 

efficiency loss normally associated with 

monopoly is eliminated because the monopolist 

will produce as many units as would be sold in 

a competitive market; thus, “[t]he perfectly 

85 See Jerrold Elecs. Corp. v. United States, 365 U.S. 

567 (1961) (mem.) (per curiam); see also Marius Schwartz 

& Gregory J. Werden, A Quality-Signaling Rationale for 

Aftermarket Tying, 64 ANTITRUST L.J. 387, 388 (1996) 

(“[T]ying can make it profitable to offer high-quality 

durables if the demand for the complement is 

sufficiently higher when the durable proves to be of 

high quality.”). 

86 Evans & Salinger, supra note 81, at 83. 

87 POSNER, supra note 67, at 253; see also, e.g., Nov. 1 

Hr’g Tr., supra note 2, at 29 (Evans); id. at 121 

(Feldman); id. at 122 (Waldman, Willig). But see id. at 

122 (Russell) (stating that reliance on “similar” tying 

arrangements in competitive markets is a “fuzzy 

concept”). 
 

 

 

 

 

 

86 SECTION 2 REPORT 

discriminating monopoly sells more than the 

nondiscriminating monopoly.”88 That is, price 

discrimination can be efficiency-enhancing and 

allow output to be greater than it otherwise 

would be. 

Assessing each customer’s willingness to 

pay is difficult. For some products, a crude 

measure of a customer’s willingness to pay may 

be the frequency with which the product is 

used.89 A tie to a complementary product that 

is purchased more as use of the underlying 

product increases allows a firm to link pricing 

to the frequency with which customers use the 

underlying product (a practice referred to as 

“metering”). As one panelist put it, requirements 

ties allow firms to price discriminate by “trying 

to give the higher price to the individuals who 

use the good more intensively.”90 Thus, a firm 

may sell a device (e.g., a printer) at a low price 

to attract as many customers as possible, and 

then use a tie to extract more revenue from 

those that use the device frequently by charging 

high prices for the necessary complementary 

product (e.g., ink). Under this view, profit from 

sales of the complement (i.e., ink) flows from the 

firm’s monopoly in the market forthe device (i.e., 

the printer), not from monopolization of the 

complement market.91 

Tying may allow a firm to price discriminate 

in a second way. Consider the example 

mentioned earlier, the cable television customer 

who would be willing to pay $20 a month for a 

sports channel and assume that the customer 

would pay $10 a month for a movie channel. 

Further assume a second customer willing to 

pay $10 a month for the sports channel and $20 

a month for the movie channel. By tying the 

channels and offering both for $30, the firm is 

able to extract from both customers the most 

each is willing to pay for both channels.92 

88 CARLTON & PERLOFF, supra note 1, at 300. 

89 Nov. 1 Hr’g Tr., supra note 2, at 15 (Waldman). 

90 Id. 

91 See, e.g., POSNER, supra note 67, at 202–07. 

92 Nov. 1 Hr’g Tr., supra note 2, at 14–15 (Waldman) 

(noting that tying products allows firms to price 

discriminate when customers value goods differently); 

see also, e.g., George J. Stigler, A Note on Block Booking, in 

Although both customers in this example pay 

the same amount, the effect is the same as if 

they had been charged different amounts based 

on their preferences. And output is greater 

than it would have been if the cable company 

had charged $20 for each channel individually: 

both customers receive two channels, not just 

one. 

Price discrimination typically has ambiguous 

effects on both customers and efficiency.93 The 

ability to price discriminate often allows firms to 

increase output. More consumers can be served 

when firms charge higher prices for customers 

that value a product highly and lower prices for 

those that value the product less. In those 

cases, however, the price paid by some 

consumers—specifically, those that value the 

product the most—might be higher than the 

price they would have paid if the product were 

sold to every customer at the same price. 

Many forms of price discrimination (e.g., 

offering coupons or limited-time sales) are not 

illegal under the antitrust laws. Panelists 

maintained that there is no principled reason to 

condemn, on the one hand, tying that allows 

price discrimination and yet condone, on the 

other hand, other business practices with 

similar effects.

94 Prohibiting only one of the 

many ways to price discriminate hurts 

THE ORGANIZATION OF INDUSTRY 165, 166 (1968) 

(suggesting that movie distributors may have used 

block-bookingto price discriminate); R. Preston McAfee 

et al., Multiproduct Monopoly, Commodity Bundling, and 

Correlation of Values, 104 Q.J. ECON. 371, 372 (1989). 

93 See, e.g., Nov. 1 Hr’g Tr., supra note 2, at 15, 20 

(Waldman); id. at 33 (Evans); id. at 109–11 (Willig); see 

also, e.g., Carlton & Waldman, supra note 5, at 35; James 

C. Cooper et al., Does Price Discrimination Intensify 

Competition? Implications for Antitrust, 72 ANTITRUST L.J. 

327, 369 (2005) (“[I]n certain cases price discrimination 

can cause firms to compete more intensely, leading to 

lower prices for all consumers and lower profits for all 

firms.”); Warren S. Grimes, Tying: Requirements Ties, 

Efficiency and Innovation 5 (Nov. 20, 2006) (hearing 

submission) (“There is some discussion, however, 

whether the effects of metered pricing are pro- or 

anticompetitive.”). 

94 See Nov. 1 Hr’g Tr., supra note 2, at 15–16 

(Waldman) (questioning “why you would want to 

eliminate the ability to use tying for price 

discrimination”); id. at 33 (Evans); id. at 109 (Willig). 
 

TYING 87 

consumers when firms refrain from using ties 

to price discriminate out of fear of antitrust 

liability and instead use more expensive ways 

to price discriminate, thereby raising their 

costs.95 Indeed, as one panelist asserted, “price 

discrimination ought to be very, very 

presumptively innocent for a wide variety of 

deep economic reasons as well as just 

commonplace observations that the most 

competitive of industries are full of instances of 

price discrimination.”96 

The Department agrees that tying should 

not be illegal under section 2 merely because it 

enables price discrimination.97 This conclusion 

does not mean, however, that all ties enabling 

price discrimination should be permissible 

under the antitrust laws. As one panelist noted, 

a tie enabling price discrimination could have 

anticompetitive effects unrelated to the price 

discrimination.98 

The Department agrees that tying 

should not be illegal under section 2 

merely because it enables price 

discrimination. 

D. Technological Ties 

One issue deserving special mention 

concerns technological tying. Incorporating 

new features into products to increase their 

value to consumers is a hallmark of innovative 

competition—even if innovation makes 

obsolete separate standalone products designed 

to meet the same consumer needs. Cars and 

computers are but two examples of products 

where manufacturers have added features that 

were once considered separate products. 

95 See id. at 16 (Waldman); id. at 110 (Willig). 

96 Id. at 109 (Willig); see also Ill. Tool Works Inc. v. 

Indep. Ink, Inc., 547 U.S. 28, 44–45 (2006) (observing 

that, “while price discrimination may provide evidence 

of market power, . . . it is generally recognized that it 

also occurs in fully competitive markets”). 

97 This chapter does not consider the legalityofprice 

discrimination under the Robinson-Patman Act, which 

prohibits price discrimination that, among other things, 

“injure[s] competition.” Brooke Group Ltd. v. Brown & 

Williamson Tobacco Corp., 509 U.S. 209, 220 (1993). 

98 See Nov. 1 Hr’g Tr., supra note 2, at 110 (Willig). 

Unduly broad application of a per se 

prohibition on tying could freeze product 

innovation and prevent transition to more 

efficient, integrated products. Computer users 

might, for example, still be using separate 

floppy disks on computers rather than 

integrated hard drives. Rules potentially 

condemning technological ties thus present a 

particularly serious threat of chilling innovation 

and, moreover, raise severe remedial 

difficulties.99 

Panelists voiced strong sentiment that using 

the antitrust laws to mandate product-design 

choices presents an acute risk of hurting 

consumers by thwarting innovation. For 

instance, one panelist asserted that “it makes 

more sense to intervene on contractual ties 

rather than product design ties, because in 

product design ties, you are getting into the . . . 

internal workings of the firm.”100 Similarly, 

another panelist noted that “condemning tying 

through contracts likely poses fewer risks of 

false positives than condemning . . . product 

design.”101 Yet another stressed that “a product 

design decision . . . is far more apt to have an 

99 See, e.g., Dennis W. Carlton, The Relevance for 

Antitrust Policy of Theoretical and Empirical Advances in 

Industrial Organization, 12 GEO.MASON L.REV. 47, 53–54 

(2003) (“I find useful the distinction between 

exclusionary restrictions imposed on others (e.g., 

dealers) and exclusionary restrictions created by 

unilateral action (e.g., product design and vertical 

integration). The antitrust laws have traditionally been 

much more hostile to restrictions on third parties than 

to restrictions that result from transactions within the 

firm (e.g., vertical integration). This is a reasonable 

approach if one believes that it is more costly to 

intervene into the activities within a firm than into 

activities between firms.”); Michael J. Meurer, Vertical 

Restraints and Intellectual Property Law: Beyond Antitrust, 

87 MINN. L. REV. 1871, 1911 (2003) (“Courts are 

reluctant to recognize tying claims based on product 

design choices because they fear they will discourage 

socially valuable innovation.”); Joseph Gregory Sidak, 

Debunking Predatory Innovation, 83 COLUM. L.REV. 1121, 

1148 (1983) (noting “the likelihood that desirable 

incentives for innovation would be jeopardized”). 

100 Nov. 1 Hr’g Tr., supra note 2, at 22 (Waldman); see 

also Carlton & Waldman, supra note 5, at 38 (noting that 

“[f]ear of antitrust scrutiny could easily prevent an 

innovator from introducing new desirable products”). 

101 Nov. 1 Hr’g Tr., supra note 2, at 60 (Popofsky). 
 

 

88 SECTION 2 REPORT 

efficiency rationale” and that “it is right to give 

more respect to the implementation of the tie 

through product design.”102 Another similarly 

urged that “you are better off not trying to 

chase this particular business conduct” in light 

of the threat of “error costs.”103 

Courts have made similar observations. The 

D.C. Circuit, for instance, has noted that 

“[a]ntitrust scholars have long recognized the 

undesirability of having courts oversee product 

design, and any dampening of technological 

innovation would be at cross-purposes with 

antitrust law.”104 That court also has noted that 

“tying . . . may produce efficiencies that courts 

have not previously encountered,” particularly 

in “pervasively innovative . . . markets.”105 The 

Fifth Circuit similarly has warned against any 

liability standard that “would enmesh the 

courts in a technical inquiry into the 

justifiability of product innovations.”106 

Commentators likewise express concern 

about the potential of rules condemning 

technological ties to chill procompetitive 

conduct. A treatise warns that “[a]n antitrust 

rule prohibiting a firm from improving its own 

invention simply because the improvement 

turns out ex post not to be much of an 

improvement at all and when it makes rivals’ 

102 Id. at 139–40 (Willig); see also id. at 78 (Willig) 

(noting the “need to be especially careful when the 

practices at issue do affect innovation, because after all, 

innovation . . . is particularly valuable to consumer 

welfare”). But see id. at 136 (Feldman) (stating that she 

“would be very wary of something that says we focus 

only on contractual ties and not technological ties”). 

103 Sherman Act Section 2 Joint Hearing: Conduct as 

Related to Competition Hr’g Tr. 87, May 8, 2007 

[hereinafter May 8 Hr’g Tr.] (Sidak). 

104 United States v. Microsoft Corp., 147 F.3d 935, 

948 (D.C. Cir. 1998). 

105 United States v. Microsoft Corp., 253 F.3d 34, 93 

(D.C. Cir. 2001) (en banc) (per curiam). 

106 Response of Carolina, Inc. v. Leasco Response, 

Inc., 537 F.2d 1307, 1330 (5th Cir. 1976); see also, e.g., 

Digital Equip. Corp. v. Uniq Digital Techs., Inc., 73 F.3d 

756, 761–62 (7th Cir. 1996) (Easterbrook, J.); Data Gen. 

Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 

1179 (1st Cir. 1994); Klamath-Lake Pharm. Ass’n v. 

Klamath Med. Serv. Bureau, 701 F.2d 1276, 1290 (9th 

Cir. 1983). 

complementary products obsolete would chill 

innovation unnecessarily.”107 Judge Posner has 

noted the “particularly acute evidentiary and 

remedial difficulties” presented by technologicaltying cases, where courts may be called upon to 

assess the merits of technical engineering issues.108 

Similarly, Professors Carlton and Waldman 

advocate that “greater deference” be given to 

“efficiencies achieved through physical 

integration” because “the cost of interfering 

inside a firm—where many unspecified 

relationships and transactions are not mediated 

by the price system—is likely to be higher than 

interfering in the contractual relations between 

two firms.”109 

The Department agrees with courts and 

panelists urging restraint in the area of product 

design and believes that great caution should 

be exercised before condemning a technological 

tie under the antitrust laws. Firms make many 

decisions about the design of their products, the 

vast majority of which—including those made 

by monopolists—raise no competitive concern. 

Moreover, economic understanding about 

technologicaltying’s competitive effects is often 

particularly challenging, heightening the risk of 

mistaken condemnation of procompetitive (or 

competitively neutral) activity.110 In addition, 

a key feature of technological progress is the 

introduction of new products that perform 

functions that previously required multiple 

products. Finally, the Department agrees that 

remedying anticompetitive technological ties 

appropriately can often be difficult, requiring 

courts to make judgments about unusually 

complicated, forward-looking business issues 

and thereby heightening the risk that a remedy 

will hurt, rather than help, consumers. Private 

firms, rather than the Department or courts, are 

better equipped to design products that 

respond best to consumer demands and rapidly 

107 3A AREEDA & HOVENKAMP, supra note 84, ¶ 776, 

at 258 (2d ed. 2002). 

108 Richard A. Posner, Vertical Restraints and 

Antitrust Policy, 72 U. CHI. L. REV. 229, 233 (2005). 

109 Carlton & Waldman, supra note 5, at 38. 

110 See, e.g., Abbott & Salinger, supra note 63, at 

10–14. 
TYING 89 

changing technologies. 

That is not to say that all technological ties 

should be per se lawful. Condemnation might 

be appropriate, for example, if the technological 

integration is a sham that serves no purpose 

other than to exclude competitors.111 

E. Tying Should Not Be Per Se Illegal 

Tying is one of the few remaining antitrust 

areas where a rule of per se illegality exists. In 

antitrust law, a per se rule is appropriate only 

if courts, having had sufficient experience with 

a practice, can determine with confidence that 

the practice is anticompetitive in almost all 

circumstances when applying the rule of 

reason.112 Echoing the views of the many legal 

scholars, commentators, economists, and others 

who have questioned for decades whether 

tying should be accorded per se treatment, 

panelists criticized existing tying standards. 

No panelist at the hearings endorsed the 

Supreme Court’s current per se framework,113 

and other commentators single it out for 

particular criticism.114 Their rationale is that 

111 See, e.g., May 8 Hr’g Tr., supra note 103, at 90–91, 

96–97 (Melamed); id. at 93–95 (Creighton); see also 

United States v. Microsoft Corp., 147 F.3d 935, 949 (D.C. 

Cir. 1998) (“[I]f there is no suggestion that the product 

is superior to the purchaser’s combination in some 

respect, it cannot be deemed integrated.”). 

112 See Leegin Creative Leather Prods., Inc. v. PSKS, 

Inc., 127 S. Ct. 2705, 2713 (2007). 

113 See, e.g., Nov. 1 Hr’g Tr., supra note 2, at 23 

(Evans) (advocating “ending per se liability for tying”); 

id. at 36 (Russell) (advocating abandoning “the per se 

rule for tying,” which “is enough of a per se rule that it 

still causes substantial harm and confusion and harm to 

consumer welfare”); id. at 76 (Willig) (“I, too, am 

against per se treatment of tying under the antitrust 

laws. I, too, think there is no business or economic or 

indeed any logical justification for such a treatment by 

the courts.”); id. at 98 (Feldman) (noting agreement to 

“knock out” per se treatment of tying); see also May 8 

Hr’g Tr., supra note 103, at 86 (Sidak) (agreeing that the 

desirability of abandoning per se treatment of tying is 

“uncontroversial”); id. (Eisenach); cf. id. at 87 (Sidak) 

(“[T]echnological tying with respect to product 

innovations ought to be per se legal . . . .”). 

114 See, e.g., HOVENKAMP, supra note 64, at 118 

(characterizing the “per se rule against tying” as 

“completely senseless”); Evans & Salinger, supra note 

81, at 85 (“As a matter of theoretical and empirical 

tying often has procompetitive benefits and 

thus does not fall appropriately into any 

category of per se treatment, which is typically 

reserved for conduct “that would always or 

almost always tend to restrict competition and 

decrease output.”115 

The Supreme Court has moved away from 

per se rules in other contexts. In 1977, the 

Court overturned the per se rule for nonprice 

vertical restraints.116 In 1997, the Court 

overturned a per se rule for maximum resale 

price maintenance.117 And, in 2007, the Court 

overturned the per se rule against minimum 

resale price maintenance.118 In those cases, the 

Court determined that the practices could in 

many circumstances benefit consumers, 

counseling against applying a rule of per se 

illegality.119 

Commentators and panelists agree that the 

per se framework for assessing the legality of a 

tie under the antitrust laws should be 

abandoned.120

 The Supreme Court itself 

recently recognized that “many tying 

arrangements . . . are fully consistent with a 

free, competitive market.”121 The Department 

agrees that a rule of per se illegality for tying is 

misguided because tying has the potential to 

help consumers and cannot be said with any 

confidence to be anticompetitive in almost all 

economics, the modified per se test is not capable of 

identifying anticompetitive tying except by 

happenstance.”). 

115 Broad. Music, Inc. v. CBS, 441 U.S. 1, 19–20 

(1979). 

116 Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 

57–59 (1977). 

117 State Oil Co. v. Kahn, 522 U.S. 3, 22 (1997). 

118 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 

127 S. Ct. 2705, 2725 (2007). 

119 See also United States v. Microsoft Corp., 253 F.3d 

34, 94, 95 (D.C. Cir. 2001) (en banc) (per curiam) 

(declining to apply a per se rule to “bundling in 

platform software markets” because “wooden 

application of per se rules in this litigation may cast a 

cloud over platform innovation in the market for PCs, 

network computers and information appliances”). 

120 See supra notes 113–14. 

121 Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 

28, 45 (2006). 
 

 

 

 

 

90 SECTION 2 REPORT 

circumstances. 

The Department agrees that a rule of 

per se illegality for tying is misguided 

because tying has the potential to help 

consumers and cannot be said with any 

confidence to be anticompetitive in 

almost all circumstances. 

IV. Conclusion 

Tying typically benefits consumers by 

allowing firms to lower costs and better satisfy 

consumer demand. Because it is often 

procompetitive, the Department agrees with 

the vast majority of commentators that tying 

should not be judged under a rule of per se 

illegality. 

In place of the per se framework, the 

Department endorses a structured analysis, the 

first step of which should be to determine 

whether the tie has the potential to harm 

competition and consumers. In situations 

where harm to competition is implausible—for 

instance, where defendant lacks monopoly 

power (or any reasonable prospect of acquiring 

it through a tie) or where the tie is imposed 

solely to allow price discrimination—courts 

should uphold the arrangement. 

Further, the Department believes that when 

actual or probable harm to competition is 

shown, tying should be illegal only when (1) it 

has no procompetitive benefits, or (2) if there 

are procompetitive benefits, the tie produces 

harms substantially disproportionate to those 

benefits. The Department does not believe that 

a trivial benefit should outweigh substantial 

anticompetitive effects. The Department believes 

that this is the appropriate standard in view of the 

uncertainty that can surround tying’s competitive 

effects and the costs of inadvertently imposing 

antitrust liability on conduct that either helps or 

does not harm consumers. 

When actual or probable harm to 

competition is shown, tying should be 

illegal only when (1) it has no 

procompetitive benefits, or (2) if there 

are procompetitive benefits, the tie 

produces harms substantially 

disproportionate to those benefits. 
 

 

 

 

 

CHAPTER 6 

BUNDLED DISCOUNTS AND 

SINGLE-PRODUCT LOYALTY DISCOUNTS 

I. Bundled Discounts 

A. Introduction 

Bundled discounting is the practice of 

offering discounts or rebates contingent upon a 

buyer’s purchase of two or more different 

products, including bundled rebates where the 

amount of rebates a customer receives is based 

on the quantities of multiple products bought 

over some period.1

 Bundled discounting is 

common, usually benefits consumers, and 

generally does not raise antitrust concerns.2 

1 The offering of discounts or rebates conditioned 

upon the level or share of purchases of a single product 

is addressed infra part II. Also, conditioning the sale of 

one product upon the purchase of another is tying, 

which is the subject of chapter 5. One of the ways that 

firms tie is through what economists call “pure 

bundling,” which is selling two or more products 

together in fixed proportions and not selling any of the 

products separately. This chapter addresses the 

situation where the products are available separately as 

well as in a bundle, a practice economists call “mixed 

bundling.” See generally DENNIS W. CARLTON & JEFFREY 

M.PERLOFF,MODERN INDUSTRIAL ORGANIZATION 321–24 

(4th ed. 2005). 

2 See, e.g., Sherman Act Section 2 Joint Hearing: 

Academic Testimony Hr’g Tr. 136, Jan. 31, 2007 

(Rubinfeld) (stating that bundled discounting is “quite 

ubiquitous and often is procompetitive”); Sherman Act 

Section 2 Joint Hearing: Loyalty Discounts Session Hr’g 

Tr. 59, Nov. 29, 2006 (Kattan) (stating that “the 

prevalence” of bundled discounts and discounts 

having a retroactive feature “by firms that don’t have 

market power and have no hope of excluding 

competitors would suggest . . . that there is a good 

possibility that the efficiency explanation for these 

practices is the dominant one”); id. at 122–23 (Crane) 

(stating that “bundled discounting is pervasive and has 

many pro-competitive or competitively neutral 

reasons” and that the pervasiveness of a practice 

suggests there are often good explanations for it); 

But even though the practice typically results in 

consumers paying lower prices in the short 

term, bundled discounting by a monopolist 

may nonetheless harm competition in some 

circumstances.3 

There have been very few federal court 

decisions—and no Supreme Court decisions— 

analyzing bundled discounts under section 2, 

and the standards used in those decisions are 

not entirely consistent.4

 The United States took 

the position in its 2004 brief recommending 

against certiorari in LePage’s Inc. v. 3M5 that 

“although the business community and 

consumers would benefit from clear, objective 

guidance on the application of Section 2 to 

bundled rebates . . . it would be preferable to 

allow the case law and economic analysis to 

develop further.”6

 Since then, there has been 

Sherman Act Section 2 Joint Hearing: Tying Session 

Hr’g Tr. 29, Nov. 1, 2006 (Evans) (noting that “when 

practices are common in pretty competitive markets, . . . 

there should be a presumption that these practices are 

procompetitive”); RICHARD A. POSNER, ANTITRUST LAW 

253 (2d ed. 2001) (“If the practice is one employed 

widely in industries that resemble the monopolist’s but 

are competitive, there should be a presumption that the 

monopolist is entitled to use it as well.”). 

3 See infra Part I(C)(1). See generally Nov. 29 Hr’g Tr., 

supra note 2, at 7–23 (Nalebuff); Patrick Greenlee et al., 

An Antitrust Analysis of Bundled Loyalty Discounts, 26 

INT’L J. INDUS. ORG. 1132 (2008); Barry Nalebuff, 

Bundling As a Way to Leverage Monopoly (Yale Sch. of 

Mgmt., Working Paper No. ES-36, 2004) [hereinafter 

Nalebuff, Bundling]; Barry Nalebuff, Loyalty Rebates 

(Oct. 29, 2006) (hearing submission); Janusz Ordover & 

Greg Shaffer, Exclusionary Discounts (Aug. 25, 2006) 

(hearing submission). 

4 See infra Part I(B). 

5 324 F.3d 141 (3d Cir. 2003) (en banc). 

6 Brief for the United States as Amicus Curiae at 19, 
 

 

92 SECTION 2 REPORT 

additional case law as well as an explosion of 

discourse and debate among legal and 

economic academics and practicing lawyers 

about the economic effects of and proper legal 

approach to bundled discounts.7 

This chapter explores whether appropriate 

standards for analyzing bundled discounting 

by a monopolist are now more discernable. It 

examines the case law and the potential 

anticompetitive and procompetitive effects of 

bundled discounting. The chapter also discusses 

ways to analyze bundled discounting under 

section 2, including whether there are 

appropriate safe harbors that can be used in that 

analysis. 

B. Background 

Relatively few decisions address the legality 

of bundled discounting under section 2. As 

discussed below, most, but not all, courts that 

have considered the issue employ some type of 

a cost-based test to determine if the price of the 

bundle is below some measure of costs, but no 

consensus exists regarding the particular form 

of that test. 

One of the earliest cases involving bundled 

discounts was SmithKline Corp. v. Eli Lilly & Co.8 

In that case, before SmithKline entered the 

market, Lilly had used a volume-rebate plan to 

sell four patented antibiotics known as 

cephalosporins to nonprofit hospitals.9 When 

SmithKline licensed a fifth cephalosporin from 

3M v. LePage’s Inc., 542 U.S. 953 (2004) (No. 02-1865), 

availableat http://www.usdoj.gov/atr/cases/f203900/ 

203900.pdf. 

7 See, e.g., 3 PHILLIP E. AREEDA & HERBERT 

HOVENKAMP, ANTITRUST LAW ¶ 749b2 (Supp. 2007); 

Daniel A. Crane, Mixed Bundling, Profit Sacrifice, and 

Consumer Welfare, 55 EMORY L.J. 423 (2006); Greenlee et 

al., supra note 3; Thomas A. Lambert, Evaluating Bundled 

Discounts, 89 MINN. L. REV. 1688 (2005); Nalebuff, 

Bundling, supra note 3; Timothy J. Muris, Antitrust Law 

& Economics: Exclusionary Behavior and Bundled 

Discounts (Nov. 29, 2006) (hearing submission). See 

generally Nov. 29 Hr’g Tr., supra note 2, at 23–40 

(Lambert) (describing various tests suggested by 

commentators). 

8 427 F. Supp. 1089 (E.D. Pa. 1976), aff’d, 575 F.2d 

1056 (3d Cir. 1978). 

9 Id. at 1093–94. 

a foreign firm and sold it in competition with 

Lilly, Lilly responded by licensing the same 

drug and selling it as Kefzol.10 Lilly then 

modified its rebate plan by simultaneously 

reducing the rebate offered by roughly three 

percent and adding a “bonus dividend” of 

three percent provided that a hospital bought 

specified minimum quantities of three specific 

cephalosporins.11 Lilly expected that hospitals 

would meet the target on its two dominant 

cephalosporinsand would have to purchase the 

minimum quantities specified for Kefzol to 

qualify for the bonus dividend.12 

The court found that SmithKline would 

have had to offer a rebate of more than twenty 

percent on its one product to match Lilly’s 

bundled rebate.13 If SmithKline had lowered its 

price to Lilly’s effective level, the court 

concluded, SmithKline’s drug would not have 

been sufficiently profitable to justify remaining 

in the market, even if SmithKline had been able 

to “reduce its costs of goods to Lilly’s level.”14 

Thus, Lilly’s bundled rebates would have 

excluded SmithKline even if the latter firm 

were an equally efficient producer, and the 

court held that Lilly had violated section 2 

when it used its monopoly power in two 

products to exclude the “slightly less efficient” 

SmithKline from the market for the competitive 

product.15 

About twenty years after SmithKline, a 

different federal court analyzing a similar 

bundled-pricing plan found that the plan did 

not violate section 2. Ortho Diagnostic Systems, 

Inc. v. Abbott Laboratories, Inc. involved five 

assays that blood donor centers (BDCs) 

required to test blood for various viruses.16 

Only defendant Abbott made and sold all five 

assays, and it had seventy to ninety percent of 

sales of four of them.17 The Council of 

10 Id. at 1093. 

11 Id. at 1105. 

12 Id. at 1106. 

13 Id. 

14 Id. at 1108–09. 

15 Id. at 1128–29. 

16 920 F. Supp. 455, 458 (S.D.N.Y. 1996). 

17 Id. at 459. 
BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 93 

Community Blood Bank Centers solicited bids 

on a contract to supply assays to member 

BDCs, asking for different pricing schedules 

depending on whether the BDC bought all five 

assays from the chosen seller.18 Abbott won the 

contract with pricing schedules that gave 

significant discounts on each assay if a BDC 

bought all five from Abbott.19 Ortho alleged 

that BDCs “‘felt that they had to buy’” at least 

two assays from Abbott and maintained that 

the discount plan created a significant incentive 

to buy all five from Abbott.20 

Drawing on SmithKline, the court framed the 

key question as “whether a firm that enjoys a 

monopoly on one or more of a group of 

complementary products, but which faces 

competition on others, can price all of its 

products above average variable cost and yet 

still drive an equally efficient competitor out of 

the market.”21 The court explained that a 

plaintiff “must allege and prove either that (a) 

the monopolist has priced below its average 

variable cost or (b) the plaintiff is at least as 

efficient a producer of the competitive product 

as the defendant, but that the defendant’s 

pricing makes it unprofitable for the plaintiff to 

continue to produce” the product.22

 Because 

Ortho did not claim that it could not sell its 

products at a profit as a result of Abbott’s 

bundled discounting, the court found no 

section 2 violation.23 

Virgin Atlantic Airways Ltd. v. British Airways 

18 Id. at 459–60. 

19 Id. at 460–62. 

20 Id. at 461 (quoting court papers). 

21 Id. at 467. 

22 Id. at 469. While Ortho focused on whether the 

actual plaintiff was an equally efficient competitor, the 

Ninth Circuit’s decision in Cascade Health Solutions v. 

PeaceHealth, 515 F.3d 883, 905–08 (9th Cir. 2008), 

discussed below, concluded that the focus should 

instead be on whether a hypothetical equally efficient 

producer of the competitive product could meet the 

defendant’s discount. Commentators similarly criticize 

focusing on the actual plaintiff’s costs, rather than on 

those of a hypothetical equally efficient competitor. See, 

e.g., AREEDA & HOVENKAMP, supra note 7, ¶ 749a, at 

241–42; Lambert, supra note 7, at 1729. 

23 920 F. Supp. at 469–70. 

PLC,

24 while primarily viewed as a singleproduct loyalty discount case,25 also involved a 

bundled-discount claim. British Airways had 

entered into incentive agreements with travel 

agents and corporate customers that bundled 

routes by setting various targets for all British 

Airways routes or regional groups of routes 

and providing incentive payments each time a 

target was met.26 Virgin Atlantic alleged that a 

corporate customer that purchased tickets on 

British Airways monopoly routes thus had an 

incentive to purchase British Airways tickets on 

routes where Virgin Atlantic competed, even 

though Virgin Atlantic charged less on those 

routes.27 The court cited Ortho as holding “that 

there would be an antitrust violation if the 

competitive product in the bundle were sold for 

a price below average variable cost after the 

discounts on the monopoly items in the bundle 

were subtracted from the price of that 

competitive product.”28 However, Virgin had 

little or no factual evidence that this situation 

had ever arisen in the varied bundling patterns, 

and the court refused to impose liability merely 

on the theoretical possibility of below-cost 

pricing.29 

In each of these cases, the court analyzed the 

discount based on the relationship between 

defendant’s prices and its costs to produce the 

goods that made up the bundle. The 2003 

LePage’s decision represents a departure from 

this practice.30 In LePage’s, a manufacturer of 

private-label transparent tape charged that 3M 

maintained a monopoly in the market for 

transparent tape through a bundled-rebate 

program for large retail chains.31 That program 

conditioned certain rebates on retail customers 

meeting multiple target-growth rates for their 

24 69 F. Supp. 2d 571 (S.D.N.Y. 1999), aff’d, 257 F.3d 

256 (2d Cir. 2001). 

25 Single-product loyalty discounts are discussed 

infra part II. 

26 69 F. Supp. 2d at 574. 

27 Id. at 580. 

28 Id. at 580 n.8. 

29 Id. at 580–81. 

30 324 F.3d 141 (3d Cir. 2003) (en banc). 

31 Id. at 147. 
 

 

 

 

94 SECTION 2 REPORT 

purchases of 3M products in diverse product 

lines, such as home-care products, homeimprovement products, and stationery 

products.32 The rebate program allegedly 

shifted purchases away from LePage’s privatelabel tape and towards 3M’s branded and 

private-label tape by inducing customers to 

meet targets for purchases of 3M tape or risk 

losing rebates on 3M’s other products.33 

LePage’s alleged that it would have to 

compensate customers for the loss of rebates 

across those product lines, not just for the loss 

of tape-specific rebates, to defeat this shift.34 

LePage’s also argued that 3M’s bundled rebates 

and other conduct shielded 3M’s higher-priced 

Scotch brand tape against competition from 

LePage’s private-label tape and thereby helped 

to maintain 3M’s transparent-tape monopoly.35 

The jury found 3M liable for monopoly 

maintenance in violation of section 2.36 

The Third Circuit ultimately affirmed the 

judgment in an en banc decision. Notably, the 

court did not require LePage’s to prove that 

either it or a hypothetical equally efficient 

competitor could not meet the discount without 

pricing below cost. Rather, the jury 

instructions, which the Third Circuit upheld, 

provided that conduct is illegal under section 2 

when it “‘has made it very difficult or 

impossible for competitors to engage in fair 

competition.’”37 

Other courts, looking for more objective, 

cost-based standards such as those suggested 

by Ortho and other decisions, have disagreed 

with LePage’s. In Masimo Corp. v. Tyco Health 

Care Group, L.P., for example, the court vacated 

a jury finding of liability based on bundled 

discounts.38 Disagreeing with the reasoning of 

LePage’s, the court concluded “that as a general 

matter, absent evidence of predatory pricing or 

32 Id. at 154. 

33 Id. at 157, 160–61. 

34 Id. at 161. 

35 Id. at 162. 

36 Id. at 163. 

37 Id. at 168 (quoting trial court). 

38 No. CV 02-4770 MRP, 2006 WL 1236666, *14 (C.D. 

Cal. Mar. 22, 2006). 

tying, the practice of offering a discount on two 

or more bundled products is not 

anticompetitive under Section 2.”39 And in 

Information Resources, Inc. v. Dun & Bradstreet 

Corp.,

40 the court made no mention of LePage’s, 

but rather cited Virgin Atlantic for the 

proposition that “[w]hen price discounts in one 

market are bundled with the price charged in a 

second market, the discounts must be applied 

to the price in the second market in 

determining whether that price is below that 

product’s average variable cost.”41 Similarly, in 

Invacare Corp. v. Respironics, Inc., the court 

granted defendant summary judgment on 

section 2 claims where plaintiff and others 

bundled the same products as defendant and 

there was no allegation that defendant’s 

bundles were priced below cost.42 

In PeaceHealth, the Ninth Circuit also disagreed 

with LePage’s and applied a cost-based standard in 

evaluating bundled discounts.43 PeaceHealth and 

McKenzie (the predecessor to Cascade Health 

Solutions) were competing providers of primary 

and secondary acute-care hospital services. 

PeaceHealth also provided tertiary-care 

services, in which it had a very high market 

share (approaching ninety percent in certain 

sub-specialities); McKenzie did not provide 

tertiary services.44 McKenzie, which asserted 

that it could provide primary- and secondarycare services at a cost lower than PeaceHealth’s,45 

brought monopolization and attemptedmonopolization claims against PeaceHealth based 

on evidence that PeaceHealth offered bundledservice packages to some customers (insurance 

companies). These bundled offerings provided 

discounts on all services if insurance companies 

39 Id. at *13. However, the court also affirmed the 

jury’s finding of liability based on single-product 

discounts, without applying a price-cost test. See infra 

Part II. 

40 359 F. Supp. 2d 307 (S.D.N.Y. 2004). 

41 Id. 

42 No. 1:04 CV 1580, 2006 WL 3022968, *12 (N.D. 

Ohio Oct. 23, 2006). 

43 Cascade Health Solutions v. PeaceHealth,515 F.3d 

883 (9th Cir. 2008). 

44 Id. at 891. 

45 Id. at 897. 
 

 

 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 95 

made PeaceHealth their sole preferred provider 

for primary, secondary, and tertiary care.46 

In analyzing PeaceHealth’s bundled offerings, 

the Ninth Circuit rejected the Lepage’s non-cost 

based approach in explaining that “the 

fundamental problem . . . is that it . . . concludes 

that all bundled discounts offered by a 

monopolist are anticompetitive with respect to 

its competitors who do not manufacture an 

equally diverse product line” and that it fails to 

consider whether such discounts may be 

procompetitive.47 The Ninth Circuit also noted 

that the Supreme Court, which in Brooke Group 

Ltd. v. Brown & Williamson Tobacco Corp.48 and 

Weyerhaeuser Co. v. Ross-Simmons Hardware 

Lumber Co.49 applied a cost-based test to 

predatory-pricing and predatory-bidding 

claims, respectively, “forcefully suggested that 

we should not condemn prices that are above 

some measure of incremental cost.”50 The court 

reviewed various applications of a price-cost 

test and ultimately adopted a “discount 

attribution” standard, under which defendant 

is not liable under section 2 where, when the 

full amount of its discount on the bundled 

offering is allocated to the competitive product 

or products, the resulting price is above 

defendant’s incremental cost to produce the 

competitive product or products.51 

Thus, the handful of federal courts 

analyzing bundled discounts under section 2 

have developed conflicting standards. In 

particular, while the Third Circuit’s 2003 en 

banc decision in LePage’s did not apply an 

objective, cost-based test for determining the 

legality of bundled discounts under section 2, 

other cases, both before and after 

LePage’s—including PeaceHealth—have applied 

a cost-based standard, albeit not always 

focusing on the same costs. As many panelists 

stressed, this lack of legal clarity makes 

46 Id. at 892. 

47 Id. at 899. 

48 509 U.S. 209 (1993). 

49 127 S. Ct. 1069 (2007). 

50 PeaceHealth, 515 F.3d at 901. 

51 Id. at 906–10. It is not entirely clear whether the 

court’s standard was for a safe harbor or for liability. 

antitrust counseling and compliance difficult.52 

C. Analysis 

Commentators and panelists recognize the 

ubiquity of bundled discounting and the 

benefits that can flow from it. But they also 

agree that, under certain circumstances, a 

monopolist’s bundled discounting can 

potentially harm consumers.53 However, there 

is no consensus among courts or commentators 

on the appropriate analysis of such potential 

harm.54 This part of the chapter discusses the 

two principal theories of competitive harm 

from bundled discounting by a monopolist, the 

potential procompetitive benefits of bundled 

discounting, and a framework for analyzing 

bundled discounts under section 2, including 

potential safe harbors. 

1. Theories of Competitive Harm 

One theory of harm from bundled discounts 

is similar to the theory of harm from price 

predation of a single product and applies 

where bundle-to-bundle competition is 

reasonably possible—whether because an 

individual competitor can provide all the 

52 See, e.g., Sherman Act Section 2 Joint Hearing: 

Conduct as Related to Competition Hr’g Tr. 14, May 8, 

2007 [hereinafter May 8 Hr’g Tr.] (Rill); id. at 75 

(Melamed); Sherman Act Section 2 Joint Hearing: 

Business Testimony Hr’g Tr. 63–64, 83, Feb. 13, 2007 

[hereinafter Feb. 13 Hr’g Tr.] (Stern); Nov. 29 Hr’g Tr., 

supra note 2, at 167 (Crane). 

53 See generally Crane, supra note 7, at 443–47; Daniel 

L. Rubinfeld, 3M’s Bundled Rebates: An Economic 

Perspective, 72 U. CHI. L. REV. 243, 252–62 (2005); 

Greenlee et al., supra note 3, at 15; Nalebuff, Bundling, 

supra note 3; Muris, supra note 7, at 28–35. But see May 

8 Hr’g Tr., supra note 52, at 61 (Muris) (“[E]mpirically 

we know almost nothing that tells us that there are 

anticompetitive problems from bundling.”). 

54 See generally Sherman Act Section 2 Joint Hearing: 

Section 2 Policy Issues Hr’g Tr. 153–54, May 1, 2007 

[hereinafter May 1 Hr’g Tr.] (Jacobson) (describing 

bundled discounting as having aspects of predatory 

pricing, tying, and exclusive dealing); Nov. 29 Hr’g Tr., 

supra note 2, at 75 (Sibley) (“[I]f there is a general legal 

theory of bundled discounts . . . it is not predatory 

pricing and it is not always going to be the same as 

tying either. It is going to be something else, and I 

don’t know what it is.”); AREEDA & HOVENKAMP, supra 

note 7, ¶ 749b2. 
 

96 SECTION 2 REPORT 

products in the bundle, multiple competitors 

can team together to provide their own bundle, 

or sophisticated customers can assemble their 

own bundles. The primary difference is that 

with bundling there are multiple products, in 

contrast to one product in the predatory-pricing 

context. In either case, the below-cost pricing 

may force competitors to exit the market, after 

which a firm potentially could charge 

supracompetitive prices. Without below-cost 

pricing, equally efficient competitors would be 

able to match the bundled price, and 

competition would not be harmed. 

A second theory of competitive harm may 

apply when no rival can offer a competing 

bundle. In the simplest case, Firm A has a 

monopoly in Product X and bundles X with 

Product Y, at a discount. Firm B only sells 

Product Y, and no one other than Firm A sells 

X. In this situation, Firm A’s bundled 

discounting can have anticompetitive effects 

similar to those flowing from some 

anticompetitive ties. Specifically, it may allow 

Firm A to use its monopoly power in X to 

obtain a second monopoly in Y, or it may assist 

Firm A in maintaining its monopoly in X. 

The tying theory of bundled-discounting 

harm can further be illustrated with a 

hypothetical from the Ortho opinion.55 The 

hypothetical assumes that only A makes 

conditioner, that both A and B make shampoo, 

and that consumers must use both products. 

A’s average variable costs are $2.50 for 

conditioner and $1.50 for shampoo, while B’s 

average variable cost for shampoo is $1.25. A 

prices conditioner and shampoo at $5 and $3 if 

bought separately, but offers a bundled price of 

$5.25 if the products are bought as a package. 

This is above A’s average variable cost of $4 for 

both products. However, in order for B to 

compete for shampoo sales, it must persuade 

the customer to buy its shampoo while paying 

the unbundled price of $5 for A’s conditioner; 

this means that B can charge no more than $0.25 

for shampoo, which is below both A’s average 

variable cost for shampoo and B’s own lower 

average variable cost. 

55 920 F. Supp. 455, 467 (S.D.N.Y 1996). 

The harm to the competitive process in this 

hypothetical does not come about in the same 

way as it does with predatory pricing, because 

A is not charging a price—either for the goods 

that make up the bundle or for the bundle 

itself—that is less than its average variable cost 

for both products. Rather, the structure and 

level of A’s prices result in all or most 

purchasers buying both products from Firm A, 

because the price of the bundle is lower than 

the prices customers would have to pay to 

acquire the bundled goods outside the bundle. 

Because the anticompetitive potential of such 

conduct does not arise from the monopolist 

charging below-cost prices, but from linking 

the two products, the impact of the conduct 

described in the hypothetical resembles that of 

tying more than that of predatory pricing. 

2. Potential Procompetitive Benefits 

Commentators have pointed out many 

efficiencies potentially associated with bundled 

discounting. In much the same way that tying 

can lower a firm’s costs,56 bundled discounting 

can lower a firm’s costs. As one commentator 

explains, many of these discounting practices 

“are explained by economies of scale or scope 

in either manufacturing or transacting.”57 

Bundled discounting also can allow businesses 

both to induce existing customers to try new 

product or service offerings and give retailers 

incentives to promote particular products and 

services.58 Firms may also use bundled 

discounting to price discriminate in a way that 

56 See supra Chapter 5, Part III(B). 

57 AREEDA & HOVENKAMP, supra note 7, ¶ 749b; see 

also Daniel A. Crane, Multiproduct Discounting: A Myth 

of Nonprice Predation, 72 U. CHI. L. REV. 27, 40 (2005) 

(“Diversified firms may achieve economies of scope or 

scale, reduce transaction costs or stimulate demand by 

selling products in a package . . . .” (footnotes omitted)); 

David S. Evans & Michael Salinger, Why Do Firms 

Bundle and Tie? Evidence from Competitive Markets and 

Implications for Tying Law, 22 YALE J. ON REG. 37, 41 

(2005) (“Bundling—offering two or more products at a 

single price—can provide efficiencies such as marginal 

cost savings, quality improvement, and customer 

convenience.”). 

58 Nov. 29 Hr’g Tr., supra note 2, at 111–12 (Muris); 

see also Crane, supra note 7, at 430–43; Muris, supra note 

7, at 3–7. 
 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 97 

increases output and economic efficiency.59 

3. Safe Harbors 

Because of the ubiquity of bundled 

discounting and the disagreement as to the 

proper antitrust analysis, panelists noted that 

there would be a substantial benefit from 

greater clarity and more administrable rules.60 

In particular, the Third Circuit’s decision in 

LePage’s, upholding jury instructions stating 

that conduct is illegal under section 2 when it 

“‘has made it very difficult or impossible for 

competitors to engage in fair competition,’”61 

has been roundly criticized for its failure to 

provide any useful guidance.62 Many 

commentators suggest that clear, administrable 

standards for analyzing bundled discounting 

must start with some kind of price-cost safe 

harbor or screen,63 and many panelists agreed.64 

59 See, e.g., AREEDA &HOVENKAMP, supra note 7, ¶ 749b2, 

at 263–64 (“[B]undling may take advantage of the fact that 

different customers have different demand elasticities for 

individual goods. By bundling them . . . output can go up 

. . . and production and distribution costs can decline.”). 

60 See, e.g., May 8 Hr’g Tr., supra note 52, at 14, 76–77 

(Rill); id. at 75–76 (Melamed); id. at 78 (Creighton); May 

1 Hr’g Tr., supra note 54, at 18–19 (Kolasky); id. at 19 

(Jacobson); id. at 31–32 (Baer); id. at 144–145 (Kolasky); 

Feb. 13 Hr’g Tr., supra note 52, at 63–64 (Stern); Nov. 29 

Hr’g Tr., supra note 2, at 167–68, 170 (Crane). Similarly, 

the Antitrust Modernization Commission (AMC), 

before going on to recommend a three-part test for 

bundled discounts including a price-cost safe harbor, 

first concluded that “[t]he lack of clear standards 

regarding bundling . . . may discourage conduct that is 

procompetitive or competitively neutral and thus may 

actually harm consumer welfare.” ANTITRUST 

M ODERNIZ A TION C OMM ’ N , REPORT AN D 

RECOMMENDATIONS 94 (2007), available at 

http://govinfo.library.unt.edu/amc/report_ 

recommendation/amc_final_report.pdf. 

61 324 F.3d 141, 168 (3d Cir. 2003) (en banc) (quoting 

trial court). 

62 See, e.g., May 8 Hr’g Tr., supra note 52, at 60–61 

(Pitofsky, Muris); id. at 78 (Creighton); May 1 Hr’g Tr., 

supra note 54, at 18–19 (Kolasky); Nov. 29 Hr’g Tr., 

supra note 2, at 86–89 (Lambert, Kattan); id. at 166–68 

(Crane); see also ANTITRUST MODERNIZATION COMM’N, 

supra note 60, at 97 (criticizing the decision as “too 

vague and therefore . . . likely to chill welfareenhancing bundled discounts or rebates” (footnote 

omitted)). 

63 See, e.g., ANTITRUST MODERNIZATION COMM’N, 

In PeaceHealth, the Ninth Circuit focused on 

the question whether a price-cost test was 

needed and invited supplemental amicus 

curiae briefs addressing whether a plaintiff 

bringing a section 2 claim based on bundled 

discounting “must prove that the defendant’s 

prices were below an appropriate measure of 

the defendant’s cost.”65 The vast majority of the 

amicus briefs supported adoption of a pricecost screen.66 As discussed above, the 

PeaceHealth decision ultimately adopted a pricecost test.67 

Support for a price-cost safe harbor for 

bundled discounting, however, is not universal. 

For example, while almost all the PeaceHealth 

amici supported a price-cost test, one brief 

suggested that cost-based tests ignore situations 

in which less efficient competitors constrain a 

monopolist’s pricing and argued: “Because 

bundled discounts need not necessarily be 

below cost to harm competition, the proper 

legal standard should focus on the conduct’s 

effect on competition rather than its 

relationship to defendant’s cost structure.”68 

In addition, some panelists suggested that a 

price-cost safe harbor would be inappropriate 

supra note 60, at 99–100; AREEDA & HOVENKAMP, supra 

note 7, ¶ 749b2, at 252–57; Crane, supra note 7, at 

480–84; Muris, supra note 7, 41–60; Carl Shapiro, 

Exclusionary Conduct: Testimony Before the Antitrust 

Modernization Commission 18 (Sept. 29, 2005) 

(unpublished manuscript), available at http://govinfo. 

library.unt.edu/amc/commission_hearings/ 

pdf/Shapiro_Statement.pdf. 

64 See Nov. 29 Hr’g Tr., supra note 2, at 95–99, 

185–94. One panelist who stated that defendant’s 

satisfying an appropriate price-cost test would be 

“pretty convincing” nonetheless suggested that the 

price-cost test should not necessarily be part of 

plaintiff’s burden. Id. at 186–88 (Tom). 

65 Mar. 20, 2007 Order, Cascade Health Solutions v. 

PeaceHealth, 515 F.3d 883 (9th Cir. 2008) (Nos. 05-

35627, 05-36153, 05-36202). 

66 See, e.g., infra notes 75, 83 and accompanying text. 

67 515 F.3d 883, 909–10 (9th Cir. 2008). 

68 Brief of Amici Curiae American Antitrust 

Institute, Consumer Federation of America and 

Consumers Union Supporting McKenzie-Williamette 

and Affirmance at 21, Cascade Health Solutions v. 

PeaceHealth, 515 F.3d 883 (9th Cir. 2008) (Nos. 05-

36153, 05-36202); see also id. at 24. 
 

98 SECTION 2 REPORT 

because there could be situations in which the 

bundled price might not truly be a cost savings 

to the consumer.69 They posit that there may be 

instances where there is not any real price cut 

involved because “a firm with monopoly 

power raises the standalone price of its 

monopoly product—presumably to some 

above-monopoly level—and then introduces a 

bundled-rebate program offering a ‘sham’ 

discount.”70 In this situation, the bundled 

discount does not result in lower prices. In 

particular, one panelist stated that, given 

certain assumptions about the markets, one can 

determine whether consumer welfare has gone 

up or down as a result of bundled discounting, 

and thus perhaps whether section 2 has been 

violated, simply by determining whether the 

out-of-bundle price of the monopoly good is 

higher than its pre-bundled price. In that case, 

he maintained, “you don’t need to know 

anything about costs.”71 

However, other panelists questioned 

whether the frequency of such illusory 

discounts is sufficient to shape legal rules.72 In 

particular, one panelist questioned both the 

likelihood of fictitious discounts and the ability 

to distinguish them from the more typical 

bundled discounts that do provide customers 

the benefit of lower prices.73 Product attributes 

may have changed,74 or prices may have moved 

for a variety of supply and demand conditions 

69 May 1 Hr’g Tr.,supra note 54, at 142–43 (Elhauge); 

Nov. 29 Hr’g Tr., supra note 2, at 69–70 (Nalebuff); id. at 

170–71 (Tom). 

70 Rubinfeld, supra note 53, at 252 (citing authors of 

contractual-tying theory). 

71 Nov. 29 Hr’g Tr., supra note 2, at 95 (Sibley). 

72 Id. at 71–74 (Kattan, Lambert). 

73 Id. at 71 (Kattan). He also suggested that a pricecost safe harbor could still be applied and may be 

adequate to address the concerns raised by the sham or 

fictitious-discount models. Id. at 93; see also id. at 93 

(Sibley) (suggesting that SmithKline was a case in which 

a price-cost safe harbor was in fact applied to what may 

have been a fictitious discount). 

74 Nov. 29 Hr’g Tr., supra note 2, at 71 (Kattan) 

(suggesting difficulty in assessingwhetherthebundling 

caused out-of-bundle prices to increase, because of 

other changes (e.g., quality, performance, and product 

attributes) that may take place over the same period). 

independent of the bundling or just because a 

firm with monopoly power decides it was not 

charging the correct monopoly price. 

The Department believes that sound, 

administrable rules for bundled discounting by 

a monopolist would be valuable and that 

screens or safe harbors have the potential to 

provide more certainty in this area without 

harming antitrust enforcement. Two different 

price-cost safe harbors for bundled discounting 

have been the subject of the majority of the 

commentary and discussion: the total-bundle 

predation-based (or aggregate or Brooke Group) 

safe harbor and the discount-allocation (or 

Ortho or AMC) safe harbor. We turn to them 

now. 

a. The Total-Bundle

 Predation-Based Safe Harbor 

One proposed safe harbor would protect a 

firm’s bundled discounting where the 

discounted price of the bundle exceeds an 

appropriate measure of the aggregate cost of 

the bundle’s constituent products. This 

approach would mirror that followed in 

predatory-pricing cases, analyzing defendant’s 

price and cost for the entire bundle.75 

This safe harbor would allow firms 

significant latitude in pricing bundles. “[T]he 

primary advantages of such a rule would be 

that it is administrable and predictable, and 

would be the least likely to pose undue risks of 

overdeterring procompetitive behavior.”76 

Support for this safe harbor does not rely on the 

conclusion that a bundle priced above an 

appropriate measure of cost can never be 

anticompetitive. Rather, like the approach in 

Brooke Group, it is based on the reasoning that 

above-cost bundled discounting very often 

benefits consumers and “is beyond the practical 

ability of a judicial tribunal to control without 

courting intolerable risks of chilling legitimate 

75 Muris, supra note 7, at 46–60; see, e.g., Brief of 

Pacific Bell Telephone Company (D/B/A AT&T 

California) and Visa U.S.A. Inc. as Amici Curiae 

Supporting Reversal, Cascade Health Solutions v. 

PeaceHealth, 515 F.3d 883 (9th Cir. 2008) (Nos. 05-

35627, 05-35640, 05-36153, 05-36202). 

76 Muris, supra note 7, at 30. 
 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 99 

price cutting.”77 As one panelist explained this 

view, “[I]t is simply too difficult to separate 

the pro-competitive wheat from the 

anticompetitive chaff and [trying to do so] will 

end up chilling procompetitive bundled 

discounting . . . so the best approach is to have 

a per se legality rule for above-cost bundled 

discounts, very much along the lines of the 

Brooke Group rule.”78 

The AMC considered but did not endorse 

the total-bundle predation-based safe harbor. 

The AMC Report noted testimony before it that 

this rule “ignores the effects of bundling insofar 

as it permits bundled discounts where a 

monopolist lowered its price in a competitive 

market below the monopolist’s average 

variable cost for the competitively priced 

product.”79 Similarly, one panelist criticized 

the total-bundle predation-based safe harbor 

because it 

assumes either (1) that above-cost bundled 

discounts are so unlikely to exclude equally 

or more efficient competitors that the 

search for exclusionary bundled discounts 

is not worth the effort, or (2) that there is no 

alternative evaluative approach that is 

easily administrable and is unlikely to 

overdeter proconsumer discounts. Both 

assumptions are probably untrue.80 

One treatise suggests applying a totalbundle predation-based safe harbor only in 

instances in which it is likely that other 

significant rivals would offer a comparable 

bundle.

81 Where such bundle-to-bundle 

competition is possible, equally efficient 

competitors would be able to match an abovecost bundled price.82 

77 Brooke Group Ltd. v. Brown & Williamson 

Tobacco Corp., 509 U.S. 209, 223 (1993). 

78 Nov. 29 Hr’g Tr., supra note 2, at 26–27 (Lambert) 

(describing but not endorsing the rule). 

79 ANTITRUST MODERNIZATION COMM’N, supra note 

60, at 98 (citing AMC testimony of Steven Salop). 

80 Lambert, supra note 7, at 1705; see also Nov. 29 

Hr’g Tr., supra note 2, at 27 (Lambert). 

81 See AREEDA & HOVENKAMP, supra note 7, ¶ 749b, 

at 245–46, 258–59. 

82 Id. at 246 (“A rule condemningabove-cost package 

discounts in this situation would run into all the 

b. The Discount-Allocation

 Safe Harbor 

A number of courts and commentators have 

sought to develop legal standards that reflect 

the possibility that a monopolist’s bundled 

discounting could pass a predation-based test 

applied to the entire bundle and still exclude an 

equally efficient producer of one or more 

products in the bundle. These efforts have 

resulted in the development of the discountallocation safe harbor, which compares an 

appropriate measure of defendant’s cost for the 

competitive product in a bundle to defendant’s 

“imputed price” of that product: the price after 

allocating to the competitive product all 

discounts and rebates attributable to the entire 

bundle.83 

One treatise supports a discount-allocation 

safe harbor in certain cases.84 A number of 

panelists at the hearings also expressed 

qualified support for it,85 and the PeaceHealth 

problems that predatory pricing law faces with respect 

to single-product pricing.”). 

83 See, e.g., Brief of Amici Curiae Law Professors in 

Support of Defendant-Appellant and Cross-Appellee 

PeaceHealth Supporting Reversal of the Verdict 

Concerning Bundled Discounts, Cascade Health 

Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008) 

(Nos. 05-35627, 05-35640, 05-36153, 05-36202) 

[hereinafter Law Professors’ Amici Brief]; Brief of Amici 

Curiae Genentech, Inc., Honeywell International Inc., 

Kimberly-Clark Corp., Kraft Foods, Inc., The Coca-Cola 

Company, and United Technologies Corp. in Support 

of Appellant/Cross-Appellee PeaceHealth,515 F.3d883 

(9th Cir. 2008) (Nos. 05-035627, 05-35640) [hereinafter 

Genentech et al. Amici Brief]. 

84 AREEDA & HOVENKAMP, supra note 7, ¶ 749b, at 

250–59 (supporting a discount-allocation safe harbor in 

instances where no significant rivals offer or are likely 

to offer the same package and viewing it as analogous 

to tying’s requirement that two products are actually 

tied together). 

85 See, e.g., May 8 Hr’g Tr., supra note 52, at 59 (Rill) 

(preferring the aggregate-cost rule but suggesting as an 

alternative a discount-allocation safe harbor); id. at 64 

(Melamed) (supporting what he described as AMC 

Commissioner Carlton’s approach of using this safe 

harbor and applying a no-economic-sense test to 

conduct outside it); id. at 68–70 (Rule) (supporting the 

safe harbor and, for conduct outside it, focusing on 

exclusion or foreclosure); Nov. 29 Hr’g Tr., supra note 2, 

at 21, 94, 97–98 (Nalebuff), id. at 65 (Kattan); id. at 77 
 

100 SECTION 2 REPORT 

decision adopted this rule.86 A panelist who 

supported this safe harbor maintained that its 

price-cost test is administrable because 

“determining average variable cost . . . presents 

a relatively tractable problem, even though it is a 

fairly complicated one . . . . It leads to predictable 

results.”87 Proponents of a discount-allocation 

safe harbor also contend that it “brings 

discipline and structure to pretrial dispositive 

motions and directed verdict motions, a 

required matrix for expert reports and 

testimony, and a frame for jury instructions.”88 

One panelist, however, saw both operational 

and analytical difficulties with a discountallocation test. Operationally, he saw it as 

creating “something of a daunting task . . . 

[with] a margin or opportunity for error . . . that 

I think is quite substantial.”89 A commentator 

similarly suggests that “[t]he test is almost 

certainly not administrable.”90 He contends 

that it may be difficult to measure both the 

discount in multi-product bundle situations, 

particularly when consumers purchase various 

combinations of products in the bundle, and 

the cost of the competitive product, particularly 

given the difficulty of identifying and 

allocating joint costs for goods in a bundle.91 

In addition, the equally efficient competitor 

concept that is the foundation for the discountallocation safe harbor may pose theoretical 

problems.92 For example, ifthere are economies 

of scale, the monopolist may have lower costs 

(Sibley); id. at 121, 128–29 (Crane); id. at 160, 188–91 

(Ordover); see also id. at 151–57 (Tom) (questioning 

whether a safe-harbor approach rather than use of 

presumptions is appropriate). 

86 515 F.3d 883, 903 (9th Cir. 2008). Some other case 

law appears to suggest it as well. See supra Part I(B). 

87 Nov. 29 Hr’g Tr., supra note 2, at 62–63 (Kattan). 

88 Law Professors’ Amici Brief, supra note 83, at 15. 

89 May 8 Hr’g Tr., supra note 52, at 58 (Rill); see also 

id. at 58–60 (concluding that it nonetheless might be 

appropriate if employed as a safe harbor). 

90 Aaron M. Panner, Bundled Discounts and the 

Antitrust Modernization Commission, ESAPIENCE CENTER 

FOR COMPETITION POLICY, July 2007, at 6. 

91 Id. at 5–7. 

92 See Brief for the United States as Amicus Curiae, 

supra note 6, at 13 n.10; Chapter 3, Part III(C). 

simply because it presently has higher volume. 

It may similarly have lower costs where there 

are economies of scope involved in offering 

multiple products. One panelist, who opposed 

the discount-allocation safe harbor and 

supported the Brooke Group rule, asked: “[A]ll 

else equal, how can a firm that offers you less of 

what you want be equally efficient with a firm 

that offers you more?”93 He stated that these 

problems with the equally efficient competitor 

concept in this context call into question the 

underlying premise of the discount-allocation 

safe harbor.94 

The AMC proposed a three-part test for 

bundled discounting.95 The first “screen” of 

that test in effect sets forth a discount-allocation 

safe harbor. It requires plaintiff to show that 

“after allocating all discounts and rebates 

attributable to the entire bundle of products to 

the competitive product, the defendant sold the 

competitive product below its incremental cost 

for the competitive product.”96 If plaintiff cannot 

show price below cost after this discount 

allocation,the safe harbor applies and the inquiry 

ends.97 

The AMC concluded that its discountallocation screen provides clarity to businesses 

and is sufficiently administrable for courts to 

apply.98 The AMC also viewed this screen as 

subjecting to scrutiny under section 2 only 

those bundled discounts that “could exclude a 

hypothetical equally efficient competitor.”99 

The AMC recognized that this would permit 

bundled discounts that could exclude a less 

efficient competitor that had nevertheless 

provided some constraint on pricing.100 

93 Nov. 29 Hr’g Tr., supra note 2, at 113 (Muris). 

94 May 8 Hr’g Tr., supra note 52, at 61 (Muris). 

95 ANTITRUST MODERNIZATION COMM’N, supra note 

60, at 99. 

96 Id. 

97 Id. at 100. 

98 Id. 

99 Id. 

100 Compare, e.g., May 1 Hr’g Tr., supra note 54, at 

143–44 (Elhauge) (noting both that a less efficient rival 

may constrain a monopolist’s pricing and that a 

monopolist can raise its rivals’ costs by denying it 
 

 

 

 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 101 

However, the AMC reasoned that the 

difficulties of assessing those circumstances, the 

lack of predictability and administrability of 

any standard that would capture them, and the 

undesirability of a test that would protect less 

efficient competitors made reliance on the 

hypothetical equally efficient competitor concept 

appropriate for bundled-pricing practices.101 

As is evident from the above discussion, 

bundled discounts share characteristics of both 

predatory pricing and tying. Professor 

Hovenkamp suggests that they “are best analyzed 

by a model that draws a little from each area.”102 

The Department agrees and sets forth below two 

safe harbors for bundled discounts, one 

applicable to a predation theory and one 

applicable to a tying theory. 

The Department believes that where bundleto-bundle competition is reasonably possible, 

the potential competitive harm of bundled 

discounting mirrors that of predatory pricing. 

The price-cost safe harbor in this instance 

should therefore mirror the predatory-pricing 

safe harbor: the bundled discount should be 

economies of scale), and Steven C. Salop, Avoiding 

Error in the Antitrust Analysis of Unilateral Refusals to 

Deal 5 (Sept. 21, 2005) (unpublished manuscript), 

available at http://govinfo.library.unt.edu/amc/ 

commission_hearings/pdf/Salop_Statement_Revised 

%209-21.pdf (“Entry by higher cost . . . competitors can 

provide competition to a monopolist and cause prices 

to fall and output to rise, which increases consumer 

welfare and allocative efficiency.”), with AREEDA & 

HOVENKAMP, supra note 7, ¶ 749a, at 242 (“Requiring 

the defendant’s pricing policies to protect the trade of 

higher cost rivals is overly solicitous of small firms and 

denies customers the benefits of the defendant’s lower 

costs.”), and id. ¶ 749b1, at 249 (“[N]o firm, not even a 

monopolist, is a trustee for another firm’s economies of 

scale. To force such a firm to hold a price umbrella over 

its rivals . . . in order to protect the rivals’ inefficiently 

small production, would be a blatant example of 

protecting competitors at the expense of consumers.”). 

101 ANTITRUST MODERNIZATION COMM’N, supra note 

60, at 100. The AMC also noted that it was not 

“recommending application of [its three-part test] 

outside the bundled pricing context, for example in 

tying or exclusive dealing cases.” Id. at 114 n.157. 

102 AREEDA & HOVENKAMP, supra note 7, ¶ 749b2, at 

251. 

lawful if the price of the bundle is not below an 

appropriate measure of cost of the bundle.103 In 

addition, as in ordinary predatory-pricing 

analysis, a showing that recoupment is likely 

should be required. 

The Department believes that where 

bundle-to-bundle competition is 

reasonably possible, the potential 

competitive harm of bundled 

discounting mirrors that of predatory 

pricing. The price-cost safe harbor in 

this instance should therefore mirror 

the predatory-pricing safe harbor. 

Where bundle-to-bundle competition is not 

reasonably possible because of the inability of 

any substantial competitor or group of 

competitors to provide a similar range of items, 

the Department believes that the potential 

competitive harm of bundled discounting more 

closely resembles that from tying than that 

from predatory pricing. In these circumstances, 

the Department believes that a discountallocation safe harbor that compares an 

appropriate measure of a monopolist’s cost for 

the competitive product in a bundle to its 

imputed price of that product—the price after 

allocating to the competitive product all 

discounts and rebates attributable to the entire 

bundle—is the appropriate approach. A 

plaintiff, therefore, would be required to show 

that defendant sold the competitive product at 

an imputed price that was below its incremental 

cost of that product.104 

103 See supra chapter 4, part I (C)(3) for a discussion 

of the appropriate cost measures to apply in predatorypricing cases. 

104 See also ANTITRUST MODERNIZATION COMM’N, 

supra note 60, at 99 (stating that “after allocating all 

discounts and rebates attributable to the entire bundle 

of products to the competitive product, the defendant 

sold the competitive product below its incremental cost 

for the competitive product”). Where there are multiple 

competitive products in such a bundle, the Department 

believes that the discount-allocation safe harbor should 

apply to all of the monopolist’s competitive products 

together. For example, if the monopolist produces 

monopoly good X and competitive goods Y and Z, the 

discount-allocation safe harbor should apply to goods 

Y and Z together, regardless of whether plaintiff or any 
 

 

102 SECTION 2 REPORT 

Where bundle-to-bundle competition is 

not reasonably possible, the 

Department believes that a discountallocation safe harbor is appropriate. 

The Department recognizes that it is 

theoretically possible for anticompetitive 

conduct to come within the discount-allocation 

safe harbor, particularly where the bundled 

discount denies competitors the ability to attain 

economies of scale. The hypothetical equally 

efficient competitor concept on which the safe 

harbor is based is imperfect. However, the 

Department believes that the risk of false 

negatives posed by employing the safe harbor 

is insufficient to warrant further consideration 

of conduct that comes within the safe harbor, 

given the administrative costs of proceeding, 

the risk of erroneous condemnations of 

conduct, and, perhaps most importantly, the 

potential chilling effect on legitimate price 

discounting.105 

4. Analysis of Bundled Discounts

 Falling Outside a Safe Harbor 

An often overlooked concern with adopting 

any safe harbor is that conduct falling outside 

the safe harbor might inappropriately give rise 

to a negative presumption about the conduct.106 

other rival produces both goods Y and Z. Because 

goods Y and Z are competitive, a rival could offer these 

goods in a package even if the rival did not itself 

produce both goods. Equally efficient producers of Y 

and Z could jointly offer a Y–Z package and would not 

be foreclosed by the monopolist’s bundled offering if 

the monopolist came within the discount-allocation safe 

harbor as applied to Y–Z together. 

105 The AMC and others have been especially 

concerned about the risk of false positives in 

prosecuting bundled discounting, relative to the 

likelihood of false negatives. See, e.g., ANTITRUST 

MODERNIZATIONCOMM’N, supra note 60, at 94–100; Nov. 

29 Hr’g Tr., supra note 2, at 55–64 (Kattan); AREEDA & 

HOVENKAMP, supra note 7, ¶ 749b2, at 243–45; Crane, 

supra note 7, at 465–68; Muris, supra note 7, at 8. But see 

Roy T. Englert, Jr., Defending the Result in Lepage’s v. 

3M: A Response to Other Commentators, 50 ANTITRUST 

BULL.481,485–86,497 (2005)(suggesting that there may 

be more reason to worry about false negatives relative 

to false positives for bundled pricing than with 

predatory pricing). 

106 Two AMC Commissioners, although joining the 

Several panelists observed that bundled 

discounts can exclude equally efficient 

competitors while increasing consumer 

welfare.107 One panelist cautioned that where 

defendant fell outside a price-cost safe harbor, 

“you would still want some sensible 

explanation of how this gives the defendant 

power over price, how prices go up as a 

result.” 108 A safe harbor can be 

counterproductive if businesses or courts 

assume improperly that failing to come within 

it creates a presumption of anticompetitive 

conduct. 

A safe harbor can be counterproductive 

if businesses or courts assume 

improperly that failing to come within 

it creates a presumption of 

anticompetitive conduct. 

A safe harbor should, therefore, not be 

misunderstood as a demarcation between legal 

and illegal conduct. Rather, it is a simple 

statement of conduct that is clearly legal. 

Failure to come within it does not by itself 

indicate harm to competition. If defendant’s 

pricing falls outside the discount-allocation safe 

harbor, then the bundled discounting is 

potentially exclusionary. A bundled discount 

that falls outside the discount-allocation safe 

harbor still has to be analyzed for competitive 

effects.109 

AMC’s unanimous recommendation on how to treat 

bundled discounting, expressed concern that many 

pricing schemes where exclusion is not an issue would 

fall outside the safe harbor and thus be subject to 

further scrutiny. See ANTITRUST MODERNIZATION 

COMM’N, supra note 60, at 99 n.*; see also id. at 398–99 (if 

the AMC’s discount-allocation safe harbor is adopted 

by courts, there should not be a negative presumption 

from failing it). 

107 See, e.g., Nov. 29 Hr’g Tr., supra note 2, at 41, 

43–45 (Sibley); id. at 59–60, 92 (Kattan); id. at 118 

(Muris). 

108 Id. at 201 (Tom); see also May 8 Hr’g Tr., supra 

note 52, at 69–70 (Rule) (stressing the importance of 

focusing on the extent of the exclusion of competition 

for pricing that falls outside the safe harbor); id. at 72 

(Melamed) (“I assume everybody agrees here we have 

to have a rigorous competitive effects test.”). 

109 As discussed above, the Departmentbelieves that 
 

 

 

 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 103 

The third prong of the AMC’s three-pronged 

test110 requires plaintiff to show that “the 

bundled discount or rebate program has had or 

is likely to have an adverse effect on 

competition.”111 The AMC Report does not 

describe how an actual or likely adverse effect 

on competition would be shown. An amicus 

brief filed in PeaceHealth signed by, among 

others, two AMC Commissioners, purports to 

describe the analysis under the AMC’s third 

prong as a rule-of-reason analysis, stating that 

courts would determine whether the pricing 

practice, net of efficiencies it may create, is 

likely to increase prices, reduce output, or 

otherwise impair competition substantially in 

a relevant market. Under this approach, the 

impact on rivals must be found to be so 

substantial, and the ability of others to enter or 

expand so limited, that rivals can no longer 

operate as a meaningful constraint on 

ordinary predatory-pricing analysis should apply if 

bundle-to-bundle competition is reasonably possible. 

110 The second prong of the AMC’s test requires 

plaintiff to show that defendant is likely “to recoup [its] 

short-term losses.” ANTITRUST MODERNIZATION COMM’N, 

supra note 60, at 99. This requirement effectively serves as 

another screen. However, the Department believes this 

requirement is logically problematic, because a 

defendant that fails the first discount-allocation prong 

is not necessarily incurring any short-term losses from 

offering bundled discounts, so there may not be any 

short-term losses to recoup. The PeaceHealth court 

rejected the recoupment prong of the AMC test on the 

ground that, as opposed to predatory pricing, 

“exclusionary bundling does not necessarily involve 

any loss of profits for the bundled discounter,” making 

it “analytically [un]helpful to think in terms of 

recoupment of a loss that did not occur.” 515 F.3d 883, 

910 n.21 (9th Cir. 2008). One AMC Commissioner has 

suggested that the recoupment prong was inserted 

largely to make the AMC’s bundled-discounting test 

look more like the Brooke Group test for predatory 

pricing and that, while a recoupment safe harbor is part 

of the AMC recommendation, he “wouldn’t pay an 

awful lot of attention to it.” May 1 Hr’g Tr., supra note 

54, at 155–56 (Jacobson). Moreover, if the competitive 

harm that may flow from bundled discounts (where 

bundle-to-bundle competition is not possible) is not 

really from predatory pricing, there would appear to be 

little reason to try to mirror the Brooke Group predatorypricing test. 

111 ANTITRUST MODERNIZATION COMM’N, supra note 

60, at 99. 

defendant’s monopoly power.112 The brief does 

not provide further detail as to exactly what a 

plaintiff would have to show to establish this 

part of its case under the AMC’s test. 

Panelists addressed the required extent of 

impact on rivals, considering whether a rival’s 

exit is required for the competitive process to 

be harmed. Some panelists contended that a 

plaintiff should not have to show that 

competitors exited the market, noting that harm 

to competition can occur even if competitors 

remain. For example, one panelist stated that 

“if you are able to keep your rivals at 10 and 15 

percent, they may choose not to invest in this 

business, not to try to expand it . . . and there 

can be tremendous harm in the long run.”113 

Another suggested that bundled discounting is 

harmful when it allows a competitor to operate 

profitably but at a scale sufficiently constricted 

so as to render it much less constraining of the 

market outcome.114 

While agreeing that competitive harm could 

occur even if rivals were not driven to exit the 

market, other panelists cautioned against 

antitrust intervention in these instances, 

especially considering that bundled discounting 

offers lower prices immediately to consumers. 

One panelist suggested that the need for 

efficient legal rules and the concern for false 

positives dictate that “[a]s a practical matter, 

we ought to be cautious if the exclusion is 

partial.”115 Another concluded that plaintiff’s 

claim should fail if the allegedly aggrieved rival 

is continuing to operate profitably in the 

market for the competitive good, even if at a 

much lower volume or market share than 

previously.116 

Another topic of debate was how to treat 

non-exclusionary explanations for discounting. 

The AMC Report did not address this question, 

except in the Separate Statement of 

Commissioner Carlton. He explained that, in 

112 Genentech et al. Amici Brief, supra note 83, at 19, 

20. 

113 Nov. 29 Hr’g Tr., supra note 2, at 102 (Nalebuff). 

114 Id. at 177–79 (Ordover). 

115 Id. at 179 (Muris). 

116 Id. at 99–100 (Lambert). 
 

104 SECTION 2 REPORT 

the standard predation model, “it is odd for 

price to be below marginal cost in the absence 

of a predatory goal”117 but that in the context of 

bundling: 

it is not odd to have the firm fail the first 

prong of the AMC test in the absence of a 

predatory goal. The reason is that bundling 

can be used as a method of price 

discrimination and it can be optimal for a 

firm, with no predation motivation, to set 

prices that fail the first prong.118 

Accordingly, he suggested allowing a defense 

for bundled discounting based on legitimate 

business reasons unrelated to predation and 

that there should be no presumption against 

pricing that fails the first prong.119 One panelist 

suggested that CommissionerCarlton’s Separate 

Statement effectively articulates a no-economicsense test for bundled discounts falling outside 

the discount-allocation safe harbor.120 

Another panelist similarly suggested that 

“any explanation that the defendant could offer 

that’s accepted as the true explanation that is 

not an exclusionary explanation should be 

legitimate.”121 He agreed that this sounded like 

employing a no-economic-sense test to pricing 

outside the safe harbor and observed that while 

a profit-sacrifice or no-economic-sense test may 

be difficult to apply as a starting point, it may 

make sense as a defense.122 

One treatise states that “[c]onsideration of 

competitively benign explanations i s 

particularly critical when the challenged 

practice is a discount, because low prices are 

117 ANTITRUST MODERNIZATION COMM’N, supra note 

60, at 398. 

118 Id. (emphasis in original). 

119 Id. at 399 (further suggesting that a defense 

showing that the challenged pricing was used either for 

many years (so that predation was unlikely) or during 

a time with no possibility of predation should suffice). 

120 May 8 Hr’g Tr., supra note 52, at 64 (Melamed). 

121 Nov. 29 Hr’g Tr., supra note 2, at 202 (Crane). 

122 Id.; see also May 8 Hr’g Tr., supra note 52, at 64 

(Melamed) (“You ought to allow the defendant and the 

plaintiff to duke it out over whether the bundling made 

economic sense.”); Nov. 29 Hr’g Tr., supra note 2, at 182, 

202 (Ordover). 

the most important goal of antitrust policy.”123 

Thus, “Any proven explanation for a package 

discount that does not depend on exclusion of 

rivals should indicate legality.”124 Among the 

explanations noted are economies of scale or 

scope and price discrimination. “Bundling 

explained by price discrimination and/or scale 

economies is ‘exclusionary’ only in the quixotic 

sense that any practice that increases a seller’s 

output is exclusionary. If this firm sells more, 

then very likely someone else is selling less.”125 

One panelist suggested, however, that 

allowing bundled discounts whenever there 

was any non-exclusionary explanation could 

ultimately lead to consumers paying higher 

prices—that efficiency justifications may not 

lower the monopolist’s costs sufficiently to 

offset anticompetitive effects.

126 More 

generally, two other panelists voiced concern 

about relying on evidence of either 

anticompetitive intent or business justification. 

One panelist stated that “trying to . . . look for 

evidence of intent one way or the other is 

sufficiently manipulable or hideable that I’m 

worried about playing that game.”127 Another 

stated a preference for relying on a test focusing 

on two objective factors: whether price was 

below cost and, if so, whether competitors were 

excluded.128 

The Department believes that where bundleto-bundle competition is not reasonably 

possible, bundled discounting outside the safe 

123 AREEDA & HOVENKAMP, supra note 7, ¶ 749b2, at 

262. 

124 Id. Hovenkamp’s acceptance of “any proven 

explanation” for bundled discounting differs from his 

general definition of unlawful exclusionary conduct, 

which does not allow any proven benefits to outweigh 

competitive harms but instead condemns conduct 

where the harms produced are disproportionate to the 

benefits. Id. ¶ 651a, at 72 (2d ed. 2002). Hovenkamp’s 

acceptance of “any proven explanation” for bundled 

discounts appears to be based on the immediate 

lowering of prices to consumers provided by such 

discounts. 

125 Id. ¶ 749b2, at 265. 

126 Nov. 29 Hr’g Tr., supra note 2, at 203 (Tom). 

127 Id. at 103–04 (Nalebuff). 

128 See id. at 103 (Kattan). 
BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 105 

harbor should not be presumed anticompetitive. 

Rather, plaintiff must demonstrate actual or 

probable harm to competition. A significant 

consideration in this regard is whether rivals 

remain and are likely to remain in the market. 

Rivals’ continued presence in the market casts 

serious doubt on the existence of anticompetitive 

effects—consumers continue to benefit from the 

bundled discounting as well as rivals’ presence.129 

Accordingly, the Department believes that if 

rivals have not exited the market as a result of 

the bundled discounting and if exit is not 

reasonably imminent, courts should be 

especially demanding as to the showing of 

harm to competition. 

Further, the Department believes that, when 

actual or probable harm to competition is 

shown, bundled discounting by a monopolist 

that falls outside the discount-allocation safe 

harbor should be illegal only when (1) it has no 

procompetitive benefits, or (2) if there are 

procompetitive benefits, the discount produces 

harms substantially disproportionate to those 

benefits. This standard requires plaintiffs to 

show that the anticompetitive harms of a 

monopolist’s bundled discounting substantially 

outweigh its procompetitive benefits in those 

instances in which there are both anticompetitive 

effects and non-exclusionary explanations for the 

conduct. The Department does not believe that 

a trivial benefit should outweigh substantial 

anticompetitive effects. 

129 It is possible that a plaintiff will lose sufficient 

sales due to bundled discounting so that even though it 

remains in the market, it could be a significantly less 

vigorous competitor. Those allegations are easy to 

make but deserve careful scrutiny. For example, 

although plaintiff’s average costs almost certainly will 

rise if it loses sales due to bundled discounting, its 

marginal costs may not significantly increase and thus 

its competitive significance may not be diminished even 

though it is operating at a reduced scale. Cf. Nov. 29 

Hr’g Tr., supra note 2, at 179 (Tom) (suggesting “looking 

for the rival’s marginal cost to be raised in such a way 

that the perpetrator can raise prices”). Moreover, other 

rivals may still be able to compete vigorously in the 

market. 

The Department believes that, when 

actual or probable harm to competition 

is shown, bundled discounting by a 

monopolist that falls outside the 

discount-allocation safe harbor should 

be illegal only when (1) it has no 

procompetitive benefits, or (2) if there 

are procompetitive benefits, the 

discount produces harms substantially 

disproportionate to those benefits. 

D. Conclusion 

A monopolist’s bundled discounts or rebates 

may, in certain circumstances, produce 

anticompetitive effects. At the same time, 

however, overly broad prohibitions against 

bundled discounting may inhibit pricing 

practices that benefit consumers. Clear and 

administrable standards are needed to enable 

firms to know in advance if bundled 

discounting may subject them to antitrust 

liability. 

The Department believes that the 

development of clear, administrable standards 

for analyzing bundled discounts would be 

furthered by use of an appropriate price-cost 

safe harbor. The particular price-cost safe 

harbor that should be used depends on whether 

bundle-to-bundle competition is reasonably 

possible. If it is, the potential competitive harm 

of bundled discounting mirrors that caused by 

predatory pricing, so the appropriate price-cost 

safe harbor should look to whether the 

discounted price of the entire bundle exceeds 

an appropriate measure of cost of all the 

products constituting the bundle. For pricing 

outside this safe harbor, a plaintiff should have 

to show harm to competition sufficient to 

establish a likelihood of recoupment. 

Where bundle-to-bundle competition is not 

reasonably possible, the potential competitive 

harm more closely resembles the harm that can 

arise from tying. Such harm may occur where 

the bundled discounting would cause 

customers to purchase the monopolist’s bundle 

instead of buying only the monopoly product 

from the monopolist and purchasing the 

competitive product from an equally efficient 

competitor. The discount-allocation safe 
106 SECTION 2 REPORT 

harbor is an appropriate screen for determining 

whether those consequences are possible. The 

discount-allocation safe harbor compares an 

appropriate measure of defendant’s cost for the 

competitive product (or products) in a bundle 

to the imputed price of that product (or 

products), which is the price after allocating all 

discounts and rebates attributable to the entire 

bundle to the competitive product (or 

products). 

If the conduct falls outside the discountallocation safe harbor, further analysis is 

required. Failure to come within the safe 

harbor should not create a presumption of 

anticompetitive effects. Where bundle-tobundle competition is not reasonably possible, 

bundled discounting should only be 

condemned with an adequate showing of actual 

or probable harm to competition. A significant 

factor in this regard is whether rivals remain or 

are likely to remain in the market and, if so, 

whether the bundling significantly increases 

their marginal costs. Further, the Department 

believes that a proven procompetitive 

explanation for such a bundled discount should 

defeat a section 2 challenge to the bundled 

discount unless the anticompetitive harms are 

substantially disproportionate to the benefits. 

II. Single-Product Loyalty Discounts 

A. Introduction 

In some instances, a seller may offer 

discounts (or rebates) on all units of a single 

product conditioned upon the level of 

purchases.130 These are sometimes called 

“all-units” or “first-dollar” discounts, because 

they apply to all of the customer’s purchases, 

rather than just the units beyond the level of 

purchases required to obtain them.131 The 

130 The offering of discounts or rebates contingent 

upon a buyer’s purchase of two or more different 

products—or bundled discounting—is addressed in 

part I of this chapter. 

131 The applicability of the discount to all units 

distinguishes the situation from various pricing 

schedules that consumers frequently face. For example, 

a record club might offer “buy two albums at full price, 

and get all additional albums at 50% off.” In that 

situation, the discounts do not go back to the first units. 

discounts may be conditioned, for example, on 

the quantity of product purchased (e.g., a 

twenty percent discount on all units bought this 

year with the purchase of eighty units) or on 

the percentage of needs purchased (e.g., a 

twenty percent discount on all units with the 

purchase of eighty percent of buyer’s total 

annual needs). The discounting seller may 

offer such discounts to all customers132 or to a 

single customer.133 This report uses the term 

“single-product loyalty discounts” to refer to 

these kinds of discounts and focuses on 

situations where the firm engaging in the 

practice has monopoly power (or the prospect 

thereof) over the product in question.134 

Even when offered by firms with monopoly 

power, or by firms that have the prospect of 

achieving such power, single-product loyalty 

discounts can benefit consumers by reducing 

prices and increasing output beyond what the 

monopolist would otherwise have charged or 

produced, leading to more efficient resource 

allocation. A manufacturer may use these 

discounts to induce a retailer to provide 

brand-specific merchandising or otherwise 

increase its selling efforts.135 Such discounts 

Similarly, a sandwich shop may charge $5 for a 

sandwich and give customers a frequent-buyer card 

that offers a free sandwich after the card has been 

stamped ten times. Under this type of loyalty-reward 

program, a customer pays $5 each for sandwiches 1–10, 

nothing for sandwich 11, and then $5 again for 

sandwich 12. This chapter does not address such 

practices. 

132 See, e.g., Concord Boat Corp. v. Brunswick Corp., 

207 F.3d 1039 (8th Cir. 2000). 

133 See, e.g., Barry Wright Corp. v. ITT Grinnell 

Corp., 724 F.2d 227 (1st Cir. 1983) (Breyer, J.). 

134 One panelist suggested that single-product 

loyalty discounts, unlike exclusive-dealing contracts, 

“are not found in nature” and occur only with “firms 

which have substantial positions in the market.” May 

8 Hr’g Tr., supra note 52, at 82 (Creighton). Another 

panelist questioned whether there is evidence to 

support the assertion “that unlike bundling and 

exclusive dealing which we find everywhere, loyalty 

discounts are somehow a practice that we only find 

with firms with very large market shares.” Id. at 84 

(Muris). 

135 See David E. Mills, Market Share Discounts (Aug. 

8, 2008) (unpublished working paper), available at 

http://www.virginia.edu/economics/papers/mills/ 
 

 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 107 

may also reduce costs of production by, for 

example, reducing a manufacturer’s sales 

fluctuations. More generally, “non-linear 

pricing” (pricing that deviates from charging a 

constant price per unit) “can reflect real 

economic savings that are difficult to measure 

. . . or simply may be [a] way[] that firms 

choose to compete for the most desirable 

customers.”136 As with other types of 

discounts, loyalty discounts offered by firms 

with monopoly power may arise as part of the 

normal competitive process and need not have 

any exclusionary effect.137 

However, as with predatory pricing, singleproduct loyalty discounts may be 

anticompetitive in certain circumstances, such 

as where the resulting price of all units sold to 

a customer is below an appropriate measure of 

cost. Further, commentators and panelists 

generally agree that even where a singleproduct loyalty discount is above cost when 

measured against all units, such a discount may 

in theory produce anticompetitive effects, 

especially if customers “must carry a certain 

percentage of the leading firm’s products”138 

and the discount is structured to induce 

purchasers to buy all or nearly all needs 

beyond that “uncontestable” percentage from 

the leading firm.139 Some noted that “if the 

Market%20Share%20Discounts.pdf. 

136 Dennis W. Carlton, A General Analysis of 

Exclusionary Conduct and Refusal to Deal—Why Aspen 

and Kodak Are Misguided, 68 ANTITRUST L.J. 659, 664 

(2001). 

137 See, e.g., Sreya Kolay et al., All-Units Discounts in 

Retail Contracts, 13 J. ECON. & MGMT. STRATEGY 429 

(2004); Patrick Greenlee & David Reitman, Competing 

with Loyalty Discounts (Jan. 7, 2006) (unpublished 

working paper), available at http://www.wcas.north 

western.edu/csio/Conferences/Papers2006/Greenle 

eandReitmanpaper.pdf. 

138 Feb. 13 Hr’g Tr., supra note 52, at 106 (Stern) 

(stating that it may be appropriate to distinguish this 

situation from situations in which “suppliers can 

essentially compete to supply the entire demand of the 

customer”). 

139 See Willard K. Tom et al., Anticompetitive Aspects 

of Market-Share Discounts and Other Incentives to Exclusive 

Dealing, 67 ANTITRUST L.J. 615, 627 (2000) (arguing that 

discounts can be used to achieve total or partial 

exclusivity where a “dominant firm is so well 

financial benefits of a market-share discount are 

effectively concentrated on the decision 

whether to buy a relatively small number of 

marginal units, even prices that technically are 

‘above cost’ on average effectively may be 

below cost as to those marginal units.”140 These 

discounts may effectively foreclose such a large 

portion of available business that competitors 

cannot achieve efficient scale, thereby enabling 

the dominant firm to acquire or maintain 

monopoly power.141 

Although there is general agreement that a 

monopolist’s above cost (on all units) 

single-product loyalty discounts can be 

anticompetitive, there is no consensus on how 

likely that is. Further, there are questions as to 

how a court or enforcer should go about 

determining whether a particular single-product 

loyalty discount is anticompetitive, as well as 

how a business deciding whether to offer such 

a discount can know at the time whether the 

discount might later be deemed illegal. One 

question is whether the focus should be on 

whether the dominant firm is covering the cost 

of producing all units sold to a customer or on 

covering the cost of the additional sales 

induced by the discount. Another question is at 

established among ultimate consumers that its 

customers . . . have a base, inelastic demand for the 

firm’s products”). 

140 Id. at 636; see also Nov. 29 Hr’g Tr., supra note 2, 

at 199 (Tom) (questioning whether it is preferable to 

“look at the incremental sales that were induced by the 

loyalty program and look at the revenues from those 

incremental sales and compare it to incremental cost” or 

“apply a Brooke Group test” comparing “all of the 

sales, all of the revenues” to “all of the costs for all of 

the sales”); Robert H. Lande, Should Predatory Pricing 

Rules Immunize Exclusionary Discounts?, 2006 UTAH L. 

REV. 863, 870–74, 877–80 (providing hypothetical 

examples of all-unit discounts resulting in below-cost 

pricing on marginal units). 

141 See May 8 Hr’g Tr., supra note 52, at 82–83 

(Creighton); Nov. 29 Hr’g Tr., supra note 2, at 79–84 

(Nalebuff); id. at 84 (Sibley); id. at 99–100 (Lambert); 

Tom et al., supra note 139, at 633–34; see also AREEDA & 

HOVENKAMP, supra note 7, ¶ 749b, at 248 (recognizing 

that there may be situations where an above-cost 

single-product discount “increases the dominant firm’s 

sales so much that it denies rivals economies of scale 

because they cannot get their own output high 

enough”). 
 

 

 

 

108 SECTION 2 REPORT 

what level are the quantities of sales induced by 

the practice likely to have significant 

anticompetitive effect. 

These issues, as well as concerns common to 

all types of single-firm conduct, including the 

need to develop administrable rules that 

appropriately balance the risk of false positives 

and false negatives, are reflected in the 

relatively limited case law and commentary on 

single-product loyalty discounts and in the 

views expressed by panelists. This chapter 

discusses these cases and perspectives and 

presents the Department’s current thinking on 

how single-product loyalty discounts should be 

analyzed. 

B. Background 

As with bundled discounting, no singleproduct loyalty discount antitrust case has yet 

reached the SupremeCourt. The three appellate 

decisions addressing this practice emphasize 

the importance of factual evidence of an 

anticompetitive effect (rather than simply of an 

effect on a competitor) and the substantial 

judicial concern about deterring beneficial price 

cuts. 

The earliest case, Barry Wright Corp. v. ITT 

Grinnell Corp.,

142 involved the market for 

snubbers, which are safety devices used in 

nuclear power plants. Pacific Scientific had 

most of the market for snubbers (over eighty 

percent).143 Grinnell, which accounted for 

about half of snubber purchases, had been 

trying to help plaintiff Barry Wright become an 

alternative source of supply.144 Pacific Scientific 

then offered Grinnell a large discount if it 

would agree to purchase large quantities of 

snubbers, and Grinnell agreed. The specified 

amounts constituted most, but not all, of 

Grinnell’s anticipated purchases over a two-year 

period.145 Barry Wright subsequently abandoned 

its attempt to enter the market and sued, alleging 

that the discount violated section 2.146 

142 724 F.2d 227 (lst Cir. 1983) (Breyer, J.). 

143 Id. at 229. 

144 Id. 

145 Id. 

146 Id. at 229–30. 

Both the district court and the court of 

appeals rejected the claim. In the First Circuit 

opinion, then-Judge Breyer explained that, 

under conventional price-cost tests for 

predatory pricing, Pacific’s discount was not 

predatory because the resulting price was 

above any relevant measure of Pacific’s cost.147 

The theoretical possibility that such prices 

could harm competition did not justify the risk 

of deterring procompetitive price cutting by 

entertaining that possibility in litigation. As the 

court cautioned: 

[U]nlik e economics, law is an 

administrative system the effects of which 

depend upon the content of rules and 

precedents only as they are applied by 

judges and juries in courts and by lawyers 

advising their clients. Rules that seek to 

embody every economic complexity and 

qualification may well, through the 

vagaries of administration, prove counterproductive, undercutting the very economic 

ends they seek to serve. . . . [W]e must be 

concerned lest a rule . . . that authorizes a 

search for a particular type of undesirable 

pricing behavior end up by discouraging 

legitimate price competition.148 

The court thus concluded “that the Sherman 

Act does not make unlawful prices that exceed 

both incremental and average costs.”149 

In Concord Boat Corp. v. Brunswick Corp.,150 

several boat builders challenged Brunswick’s 

discount program on stern-drive engines. 

Brunswick manufactured and sold the engines 

for recreational boats and had a large market 

share (about seventy-five percent).151 Brunswick 

(like its competitors) offered market-share 

discounts. Boat builders who agreed to buy a 

certain percentage of their engine requirements 

from Brunswick for a certain period received a 

147 Id. at 233. 

148 Id. at 234. 

149 Id. at 236. Even if price exceeding both 

incremental and average costs was not determinative, 

then-Judge Breyer noted that there was evidence that 

the discount enabled Pacific to operate more efficiently, 

because it led to a firm order that allowed Pacific to 

utilize its excess snubber capacity. Id. 

150 207 F.3d 1039 (8th Cir. 2000). 

151 Id. at 1044. 
 

 

 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 109 

discount off the list price for all engines 

purchased.152 Because some of the boat 

builders’ customers apparently preferred 

Brunswick engines, the boat builders arguably 

had to purchase a significant percentage of 

their engine needs from Brunswick; 

nevertheless, the discounts might well have led 

them to purchase higher quantities from 

Brunswick than they otherwise would have. 

There was, however, evidence that at least two 

customers who previously had purchased more 

than eighty percent of their engines from 

Brunswick switched to a competitor for more 

than seventy percent of their purchases.153 

In concluding that plaintiffs had not offered 

sufficient evidence for a jury to determine that 

Brunswick’s market-share discounts were 

anticompetitive, the Eighth Circuit emphasized 

that Brunswick’s discounted prices were above 

cost.154 The court also found that Brunswick’s 

discounts were not exclusive-dealing agreements 

(buyers could purchase forty percent of 

requirements from other sellers while still 

receiving loyalty discounts from Brunswick) 

and other engine sellers could—and did— 

compete with Brunswick by offering better 

discounts.155 While Brunswick offered testimony 

that the discounts served procompetitive 

purposes beyond simply lowering prices (for 

example, by increasing the predictability of 

demand and thus lowering manufacturing 

costs),156 the court of appeals relied simply on 

“Brunswick’s business justification . . . that it 

was trying to sell its product.”157 

Virgin Atlantic Airways Ltd. v. British Airways 

PLC158 also involved an unsuccessful challenge 

to a first-dollar discount program. British 

152 Id. 

153 Id. at 1059. 

154 See id. (Brunswick’s above-cost prices left ample 

room for new competitors to enter the market and lure 

customers away with superior discounts); id. at 1062 

(questioning the district court’s rejection of Brunswick’s 

contention that above-cost discounts are per se lawful). 

155 Id. at 1062–63. 

156 Id. at 1047. 

157 Id. at 1062. 

158 69 F. Supp. 2d 571 (S.D.N.Y. 1999), aff’d, 257 F.3d 

256 (2d Cir. 2001). 

Airways (BA) offered incentive programs that 

provided travel agencies with commissions, 

and corporate customers with discounts, for 

meeting specified thresholds for sales of BA 

tickets. The discounts applied to all sales, not 

just those beyond the target threshold.159 

Virgin claimed that the result was below-cost 

pricing on certain transatlantic routes where it 

and BA competed.160 

Both the district court and the court of 

appeals concluded that Virgin failed to show 

below-cost pricing.161 Virgin’s expert had 

assumed that the incentive agreements had 

generated additional flights to carry increased 

passenger load and compared the incremental 

costs of those flights with the revenues they 

generated.162 The courts, however, were not 

sufficiently persuaded that the assumption 

reflected reality and concluded that “the issue 

of whether British Airways is selling below-cost 

tickets to the marginal passengers on the five 

routes at issue in this case is a fact-rooted 

question as to which Virgin has not submitted 

direct evidence.”163 

Although plaintiff lost each of these three 

appellate cases, private litigants continue to 

challenge single-product loyalty discounts. In 

Masimo Corp. v. Tyco Health Care Group, L.P.,

164 

the district court sustained the jury’s verdict 

that market-share discounts and sole-source 

arrangements violated the antitrust laws and 

ordered a new trial on damages.165 Tyco had 

offered hospitals increased discounts on the 

purchase of pulse oximetry sensors in exchange 

for commitments to buy a greater percentage of 

their oximetry needs from Tyco. A typical offer 

involved 40 percent off all sensors if the 

hospital bought 90 percent or more of its 

159 Id. at 574. 

160 Id. at 576. 

161 257 F.3d at 269; 69 F. Supp. 2d at 580. 

162 69 F. Supp. 2d at 575–77. 

163 Id. at 580. 

164 No. CV 02-4770 MRP, 2006 WL 1236666 (C.D. 

Cal. Mar. 22, 2006). 

165 Id. at **11, 15. The court, however, vacated the 

jury’s findings of liability based on bundled discounts 

and co-marketing arrangements. Id. at *14. 
 

110 SECTION 2 REPORT 

requirements from Tyco, and a 16 to 18 percent 

discount if less than 90 percent.166 Masimo 

argued that the possible loss of Tyco’s 

maximum discounts on all of a hospital’s 

sensor purchases functioned as a penalty, 

forcing hospitals to deal exclusively with 

Tyco.167 The court held that the jury reasonably 

could have concluded that the market-share 

discounts “were designed to and did maintain 

monopoly power” in violation of section 2168 

and constituted illegal exclusive dealing in 

violation of section 1 and section 3 of the 

Clayton Act.169 The court did not analyze or 

discuss whether Tyco’s prices were above any 

relevant measure of its costs. 

In J.B.D.L. Corp. v. Wyeth-Ayerst Laboratories, 

Inc.,

170 another district court case, the court 

granted summary judgment for defendant 

Wyeth on section 1 and section 2 claims 

alleging exclusive dealing and anticompetitive 

loyalty rebates on Wyeth’s sales of Premarin, a 

“conjugated estrogen” product and the largest 

selling product for estrogen replacement 

therapy.171 The key allegation was that Wyeth’s 

contracts with pharmacy benefit managers 

(PBMs) effectively foreclosed competition from 

Cenestin, a conjugated estrogen product the 

FDA approved in 1999 for short-term use.172 

Wyeth’s contracts with PCS Health Services, a 

PBM, and with some other PBMs, placed 

Premarin in their Core Formulary and 

provided that all rebates paid under the 

contracts were contingent on Premarin’s being 

listed as the Core Formulary’s “exclusive 

166 Id. at **4–5. 

167 Id. 

168 Id. at *11. 

169 Id. at **5–6 (“The jury was free to conclude that 

Tyco’s Market Share Discounts, in practical effect, 

offered hospitals their best discount only if they dealt 

with Tyco exclusively. . . . Although the Market Share 

Discount agreements appear to have been terminable 

on short notice on their face, the jury could reasonably 

have concluded that in practice they were not.”). 

170 Nos. 1:01-CV-704, 1:03-CV-781, 2005 WL 1396940 

(S.D. Ohio June 13, 2005), aff’d on other grounds, 485 F.3d 

880 (6th Cir. 2007). 

171 Id. at *1. 

172 Id. at **1–2. 

conjugated estrogen” (the sole CE clause).173 

Conceding monopoly power for purposes of 

its summary judgment motion, Wyeth argued 

that its PBM contracts were not actionable 

under section 2 by direct-purchaser plaintiffs 

absent predatory pricing, and that its prices 

were not predatory in the “classic sense of 

below-cost pricing to squeeze out a 

competitor.”174 The court concluded that 

absent explicit, controlling appellate 

authority that Wyeth’s conduct in executing 

[the PBM] contracts, a practice that is 

widespread throughout the larger and 

unique pharmaceutical market in the U.S., 

runs afoul of the guiding principles of 

Section 2 liability, this Court believes that 

the approach adopted by the Eighth Circuit 

in Concord Boat is correct. Wyeth’s pricing 

behavior “plus”—in this case the “plus” 

factor being the “sole CE” contract clause— 

did not violate Section 2 of the Sherman 

Act.175 

In the absence of a Supreme Court decision 

in a single-product loyalty discount case, it is 

difficult to discern the precise legal standard 

that a particular court will apply. Nonetheless, 

most of the handful of lower court decisions 

analyzing these discounts have applied some 

type of price-cost test. 

C. Analysis 

Compared to the voluminous legal and 

economic commentary analyzing bundled 

discounting (and other unilateral conduct, such 

as predatory pricing and tying), there has been 

relatively little commentary regarding 

single-product loyalty discounts. Those who 

have commented on this subject generally agree 

that these discounts are most often 

procompetitive: for example, a manufacturer 

may use these discounts to induce services 

from distributors or retailers176 or “to compete 

173 Id. at **3–4. 

174 Id. at *11. 

175 Id. at *17. The court granted summary judgment 

for Wyeth on the section 1 exclusive-dealing claim, 

finding that plaintiffs could not establish the necessary 

substantial foreclosure of competition. Id. at **10–11. 

176 See Mills, supra note 135, at 26. 
 

 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 111 

for the most desirable customers.”177 There is 

also agreement that, as with standard 

predatory pricing, these discounts can be 

anticompetitive where they bring the total price 

on all units sold to a customer below an 

appropriate measure of cost and there is the 

likelihood of recoupment. 

While commentators agree that singleproduct loyalty discounts are most often 

procompetitive, they also agree that 

these discounts can be anticompetitive 

where they bring the total price on all 

units sold below an appropriate 

measure of cost and there is a 

likelihood of recoupment. 

Some panelists and commentators have 

further posited that single-product loyalty 

discounts that are above cost when measured 

against all units sold to a customer can be 

anticompetitive where a monopolist’s 

customers “must carry a certain percentage of 

the leading firm’s products”178 and the discount 

is structured so as to induce purchasers to buy 

all or nearly all needs beyond that 

uncontestable percentage from the 

monopolist.179 

Some panelists and commentators 

believe that single-product loyalty 

discounts, under certain circumstances, 

can be anticompetitive, even where the 

resulting price on all units sold is above 

an appropriate measure of cost. 

Commentators’ analyses of above-cost (on 

all units) single-product loyalty discounts 

depend on their view of the likelihood of these 

discounts harming competition and the 

feasibility of addressing that harm with an 

administrable test that does not chill desirable, 

177 Carlton, supra note 136, at 664. 

178 See Feb. 13 Hr’g Tr., supra note 52, at 106 (Stern); 

see also Nov. 29 Hr’g Tr., supra note 2, at 79 (Nalebuff) 

(describing Concord Boat as a case in which defendant 

“had a monopoly for some share of the market based 

on installed base”). 

179 See supra text accompanying notes 138–39. 

procompetitive discounting. For example, 

based on concerns regarding administrability 

and chilling procompetitive conduct, Professor 

Hovenkamp would apply “antitrust’s ordinary 

predatory pricing rule” to all single-product 

loyalty discounts, finding the discount “lawful 

if the price [on all units sold] after all discounts 

are taken into account exceeds the defendant’s 

marginal cost or average variable cost.”180 

As discussed below, other commentators 

believe that the Hovenkamp test would result 

in an unacceptable level of false negatives in 

situations where rivals cannot compete with the 

monopolist for all or almost all sales. Some of 

these commentators have suggested that singleproduct loyalty discounts should perhaps be 

analyzed in the same manner as bundled 

discounts are analyzed in situations where 

bundle-to-bundle competition is not possible. 

For example, they suggest applying the total 

discount on all sales to the sales in the 

contestable portion of the market to determine 

if the discount falls outside the price-cost safe 

harbor and, if it does fall outside the safe harbor, 

determining if anticompetitive foreclosure effects 

result.181 Others recommend an approach that 

would evaluate “market share discounts 

structured to produce total or partial 

exclusivity . . . according to the same economic 

principles that govern exclusive dealing.”182 

1. Predatory-Pricing Analysis 

Professor Hovenkamp would apply 

“antitrust’s ordinary predatory pricing rule” to 

all single-product loyalty discounts, comparing 

the price (after all discounts are taken into 

account) to the cost of all units sold to a 

customer.183

 While conceding that there may be 

180 AREEDA & HOVENKAMP, supra note 7, ¶ 749b, at 

245. 

181 See, e.g., Lande, supra note 140, at 878, 880 

(suggestingthatProfessorHovenkamp’s attribution test 

for bundled discounts “easily could be used to evaluate 

the discounts involving just the marginal, contested 

units for one product, a virtually identical situation,” 

but suggesting that a rule banning all “all-units” 

discounts would be a preferable way of handling 

single-product loyalty discounts). 

182 Tom et al., supra note 139, at 615. 

183 AREEDA & HOVENKAMP, supra note 7, ¶ 749b, at 
 

 

112 SECTION 2 REPORT 

circumstances in which an above-cost (when 

measured against all units sold to a customer) 

loyalty discount might be anticompetitive as a 

result of denying rivals economies of scale,184 

courts and juries could not, in his view, apply 

such theories without creating an intolerable 

risk of chilling procompetitive behavior.185 The 

principle that “[d]iscounting is presumptively 

procompetitive and should be condemned only 

in the presence of significant market power and 

proven anticompetitive effects”186 guides 

Professor Hovenkamp’s analysis.187 

A number of panelists supported Professor 

Hovenkamp’s approach, primarily based on 

concerns about administrability and risks of 

chilling desirable discounting behavior. Thus, 

one panelist, while not disputing that 

single-product loyalty discounts could 

theoretically have anticompetitive effects where 

they deny rivals the opportunity to achieve 

efficient scale, stated that sufficient information 

about economies of scale is “almost impossible” to 

come by. He supported Professor Hovenkamp’s 

approach, concluding: 

I can’t think as a lawyer of a way to design 

a rule that doesn’t have a chilling effect if 

we are having to focus on what is minimum 

efficient scale and what amount of a 

discount is permissible before you usurp so 

much business that you prevent someone 

from achieving minimum efficient scale. I 

think that is too hard to administer.188 

Other panelists also supported employing 

predatory-pricing rules in analyzing 

single-product loyalty discounts.189 One 

245. 

184 See id. ¶ 749b, at 248. 

185 See id. ¶ 749b, at 245, 248–50. 

186 Id. ¶ 749b, at 245. 

187 Id. ¶ 749b. 

188 Nov. 29 Hr’g Tr., supra note 2, at 99–100 

(Lambert); see also id. at 60–65 (Kattan) (supporting 

Professor Hovenkamp’s approach and stressing the 

need for pricing rules that are administrable and enable 

firms to base pricing decisions on an objective 

measure). 

189 See, e.g., May 8 Hr’g Tr., supra note 52, at 81–82 

(Rule) (stating that he is “not aware of any good case 

that’s ever been pointed to where a loyalty discount has 

really had an anticompetitive effect” and that applying 

panelist stressed the need for discipline in 

litigation in supporting a predatory-pricing 

approach to single-product loyalty discounts,190 

concluding that “whatever the appropriate 

measure of cost is, if that cost is recouped on 

the overall sale to a client, then the discount 

that created the overall sale should be legal.”191 

Another panelist stressed the need for 

administrable tests that firms can apply on the 

basis of information that is available to them. 

In particular, responding to panelists who 

expressed concern about loyalty discounts in 

situations in which a large percentage of each 

buyer’s needs is met by the monopolist and 

effectively not contestable, he suggested that it 

would be “incredibly complicated” to 

determine what portion of sales was not 

contestable (inframarginal) and what portion 

was contestable (marginal).192 

However, some panelists were critical of the 

predatory-pricing approach. As described 

below, a number of panelists and 

commentators expressed concern that this 

approach would fail to identify instances of 

anticompetitive foreclosure. 

In addition, one critic of the 

predatory-pricing approach suggests that 

Professor Hovenkamp’s conclusions rest on 

plausible but unproven assumptions about the 

relative importance of procompetitive and 

anticompetitive effects of single-productloyalty 

discounts.193 For example, he asks whether the 

assertion that most discounting practices are 

procompetitive is “still true when these 

discounts are given by monopolists, by 

monopolists for the first time facing the 

prospect of significant new entry, or by 

would-be monopolists that are targeting rivals? 

a Brooke Group test will dispose of virtually all cases); 

Feb. 13 Hr’g Tr., supra note 52, at 156–57 (Sewell) 

(Hovenkamp approach is “a clear and sensible rule”); 

Sherman Act Section 2 Joint Hearing: International 

Issues Hr’g Tr. 116, Sept. 12, 2006 (Bloom) (suggesting 

using price above average avoidable cost as a safe 

harbor). 

190 Nov. 29 Hr’g Tr., supra note 2, at 196 (Crane). 

191 Id. at 198. 

192 Id. at 83 (Kattan). 

193 Lande, supra note 140, at 863–64. 
BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 113 

Where is the empirical evidence that discounts in 

these situations usually are procompetitive?”194 

That commentator also suggests that 

single-product loyalty discounts can be “sham 

discounts” and discusses a hypothetical in 

which a monopolist faced with new entry 

essentially threatens customers with a higher 

price unless they meet the threshold needed to 

obtain a “discount” that merely allows them to 

continue paying what they have been.195 He 

concludes that it is premature to devise and 

adopt a comprehensive test that antitrust 

analysis could be saddled with for decades; 

these discounts “should, for now, be evaluated 

under the rule of reason.”196 The most that he 

believes should be considered at this point are 

a few “modest presumptions of legality or 

illegality.”197 

2. Foreclosure Analysis 

A number of panelists and commentators 

expressed concern that using a predatorypricing test to analyze single-product loyalty 

discounts would fail to identify certain 

instances in which these discounts might result 

in harmful foreclosure. They have suggested 

that single-product loyalty discounts can be 

anticompetitive where customers must buy a 

certain percentage of their needs from the 

monopolist and the discount is structured so as 

to induce them to buy all or nearly all needs 

beyond that uncontestable percentage from the 

monopolist as well.198 Accordingly, some 

panelists suggested treating a situation in 

which rivals can “essentially compete to supply 

the entire demand of the customer or the entire 

demand in the marketplace” differently than a 

situation in which “the customer must carry a 

certain percentage of the leading firm’s 

products.”199 

194 Id. at 865. 

195 See id. at 870–74. 

196 Id. at 882–83. 

197 Id. at 876. 

198 See supra text accompanying notes 138–39. 

199 Feb. 13 Hr’g Tr., supra note 52, at 106 (Stern); see 

also Nov. 29 Hr’g Tr., supra note 2, at 79–80 (Nalebuff). 

Some panelists and commentators have 

suggested that single-product loyalty 

discounts can be anticompetitive where 

customers must buy a certain 

percentage of their needs from the 

monopolist and the discount is 

structured so as to induce them to buy 

all or nearly all needs beyond that 

uncontestable percentage from the 

monopolist as well. 

In accordance with this approach, some 

panelists viewed single-product loyalty 

discounts as more analogous to bundled 

discounts, where bundle-to-bundle competition 

is not possible, than to predatory pricing.200 In 

particular, one panelist suggested that focusing 

on whether the overall price for all units 

exceeded an appropriate measure of cost was 

inconsistent with a test for bundled discounts 

that would attribute the entire discount across 

multiple products to the competitive product. 

He suggested that it might be more appropriate 

to look at the sales “that were induced by the 

loyalty program and look at the revenues from 

those . . . sales” and compare them to the cost of 

the program, rather than to “apply a Brooke 

Group test that says you take all of the sales, all 

of the revenues and compare it to all of the 

costs for all of the sales.”201 

Another panelist suggested that an overall 

200 See Nov. 29 Hr’g Tr., supra note 2, at 195 

(Ordover) (resisting distinguishing single-product 

discounts from bundled discounts because “[i]f you 

believe in the competitive equilibrium model, every 

good is a single different thing”); id. at 197 (Tom) (“[I]t 

can be very difficult to distinguish single product from 

multiproduct situations as a theoretical matter.”); see 

also Lande, supra note 140, at 878 (arguing that 

Professor Hovenkamp’s attribution test for bundled 

discounts “easily could be used to evaluate the 

discounts involving just the marginal, contested units 

for one product, a virtually identical situation”). 

201 Nov. 29 Hr’g Tr., supra note 2, at 199 (Tom);see id. 

at 197 (suggesting that a Brooke Group test would be 

warranted only if based on conclusions regarding 

“administrability and cost of false positives and false 

negatives . . . because there are certainly plenty of 

possibility proofs that show that you can have 

anticompetitive effects in this situation even with 

overall price exceeding overall cost”). 
 

 

 

 

 

 

114 SECTION 2 REPORT 

price for all units exceeding cost should not 

necessarily be conclusive of legality, but should 

result in a “burden-shifting exercise” whereby 

a plaintiff could attempt to show 

“discontinuities or jumps in the loyalty 

schedule and [that] they have potentially 

serious competitive effects.”202 He suggested that 

a ban on negative marginal pricing—instances 

in which the buyer pays less overall 

w hen its purchases include the additional 

increment—would be preferable to a ban on 

pricing below cost, because it would be 

relatively easy to implement, though it would 

not detect all exclusionary pricing.203 

Other panelists and commentators suggested 

that “loyalty discounts can be an issue under 

Section 2 if they’re really equivalent to exclusive 

dealing.”204 These commentators argue that 

“market-share discounts structured to produce 

total or partial exclusivity should be judged 

according to the same economic principles that 

govern exclusive dealing” and should be 

condemned under existing case law “if they 

produce anticompetitive effects without 

counterbalancing procompetitive effects.”205 

They view the relevant issue as being “the 

structure and effects of the price scheme” and 

thus contend that “complex pricing structures, 

designed to create incentives toward exclusive 

dealing, are not per se legal merely because 

each element in the structure is above the 

seller’s cost.”206 

A statement in the Department’s 1994 

Competitive Impact Statement in the Microsoft 

licensing case reflected similar concerns: 

While the Department recognizes that 

202 Id. at 194 (Ordover). 

203 See Ordover & Shaffer, supra note 3, at 20. 

204 Feb. 13 Hr’g Tr., supra note 52, at 105 (Sheller) 

(distinguishing discounts conditioned on buying onehundred percent of needs from those conditioned on 

sixty to seventy percent); see also id. at 201 (Wark) 

(suggesting that loyalty discounts should be analyzed 

in a predatory-pricing context unless “you can equate 

the loyalty program with making it exclusive, then 

maybe you have to analyze it in an exclusive dealing 

context”). 

205 Tom et al., supra note 139, at 615. 

206 Id. at 636–37. 

volume discount pricing can be and 

normally is pro-competitive, volume 

discounts also can be structured by a seller 

with monopoly power (such as Microsoft) 

in such a way that buyers, who must 

purchase some substantial quantity from 

the monopolist, effectively are coerced by 

the structure of the discount schedule (as 

opposed to the level of the price) to buy all 

or substantially all of the supplies they 

need from the monopolist. Where such a 

result occurs, the Department believes that 

the volume discount structure would 

unlawfully foreclose competing suppliers 

from the marketplace—in this case, 

competing operating systems—and thus 

may be challenged.207 

Similarly, a number of panelists expressed 

concern about the potential use of 

single-product loyalty discounts to deny a 

monopolist’s rivals the scale necessary to enter 

or remain in a market.208 One panelist stated 

that “it is a question about whether or not in a 

particular case they can be used to keep rivals 

from gaining efficient scale” and queried 

whether “there are markets in which achieving 

sufficient scale is critical and the purpose of the 

loyalty discount is really to foreclose that.”209 

Another panelist suggested there could be 

problems with these discounts because it may 

not always be realistic for a rival to replace one 

hundred percent of the monopolist’s sales to a 

customer, and in such circumstances the 

discounts may prevent a rival from achieving a 

reasonable scale.210 Some conclude that a rule 

207 Competitive Impact Statement at 18, United 

States v. Microsoft Corp., 56 F.3d 1448 (D.C. Cir. 1995) 

(Nos. 95-5037, 95-5039), available at http://www.usdoj. 

gov/atr/cases/f0000/0045.pdf (noting that, while the 

Department considered relief limiting the manner in 

which Microsoft could structure discounts, it would not 

require such relief because it did not have evidence that 

Microsoft had in fact structured volume discounts to 

achieve anticompetitive ends) (emphasis in original). 

208 See May 8 Hr’g Tr., supra note 52, at 82–83 

(Creighton); Nov. 29 Hr’g Tr., supra note 2, at 79–84 

(Nalebuff); id. at 99–100 (Lambert); id. at 194–96 

(Ordover); id. at 196–97 (Tom). 

209 May 8 Hr’g Tr., supra note 52, at 82–83 

(Creighton). 

210 See Nov. 29 Hr’g Tr., supra note 2, at 79–80 
 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 115 

of reason assessment might condemn discounts 

that effectively lock up such a large portion of 

available business that competitors cannot 

achieve substantial scale economies that 

significantly reduce their marginal costs or 

have sales volumes sufficient to make 

investments in quality improvements 

possible.211 

Professor Carlton has acknowledged that 

non-linear pricing could achieve the same ends 

as exclusive dealing but has suggested that 

antitrust intervention “should be used rarely 

and apply only to extreme pricing conditions.”212 

He observed that volume discounts and special 

deals for big buyers are ubiquitous, and that 

“[a]ttacking such common competitivebehavior 

would likely create much turmoil and chill 

competition.”213 While not suggesting a specific 

test to apply to conduct that induces partial or 

total exclusivity, Professor Carlton cautioned: 

“If antitrust does pursue contracts that create 

de facto exclusivity, it would be wise to limit 

attention to those contracts with extreme 

pricing terms like those of the Microsoft [1995 

consent decree] type, where it is unambiguous 

that incremental price is below marginal cost 

for many buyers.”214 

Similarly, while recognizing that in extreme 

cases single-product discount schemes might 

bear some resemblance to exclusive dealing, 

Professor Hovenkamp stressed two important 

differences. First, such discounts will be less 

exclusionary than exclusive-dealing contracts 

where a buyer is able to earn the discount 

(Nalebuff). 

211 See Tom et al., supra note 139, at 622–23. 

212 Carlton, supra note 136, at 664. 

213 Id. 

214 Id. at 665 (footnote omitted). The 1995 Microsoft 

consent decree forbade Microsoft from using “per 

processor” contracts, under which an Original 

Equipment Manufacturer (OEM) paid Microsoft a 

royalty based on the total number of computers it sold, 

regardless of the number of such computers containing 

Microsoft operating systems. The Department’s 

Competitive Impact Statement stated: “In effect, the 

royalty payment to Microsoft when no Microsoft 

product is being used acts as a penalty, or tax, on the 

OEM’s use of a competing PC operating system.” 

Competitive Impact Statement, supra note 207, at 5. 

without purchasing everything from the seller. 

Second, unlike exclusive-dealing arrangements, 

there is no contract, dealership, or franchise 

involved in most loyalty-discount programs, so 

the penalty for not meeting the percentage or 

quantity threshold is simply the loss of the 

discount and not a breach of contract suit or 

termination of a franchise.215 Moreover, 

because the buyer is not facing loss of its 

dealership or franchise, “an equally efficient 

rival should be able to steal the sale as long as 

the fully discounted price is above cost.”216

 Professor Hovenkamp also suggests that 

one of the problems with the theory that 

single-product loyalty discounts might deprive 

rivals of efficient scale is that the seller could, 

instead of offering a structured discount, 

simply offer the lower price on all purchases, 

and that this would take even more sales away 

from rivals.217 However, it is not clear that 

simply offering the lower price on all units 

would necessarily take more sales away from 

rivals, particularly if buyers were committed to 

the monopoly seller for some level of 

purchases.218 

215 AREEDA & HOVENKAMP, supra note 7, ¶ 749b1, at 

247–48. 

216 Herbert Hovenkamp, The Law of Exclusionary 

Pricing, COMPETITION POL’Y INT’L, Spring 2006, at 21, 28; 

see also May 8 Hr’g Tr., supra note 52, at 80 (Pitofsky) 

(suggesting that loyalty discounts present less of a 

problem than exclusive dealing because they tend to be 

only partially exclusive and therefore exclude less, and 

the customer can switch at any time, losing only its 

discount). 

217 AREEDA & HOVENKAMP, supra note 7, ¶ 749b1, at 

249. 

218 For example, assume a customer who is a retailer 

expects to sell 100 widgets, believes that it must carry 80 

of the monopolist’s widgets, and is currently paying 

$10 per widget. A new entrant appears, offering 

widgets to the customer for $7. On these assumptions, 

if the monopolist keeps the price at $10 but offers to 

charge $8 per widget if the customer buys 100, the 

customer will choose to buy all 100 widgets from the 

monopolist—since it must buy 80 and will pay the same 

total ($800) whether it buys 80 or 100, it is essentially 

getting the last 20 widgets free. If the monopolist 

instead had simply lowered the price to $8, the 

customerwould have continued to purchase 80 widgets 

from the monopolist and bought 20 from the new 

entrant. 
116 SECTION 2 REPORT 

One panelist asserted that it would be 

difficult in any given case to determine what 

constitutes “efficient scale” and that any rule 

addressing this potential problem would be too 

difficult to administer.219 Another panelist 

contended that it would be “incredibly 

complicated” to determine in specific cases 

what part of the market, if any, is 

uncontestable.220 However, another panelist 

suggested that it may be possible to “calculate 

which units have negative prices associated 

with them” (so that the buyer pays less overall 

when its purchases include the additional 

increment needed to obtain the discount) and 

“what level of entry you would need to achieve 

if you were a new entrant and wanted to cover 

costs.”221 

Some panelists suggested that, although 

single-product loyalty discounts theoretically 

can be structured to induce some degree of 

foreclosure, analysis of these discounts under 

section 2 should focus on their actual or likely 

competitive effects. For example, one panelist 

stated that although “[t]here are many 

instances in which, if you allocate the discount 

. . . to a handful of sales in order to make the 

discount look like it is below cost, you will be 

talking about a volume of sales too small to 

have an impact on competition.” 2 2 2 

Accordingly, he suggested that by looking “at 

competitive effects, you often can allay the 

concerns about loyalty discounts.”223 Another 

panelist suggested focusing on “the 

219 Nov. 29 Hr’g Tr., supra note 2, at 99–100 

(Lambert). 

220 Id. at 83 (Kattan). 

221 Id. at 84 (Sibley). One panelist whose company 

is plaintiff in ongoing litigation argued more broadly 

that “a retrospective discount or rebate . . . is usually, 

when deployed by a monopolist, not a rebate or 

discount at all. It’s a price coupled with the threat of a 

price increase .” Sherman Act Section 2 Joint Hearing: 

Business Testimony Hr’g Tr. 176–77, Jan. 30, 2007 

(McCoy). However, another panelist whose company 

is defendant in that litigation argued that “really the 

way to look at loyalty discounts is these are incentives 

to buy. These are not punishments for failure to buy.” 

Feb. 13 Hr’g Tr., supra note 52, at 201 (Sewell). 

222 May 8 Hr’g Tr., supra note 52, at 83 (Melamed). 

223 Id. at 83–84. 

exclusionary impact”224 and expressed doubt as 

to whether there has ever been a loyaltydiscount program found to have produced 

actual anticompetitive effects.225 A written 

comment submitted for the hearings regarding 

single-product loyalty discounts also stressed 

focusing on competitive effects: “Inadequate 

attention to demonstrable competitive effects 

could create law that preserves inefficient 

competitors while sacrificing competition.”226 

D. Conclusion 

The Department believes that the standard 

predatory-pricing approach to single-product 

loyalty discounts has a number of advantages. 

Compared to other possible approaches 

described above, a predatory-pricing rule 

would be relatively easy for courts and 

enforcers to administer and would provide 

businesses with the clarity necessary to 

conform their conduct to the law using 

information available to them. Further, this 

approach has a relatively low risk of chilling 

desirable, procompetitive price competition 

that immediately benefits consumers. The 

Department likely would apply a standard 

predatory-pricing test in analyzing most singleproduct loyalty discounts. However, in light of 

views from panelists and others suggesting that 

above-cost single-productloyalty discounts can 

be structured to have anticompetitive effects 

under certain circumstances, and the relatively 

limited case law and commentary on these 

types of discounts, the Department believes 

that further assessment of the real-world 

impact of these discounts is necessary before 

concluding that standard predatory-pricing 

analysis is appropriate in all cases. 

224 Id. at 81–82 (Rule). 

225 Id. at 82. 

226 InternationalChamber of Commerce,Single-Firm 

Conduct as Related to Competition 3 (Jan. 11, 2006) 

(hearing submission). 
 

 

 

 

BUNDLED DISCOUNTS AND LOYALTY DISCOUNTS 117 

The Department believes that the 

standard predatory-pricing approach to 

single-product loyalty discounts has a 

number of advantages, including its 

administrability, clarity, and reduced 

risk of chilling procompetitive price 

competition. The Department likely 

would apply this approach in most 

cases, but thinks further assessment is 

necessary before concluding that it is 

appropriate in all cases. 

The Department believes that the 

competitive effects of any single-product 

loyalty-discount program should be evaluated 

carefully before it is condemned under section 

2. Situations in which above-cost (on all units) 

single-product loyalty discounts result in 

significant foreclosure effects appear to be rare. 

Theoretical anticompetitive effects appear 

possible only where some significant portion of 

the market is uncontestable due to factors 

external to the parties, most likely end-user 

demand. The Department believes that an 

approach requiring courts to determine 

whether a portion of a market is uncontestable 

and to quantify that portion, as well as to 

analyze whether a discount deprived plaintiff 

of efficient scale, would be difficult to 

administer. More importantly, such an approach 

would not provide much clarity to firmsdeciding 

whether to offer discounts and likely would chill 

desirable price competition. 

The Department emphasizes that, in any 

situation in which a foreclosure-based approach 

is used, plaintiff should be required to 

demonstrate that the discount forecloses a 

significant amount of the market and harms 

competition. Further, as with bundled discounting, 

plaintiff’s (and any other rivals’) ability to remain in 

the market should be a significant factor in 

assessing competitive harm. When harm to 

competition is implausible, courts should 

uphold the discount. Also, as with bundled 

discounting, where plaintiff demonstrates 

actual or probable harm to competition, a 

single-product loyalty discount should be 

illegal only when (1) it has no procompetitive 

benefits, or (2) if there are procompetitive 

benefits, the discount produces harms 

substantially disproportionate to those benefits. 

The Department does not believe that a trivial 

benefit should outweigh substantia l 

anticompetitive effects. 

The Department emphasizes that, in 

any situation in which a foreclosurebased approach is used, plaintiff should 

be required to demonstrate that the 

discount forecloses a significant 

amount of the market and harms 

competition. 

 

 

 

 

CHAPTER 7 

UNILATERAL, UNCONDITIONAL 

REFUSALS TO DEAL WITH RIVALS 

I. Introduction 

Companies are generally under no antitrust 

obligation to sell or license their products to, or 

provide their assets for use by, another 

company. As the Supreme Court explained 

almost a century ago, “as a general matter, the 

Sherman Act ‘does not restrict the long 

recognized right of [a] trader or manufacturer 

engaged in an entirely private business, freely 

to exercise [its] own independent discretion as 

to parties with whom [it] will deal.’”1 

Notwithstanding this general principle, courts, 

including the Supreme Court, have held that, 

under certain circumstances, the antitrust laws 

require a monopolist to deal with a rival. 

There is a continuing debate over the 

application of section 2 to situations involving 

a refusal to deal with a rival. If a monopolist 

has something that a rival wants to use to make 

more, different, or better products, it can 

appear that consumers would be better off if 

the monopolist were forced to deal with its 

rival. But if the monopolist is forced to deal 

with the rival, the monopolist’s incentives to 

spend the necessary time and resources to 

innovate may be diminished. Moreover, the 

incentives of other firms to invest and innovate, 

considering the potential future returns on their 

investments, may be diminished if they believe 

they will be forced to share a successful 

innovation. If the incentives to innovate are 

diminished, consumers are likely harmed in the 

long run. Additionally, if forced sharing is 

required, difficult decisions must be made on 

precisely what needs to be shared, at what 

price, and under what other terms. These 

issues have led a number of commentators and 

1 Verizon Commc’ns Inc. v. Law Offices of Curtis V. 

Trinko, LLP, 540 U.S. 398, 408 (2004) (quoting United 

States v. Colgate & Co., 250 U.S. 300, 307 (1919). 

panelists to call into question whether the 

antitrust laws should ever require a firm to deal 

with a rival.2 

This chapter reviews the law regarding 

unilateral, unconditional refusals to deal with 

a rival, analyzes the legal and economic 

arguments, and then addresses the appropriate 

role of antitrust where there is an allegation that 

a unilateral, unconditional refusal to deal violates 

section 2. It does not address conditional 

refusals to deal with rivals. In those situations, 

“[t]he proper focus of antitrust is . . . not on the 

. . . refusal . . . to deal, but on the competitive 

consequence of whatever conduct this leads 

other parties to engage in.”3 That is, antitrust 

should focus on the conditions, such as tying or 

exclusivity, not on the refusal. Consequently, 

those situations raise “very different competitive 

concerns.”4 Nor does the chapter cover refusals 

to deal that are a part of an agreement with one 

or more competitors to allocate customers or 

markets or fix prices, situations covered by 

section 1 of the Sherman Act. This chapter 

concerns only what are referred to as unilateral, 

unconditional refusals to deal with 

rivals—essentially cases limited to allegations 

that a company will never sell or license to a 

rival or will do so only for a price that is alleged 

2 See, e.g., Sherman Act Section 2 Joint Hearing: 

Refusals to Deal Panel Hr’g Tr. 32, July 18, 2006 

[hereinafter July 18 Hr’g Tr.] (Pate); id. at 104 

(Whitener); HERBERT HOVENKAMP, THE ANTITRUST 

ENTERPRISE 244–48, 270 (2005); RICHARD A. POSNER, 

ANTITRUST LAW 242 (2d ed. 2001). 

3 Dennis W. Carlton & Ken Heyer, Appropriate 

Antitrust Policy Towards Single-Firm Conduct 13 (Econ. 

Analysis Group, Working Paper No. EAG 08–2, 2008), 

available at http://www.usdoj.gov/atr/public/eag/ 

231610.pdf. 

4 July 18 Hr’g Tr., supra note 2, at 8 (Kolasky); see 

also id. at 72 (Whitener). 
 

120 SECTION 2 REPORT 

to be too high. In addition, the essentialfacilities doctrine is briefly discussed. 

II. Background 

The general right of a firm freely to 

determine with whom it will and will not deal 

was first established by the Supreme Court 

nearly nine decades ago. In its 1919 Colgate 

decision, the Supreme Court observed that “[i]n 

the absence of any purpose to create or 

maintain a monopoly, the [Sherman Act] does 

not restrict the long recognized right of [a] 

trader or manufacturer engaged in an entirely 

private business, freely to exercise his own 

independent discretion as to parties with whom 

he will deal.”5

 The Court reaffirmed that 

principle eighty-five years later in Verizon 

Communications Inc. v. Law Offices of Curtis V. 

Trinko, LLP, where, citing Colgate, the Court 

affirmed dismissal of an action alleging that 

non-compliance with state and federal 

regulations mandating the sale of services to 

rivals violated section 2.6 In Trinko, the Court 

noted that, “as a general matter,” the antitrust 

laws impose no duty upon a firm to deal with 

rivals.7 

Despite the Court’s recognition of a firm’s 

general right to deal or not to deal with whom 

it chooses, the Court has in a few decisions 

found that the antitrust laws required a 

dominant firm to deal with a rival. For 

example, eight years after Colgate, the Court 

determined there was sufficient circumstantial 

evidence to allow a jury to decide if Kodak 

illegally maintained its monopoly through its 

refusal to sell photography equipment to 

independent retailers at traditional “dealers’ 

discounts” after Kodak opened its own retail 

outlets.8 

5 250 U.S. at 307. 

6 540 U.S. at 408, 416. 

7 Id. at 408. 

8 Eastman Kodak Co. v. S. Photo Materials Co., 273 

U.S. 359, 375 (1927). Although not in the context of a 

unilateral refusal to deal, the Court also found a duty to 

deal when addressing the refusal of a joint venture to 

include one of its member’s competitors. See Associated 

Press v. United States, 326 U.S. 1, 18–19 (1945). This 

chapter does not address those issues. See e.g., Dennis 

In 1973, in Otter Tail Power Co. v. United 

States, the Supreme Court held that the antitrust 

laws required a firm to sell electric service at 

“wholesale” to towns seeking to replace Otter 

Tail as the franchised suppliers of retail electric 

service with their own municipal power 

systems.9

 Rejecting Otter Tail’s business 

justification defense that it needed to keep its 

lines free to serve its own existing and potential 

retail customers and noting that “[t]here were 

no engineering factors” preventing Otter Tail 

from providing the electricity to the towns, the 

Court concluded that the “refusals to sell at 

wholesale . . . were solely to prevent municipal 

power systems from eroding its monopolistic 

position.”10 

Twelve years later in Aspen Skiing Co. v. 

Aspen Highlands Skiing Corp., the Court found 

an unlawful refusal to deal with a rival in a 

decision subsequently described by the Court 

as being “at or near the outer boundary of § 2 

liability.”11 The Court found that a firm 

operating three of four mountain ski areas in 

Aspen, Colorado, violated section 2 by refusing 

to continue cooperating with the firm that 

owned the fourth ski area in offering a 

combined four-area ski pass.12 In reaching this 

conclusion, the Court focused on defendant’s 

refusal to sell its rival any lift tickets, even at 

retail prices,13 and its refusal to accept retailprice coupons for its mountains issued by its 

rival, even though the coupons would have 

provided defendant “with immediate benefits 

and would have satisfied its potential 

customers.”14 Characterizing the refusal to 

continue offering a joint ticket as “a decision by 

W. Carlton, A General Analysis of Exclusionary Conduct 

and Refusal to Deal—Why Aspen and Kodak Are 

Misguided, 68 ANTITRUST L.J. 659, 660–61 (2001) (noting 

that “the duty to deal that a joint venture of rivals has” 

implicates “different issues than those raised by the 

duty to deal that a single firm should have”). 

9 410 U.S. 366, 368 (1973); see id. at 381–82. 

10 Id. at 378. 

11 Trinko, 540 U.S. at 409. 

12 Aspen Skiing Co. v. Aspen Highlands Skiing 

Corp., 472 U.S. 585, 606, 611 (1985). 

13 Id. at 593. 

14 Id. at 610. 
 

 

 

 

 

 

UNILATERAL, UNCONDITIONAL REFUSALS TO DEAL WITH RIVALS 121 

a monopolist to make an important change in 

the character of the market,”15 the Court found 

that the evidence (including, in particular, the 

cessation of a prior course of voluntary dealing, 

which the Court presumed to have been 

profitable) permitted the jury to conclude “that 

there were no valid business reasons for the 

refusal.”16 

In 1992, the Supreme Court addressed 

another refusal to continue dealing with a rival 

in Eastman Kodak Co. v. Image Technical Services, 

Inc.

17 Both Kodak and independent service 

operators (ISOs) traditionally serviced Kodak 

copying equipment. ISOs sued after Kodak 

began limiting their ability to obtain 

replacement parts.18 The Court found that a 

jury should determine whether Kodak violated 

the antitrust laws. While discussing Kodak’s 

policies under the rubric of tying and in the 

context of allegations that went well beyond a 

unilateral, unconditional refusal to deal, the 

Court observed that although “[i]t is true that 

as a general matter a firm can refuse to deal 

with its competitors,” that right “is not 

absolute; it exists only if there are legitimate 

competitive reasons for the refusal.”19 

A split among circuits followed. After 

remand in Kodak itself, a jury found that Kodak 

violated section 2 when it stopped selling 

replacement parts to ISOs.20 The Ninth Circuit 

affirmed, approving a jury instruction that the 

antitrust laws prohibit a refusal to deal “that 

unnecessarily excludes or handicaps competitors 

in order to maintain a monopoly.”21 Some, but 

not all, of Kodak’s parts were patented, and the 

court held that “a monopolist’s ‘desire to 

exclude others’” from using its patented work 

“‘is a presumptively valid business 

justification’” for any refusal to license.22 The 

15 Id. at 604. 

16 Id. at 605. 

17 504 U.S. 451 (1992). 

18 Id. at 458–59. 

19 Id. at 483 n.32. 

20 Image Technical Servs., Inc. v. Eastman Kodak 

Co., 125 F.3d 1195, 1201 (9th Cir. 1997). 

21 Id. at 1209 (emphasis omitted). 

22 Id. at 1218 (quoting Data Gen. Corp. v. Grumman 

court found that the ISOs had rebutted the 

presumption, concluding that the jury “would 

have found Kodak’s presumptively valid 

business justification rebutted on the grounds 

of pretext.”23 

The Federal Circuit “decline[d] to follow” 

the Ninth Circuit’s approach in a similar action 

concerning Xerox’s refusal to continue selling 

patented materials to ISOs.24 Distinguishing 

the Supreme Court’s Kodak decision on the 

ground that “no patents had been asserted in 

defense of the antitrust claims” in that case, the 

court agreed with Xerox’s assertion that the 

patent laws granted Xerox the right to refuse to 

sell to ISOs. It held that “[i]n the absence of any 

indication of illegal tying, fraud in the Patent 

and Trademark Office, or sham litigation, the 

patent holder may enforce the statutory right to 

exclude others from making, using, or selling 

the claimed invention free from liability under 

the antitrust laws.”25 

Many prominent commentators criticize this 

refusal-to-dealjurisprudence. For example, one 

asserts that Aspen Skiing and Kodak “suffer from 

confused economic reasoning.”26 Others 

similarly observe that “[a]ntitrust has twisted 

itself in knots in Kodak and other complementary 

market/aftermarket cases.”27 Another laments 

that “Kodak was a failed experiment in a type of 

economic engineering where antitrust has no 

place.”28 And another concludes that the 

Court’s decision in Aspen Skiing “is bound to 

create systematic error.”29 Even commentators 

Sys. Support Corp., 36 F.3d 1147, 1187 (1st Cir. 1994)). 

23 Id. at 1219–20. 

24 In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 

1322, 1327 (Fed. Cir. 2000). 

25 Id. 

26 Carlton, supra note 8, at 659. 

27 Kenneth L. Glazer & Abbott B. Lipsky, Jr., 

Unilateral Refusals to Deal Under Section 2 of the Sherman 

Act, 63 ANTITRUST L.J. 749, 797 (1995). 

28 HOVENKAMP, supra note 2, at 310. 

29 Frank H. Easterbrook, On Identifying Exclusionary 

Conduct, 61 NOTRE DAME L.REV. 972, 973 (1986); see also, 

e.g., Ronald A. Cass & Keith N. Hylton, Preserving 

Competition: Economic Analysis, Legal Standards and 

Microsoft, 8 GEO. MASON L. REV. 1, 27 (1999) (stating 

that Aspen Skiing “has been roundly criticized”); 
 

 

 

122 SECTION 2 REPORT 

who agree with the result in Aspen Skiing 

concede that the decision lacks a “coherent 

analytical framework.”30 

In its most recent decision dealing with an 

alleged refusal to deal, the Supreme Court 

declined to find a duty to deal.

31 Trinko 

involved an alleged failure by Verizon to share 

its local telephone network with competitors as 

required by the 1996 Telecommunications Act 

(1996 Act).32 The Court first held that the 1996 

Act did not create new claims extending 

beyond existing antitrust standards and then 

held that Verizon’s conduct did not consitute 

an illegal refusal to deal under the antitrust 

laws. According to the Court: 

Firms may acquire monopoly power by 

establishing an infrastructure that renders 

them uniquely suited to serve their 

customers. Compelling such firms to share 

Herbert Hovenkamp, The Monopolization Offense, 61 

OHIO ST. L.J. 1035, 1044–45 (2000) (noting that the 

implications of Aspen and Kodak “are problematic to say 

the least”); Michael Jacobs, Introduction: Hail or Farewell? 

The Aspen Case 20 Years Later, 73 ANTITRUST L.J. 59, 68 

(2005) (asserting that the “problematic aspects of Aspen 

lead to a conclusion that the case is an anomaly” and 

that “Aspen was a poor tool for crafting important 

doctrine under Section 2; the Court’s opinion did little 

to clarify the meaning of Section 2, and much to obscure 

it”); William E. Kovacic, The Antitrust Paradox Revisited: 

Robert Bork and the Transformation of Modern Antitrust 

Policy, 36 WAYNE L. REV. 1413, 1456 (1990) (noting that 

“many commentators have criticized [Aspen Skiing’s] 

result and reasoning”); James B. Speta, Antitrust and 

Local Competition Under the Telecommunications Act, 71 

ANTITRUST L.J. 99, 135 (2003) (describing the Aspen 

Skiing decision as “much criticized”). But see Jonathan 

B. Baker, Promoting Innovation Competition Through the 

Aspen/Kodak Rule, 7 GEO. MASON L. REV. 495, 496–97 

(1999) (arguing that the “Aspen/Kodak rule . . . is likely 

to promote innovation”). 

30 Thomas G. Krattenmaker & Steven C. Salop, 

Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve 

Power Over Price, 96 YALE L.J. 209, 213 (1986) (stating 

that the Aspen Skiing Court “felt its way through murky 

precedent to what the Justices’ instincts told them” was 

the “correct result[]” (internal quotation marks 

omitted)). 

31 Verizon Commc’ns Inc. v. Law Officesof Curtis V. 

Trinko, LLP, 540 U.S. 398, 416 (2004). 

32 Telecommunications Act of 1996, Pub. L. No. 

104–104, 110 Stat. 56 (codified as amended in scattered 

sections of 47 U.S.C.). 

the source of their advantage is in some 

tension with the underlying purpose of 

antitrust law, since it may lessen the 

incentive for the monopolist, the rival, or 

both to invest in those economically 

beneficial facilities. Enforced sharing also 

requires antitrust courts to act as central 

planners, identifying the proper price, 

quantity, and other terms of dealing—a role 

for which they are ill suited. Moreover, 

compel ling negotiation betwee n 

competitors may facilitate the supreme evil 

of antitrust: collusion. Thus, as a general 

matter, the Sherman Act “does not restrict 

the long recognized right of [a] trader or 

manufacturer engaged in an entirely 

private business, freely to exercise his own 

independent discretion as to parties with 

whom he will deal.”33 

The Supreme Court in Trinko cautioned 

that forcing a monopolist to deal with a 

rival may “lessen the incentive for the 

monopolist, the rival, or both to invest 

in . . . economically beneficial 

facilities.” 

While recognizing that “‘[t]he high value 

that we have placed on the right to refuse to 

deal with other firms does not mean that the 

right is unqualified,’”34 the Court also said it is 

important to be “very cautious in recognizing 

. . . exceptions” to that right “because of the 

uncertain virtue of forced sharing and the 

difficulty of identifying and remedying 

anticompetitive conduct by a single firm.”35 

The Court further said that an allegedly 

anticompetitive refusal to deal “‘should be 

deemed irremedia[ble] by antitrust law when 

compulsory access requires the court to assume 

the day-to-day controls characteristic of a 

regulatory agency.’”36 

33 Trinko, 540 U.S. at 407–08 (quoting United States 

v. Colgate & Co., 250 U.S. 300, 307 (1919)). 

34 Id. at 408 (quoting Aspen Skiing Co. v. Aspen 

Highlands Skiing Corp., 472 U.S. 585, 601 (1985)). 

35 Id. at 408. 

36 Id. at 415 (quoting Phillip Areeda, Essential 

Facilities: An Epithet in Need of Limiting Principles, 58 

ANTITRUST L.J. 841, 853 (1990) (alteration in original)); 

see also Areeda, supra, at 855 (“No court should impose 
UNILATERAL, UNCONDITIONAL REFUSALS TO DEAL WITH RIVALS 123 

III. Analysis 

A. Using the Antitrust Laws to Require a 

Monopolist to Deal with a Rival 

Recent jurisprudence and academic and 

policy thinking on unilateral, unconditional 

refusals to deal with rivals focus on several key 

principles. 

• Antitrust law generally does not restrict 

a firm’s right to choose those with which 

it will deal.37 

• Antitrust laws protect the competitive 

process for the benefit of consumers, not 

the fortunes of any particular 

competitor.38 

• Although compelling a firm to deal with 

a rival can increase short-term static 

competition, it can also diminish or 

eliminate incentives for firms (both the 

monopolist and other firms) to innovate 

in the future.39 

• Judges and juries (and antitrust 

enforcers) are ill-equipped to act as 

industry regulators deciding the terms 

on which a firm should be required to 

sell its products or services.40 

Using the antitrust laws to require a 

monopolist to deal with a rival creates a tension 

between static and dynamic welfare 

considerations. If a monopolist is forced to deal 

with a rival, consumers may immediately 

benefit from short-term price reductions or 

additional product options. These static 

benefits, however, are likely to come at a high 

cost—the loss or diminution of dynamic, longa duty to deal that it cannot explain or adequately and 

reasonably supervise.”). 

37 E.g., Colgate, 250 U.S. at 307 (explaining that the 

Sherman Act generally “does not restrict the long 

recognized right of [a] trader or manufacturer engaged 

in an entirely private business, freely to exercise [its] 

own independent discretion as to parties with whom 

[it] will deal”). 

38 E.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 

429 U.S. 477, 488 (1977) (“The antitrust laws . . . were 

enacted for ‘the protection of competition not 

competitors.’” (quoting Brown Shoe Co. v. United 

States, 370 U.S. 294, 320 (1962))). 

39 See Trinko, 540 U.S. at 407–08. 

40 See id. at 408. 

term efficiencies. 

It is nearly universally accepted that 

innovation—creating new ways of satisfying 

consumer demand or lowering costs—is key to 

increasing welfare.41 Because innovation drives 

economic growth,42 diminishing incentives to 

innovate can harm consumers. Thus, two 

commentators explain, “an essential element of 

appropriate antitrust policy is to allow a firm to 

capture as much of the surplus that, by its own 

investment, innovation, industry or foresight, 

the firm has itself brought into existence.”43 

Forcing a firm—even a monopolist—to deal 

with a rival on terms it would not choose “may 

lessen the incentive for the monopolist, the 

rival, or both” to innovate in the future.44 That 

is, any firm would have to consider that its 

investment in a superior or desirable product 

or service might have to be shared with rivals 

on terms set by a court at the behest of the rival. 

In addition, before investing in developing 

their own improved products to compete in the 

market, rivals would consider whether they 

could instead convince a court to give them 

access to a competitor’s product. In light of 

these potentially skewed investment and 

innovation decisions and their detrimental 

impact on economic growth and welfare, the 

Supreme Court in Trinko underscored “the 

uncertain virtue of forced sharing.”45 Panelists 

generally agreed that there likely are few 

circumstances where forced sharing would help 

consumers in the long run.46 

41 See, e.g., WILLIAM J. BAUMOL, THE FREE-MARKET 

INNOVATION MACHINE 20 (2002). 

42 See, e.g., Robert M. Solow, Technical Change and the 

Aggregate Production Function, 39 REV. ECON. & STAT. 

312, 316 (1957). 

43 Carlton & Heyer, supra note 3, at 1. 

44 Trinko, 540 U.S. at 408. But cf. July 18 Hr’g Tr., 

supra note 2, at 44 (Salop) (stating that “monopolists 

have weaker innovation incentives”). 

45 540 U.S. at 408. 

46 See, e.g., Sherman Act Section 2 Joint Hearing: 

Conduct as Related to Competition Hr’g Tr. 123, May 8, 

2007 [hereinafter May 8 Hr’g Tr.] (Rule); July 18 Hr’g 

Tr., supra note 2, at 26 (Pitofsky) (“Let me start with the 

proposition that the general rule is and must be no 

general duty to deal.”); id. at 107 (Salop) (stating that 

“very few refusals to deal would be actionable under 
 

 

 

124 SECTION 2 REPORT 

Panelists generally agreed that there 

likely are few circumstances where 

forced sharing would help consumers 

in the long run. 

As one panelist observed: 

[I]ndependent competition amo ng 

competitors who are not relying upon one 

another for assistance or even for pulled 

punches in the competitive process is what 

best produces innovative products at low 

prices. . . . The uncertainty that is caused 

by indeterminate liability rules and duties 

to assist competitors [is] likely to retard 

desirable investment.47 

Refusal-to-deal claims often involve a 

refusal to license intellectual-property rights, a 

setting raising particular concerns about the 

dampening of innovation incentives.48 

Recently, the Department and the FTC issued a 

Report dealing with antitrust enforcement and 

intellectual property, an entire chapter of which 

was devoted to whether there should be 

antitrust liability for a refusal to license 

patents.49 In that Report, the agencies 

concluded that “liability for mere unilateral 

refusals to license will not play a meaningful 

part in the interface between patent rights and 

antitrust protections.”50 

In addition to the concern about long-run 

harm to consumers from forced sharing, there 

is also a concern, noted by the Court in Trinko, 

that courts would have to engage in price 

regulation, defining “the terms on which 

cooperation or related transactions will take 

place.”51 As the Supreme Court explained in 

my view”). 

47 July 18 Hr’g Tr., supra note 2, at 30 (Pate). 

48 See, e.g., U.S. DEP’T OF JUSTICE & FED. TRADE 

COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL 

PROPERTY RIGHTS: PROMOTING INNOVATION AND 

PROTECTING COMPETITION 23–24 (2007), available at 

http://www.usdoj.gov/atr/public/hearings/ip/222 

655.pdf. 

49 See id. at 15–32. 

50 Id. at 30. 

51 George A. Hay, Trinko: Going All the Way, 50 

ANTITRUST BULL. 527, 539 (2005); see also, e.g., July 18 

Hr’g Tr., supra note 2, at 24 (Pitofsky) (“[I]f you 

Trinko, and panelists and commentators alike 

have emphasized, this is a task for which judges, 

juries, and antitrust enforcers are very poorly 

suited.52 Because commercial relationships are 

typically complex and fluid, “[a]n antitrust court 

is unlikely to be an effective day-to-day 

enforcer of . . . detailed sharing obligations.”53 

As one commentator explains, “[O]nce we get 

into the issue of fair compensation for the 

manufacturer’s past R&D expenditures or 

simply fair compensation for his creative 

success, we are in a hopeless situation. . . . How 

would a court ever assess how much a firm 

should be fairly rewarded for its creative 

efforts?”54 

mandate disclosure, you have not just the decision 

about mandating, you have a decision about at what 

royalty, what terms, what timing, and so forth.”); id. at 

76 (Whitener) (stating that “we have to call it what it is, 

which is price regulation of every firm that is being 

forced to share”); id. at 110 (Walton) (asking “how do 

we get this pricing”). 

52 540 U.S. 398, 408 (2004) (“Enforced sharing . . . 

requires antitrust courts to act as central planners, 

identifying the proper price, quantity, and other terms 

of dealing—a role for which they are ill suited.”); see 

also, e.g., ANTITRUST MODERNIZATION COMM’N, REPORT 

AND RECOMMENDATION 102 (2007), available at 

http://govinfo.library.unt.edu/amc/report_ 

recommendation/amc_final_report.pdf (“[F]orced 

sharing requires courts to determine the price at which 

such sharing must take place, thereby transforming 

antitrust courts into price regulators, a role for which 

they are ill suited.”); July 18 Hr’g Tr., supra note 2, at 30 

(Pate) (stating that courts “are not very well equipped” 

to set prices); id. at 92 (Walton) (reporting that General 

Motors and the FTC “argued for 19 years” about what 

were “reasonable”terms of dealing); Hovenkamp, supra 

note 29, at 1044 (observing that “antitrust courts are not 

public utility agencies”). 

53 Trinko, 540 U.S. at 415; see also POSNER, supra note 

2, at 242 (“Where the refusal to deal is unilateral, the 

only effective remedy is an order that the defendant do 

business with the victim of the refusal to deal. The 

antitrust court becomes charged with the supervision of 

an ongoing commercial relationship, a function that 

courts are not equipped to perform effectively.”). 

54 George A. Hay, A Monopolist’s “Duty to Deal”: The 

Briar Patch Revisited, 3 SEDONA CONF. J. 1, 5 (2002); see 

also May 8 Hr’g Tr., supra note 46, at 114 (Sidak) (stating 

that “regulating price . . . is fundamentally not 

something that a court can do”). 
UNILATERAL, UNCONDITIONAL REFUSALS TO DEAL WITH RIVALS 125 

Due to the difficulties of devising 

judicially manageable remedies and the 

risk that a remedy mandating forced 

sharing might diminish welfare, some 

commentators conclude that the 

antitrust laws should never compel 

rivals to deal. 

In view of these remedial difficulties and the 

risk that a remedy mandating forced sharing 

might diminish welfare, some commentators 

conclude that the antitrust laws should never 

compel rivals to deal. Judge Posner, for 

example, concludes that “it cannot be sound 

antitrust law that, when Congress refuses or 

omits to regulate some aspect of a natural 

monopolist’s behavior, the antitrust court will 

step in and, by decree, supply the missing 

regulatory regime.”55 Professor Hovenkamp 

raises the same concern, contending that 

forcing a firm to cooperate with rivals is 

appropriately dealt with through regulation, 

not the antitrust laws.56 Several panelists 

agreed.57 

55 POSNER, supra note 2, at 243–44. 

56 See HOVENKAMP, supra note 2, at 270 (concluding 

that “[w]hile price-regulated monopolymay sometimes 

be appropriate, that decision must be made by a 

legislature, and never via the antitrust laws,” because 

“a compulsory sales rule turns the defendant into a 

public utility and places the court in the indefensible 

position of price regulator”); Sherman Act Section 2 

Joint Hearing: Welcome and Overview of Hearings 

Hr’g Tr. 51, June 20, 2006 (Hovenkamp) (stating that 

courts should “get out of the business” of forcing firms 

to deal with competitors under the antitrust laws). 

57 See, e.g., May 8 Hr’g Tr., supra note 46, at 112 

(Rule) (explaining that “in the area of refusals to deal, 

particularly if you are talking about unconditional 

unilateral refusals to deal, the circumstances under 

which you would ever be concerned . . . are so limited 

and so rare that that’s precisely the kind of place you 

would want to have a rule of per se legality”); July 18 

Hr’g Tr., supra note 2, at 59–71 (Walton) (describing the 

history of the FTC’s investigation of GM’s failure to 

deal with independent crash-part dealers and its own 

dealers on the same terms and stressing that the FTC 

ultimately found no violation in part because it did not 

want to commit extensive resources to reviewing GM’s 

interpretations of to whom and at what price it could 

sell); id. at 72 (Whitener) (arguing that “unconditional 

refusals to deal with competitors simply do not 

Despite identifying these concerns with 

forced sharing, the Supreme Court in Trinko 

stated that the right to refuse to deal with rivals 

is not “unqualified” and reserved the 

possibility that a refusal to cooperate with 

rivals “[u]nder certain circumstances . . . can 

constitute anticompetitive conduct and violate 

§2.”58 Some commentators agree.59 Some 

panelists also agreed, asserting that a per se 

rule of legality could either unacceptably risk 

failing to prevent or stop anticompetitive 

conduct60 or lead to more sectoral regulation in 

the place of antitrust.61 

The Supreme Court in Trinko stated 

that the right to refuse to deal with 

rivals is not “unqualified.” 

One panelist opined that a monopolist’s 

decision to stop cooperating with a rival 

constitute exclusionary conduct”). 

58 540 U.S. at 408. 

59 See, e.g., Areeda, supra note 36, at 845 n.21 (stating 

that distinctions between unilateral conduct and 

concerted refusals to deal “do not mean that a 

monopolist should never be required to deal”); Carlton, 

supra note 8, at 660 (“Although it is understandable 

why some could take the position that the evidence to 

date on refusals to deal is so ambiguous that there 

should be no antitrust restrictions, I do not take such an 

extreme view. I start from the premise that there can be 

a legitimate role for antitrust restrictions on refusals to 

deal.”); A. Douglas Melamed, Exclusionary Conduct 

Under the Antitrust Laws: Balancing, Sacrifice, and Refusals 

to Deal, 20 BERKELEY TECH. L.J. 1247, 1266 (2005) 

(advocating application of the profit-sacrifice test as a 

means of prohibiting inefficient refusals to deal while 

avoiding antitrust intervention when forced sharing 

would be inefficient). 

60 Steven C. Salop, Refusals to Deal 4 (July 18, 2006) 

(hearing submission); see also May 8 Hr’g Tr., supra note 

46, at 110 (Melamed) (stating that “we ought not to 

have a per se lawful rule because when an AT&T 

refuses to deal with a rival even though it deals with 

others interconnecting into the market or when an 

Aspen refuses to accept tickets sold at retail prices to a 

competitor, there ought to be some room to say now we 

know he has gone too far”); July 18 Hr’g Tr., supra note 

2, at 25 (Pitofsky) (questioning giving “free rei[]n for the 

monopolist”). 

61 ShermanAct Section 2 Joint Hearing: Policy Issues 

Hr’g Tr. 116, May 1, 2007 [hereinafter May 1 Hr’g Tr.] 

(McDavid). 
 

126 SECTION 2 REPORT 

without legitimate justification is “a perfectly 

legitimate basis for inferring harm to 

competition.”62 Another panelist noted, however, 

that there is no reason to believe that “a course of 

conduct that was once entered into remains 

efficient forever.”63 Hearing testimony further 

cautioned that a duty of continued dealing 

could discourage any dealing in the first 

place.64 In light of these latter concerns, the 

Department believes that a firm’s termination 

of a prior course of dealing generally should 

not be a significant factor in assessing whether 

the antitrust laws impose a duty to deal with a 

rival. 

In addition, some panelists disagreed that 

the difficulty of crafting administrable, effective 

remedies supports a rule of per se legality.65 

Some suggested that a court may set terms of 

dealing without excessive difficulty in certain 

circumstances, for example by using the terms 

at which sales are made to other companies as 

a benchmark.66 

62 Id. at 115 (Baker). 

63 July 18 Hr’g Tr., supra note 2, at 37 (Pate); see also 

May 1 Hr’g Tr., supra note 61, at 113 (Elhauge) (terming 

reliance on termination of a course of dealing a 

“misbegotten notion”). 

64 July 18 Hr’g Tr., supra note 2, at 37–38 (Pate); see 

also Olympia Equip. Leasing Co. v. W. Union Tel. Co., 

797 F.2d 370, 375 (7th Cir. 1986) (Posner, J.) (“If 

[defendant] had known that by taking steps to promote 

competition it would be laying itself open to an 

antitrust suit . . . it probably would not have taken 

them.”). 

65 May 8 Hr’g Tr., supra note 46, at 109 (Melamed) 

(“Answering the liability question with the remedy 

question is a mistake.”); id. at 117 (Pitofsky) (“I am 

upset with the following process of thinking. This is a 

very, very difficult issue and the remedy is extremely 

difficult to work out and, therefore, let’s call it per se 

legal. I don’t think that’s the way antitrust law should 

proceed.”). 

66 Id. at 110 (Melamed) (suggesting that “a 

contemporary discriminating benchmark” is likely to be 

necessary for demonstrating a refusal to deal); May 1 

Hr’g Tr., supra note 61, at 116 (Kolasky) (noting that 

sales to others provide basis for an administrable 

remedy); July 18 Hr’g Tr., supra note 2, at 25 (Pitofsky) 

(“Sometimes the remedy is easy. Perhaps the 

monopolist has already been licensing other people, but 

refuses to license potential competitors. It’s not 

common, but it happens.”); id. at 57 (Salop) (“Market 

Panelists who supported potential liability 

for refusals to deal proposed a number of 

different tests for assessing when a firm should 

be required to accept a rival’s offer to deal. 

Two panelists endorsed tests ultimately 

balancing procompetitive and anticompetitive 

effects of a refusal to deal.67 A third panelist 

favored a test under which a monopolist would 

be compelled to accept offers to deal with a 

rival above a “protected profits benchmark,” 

that is, a price that would compensate the 

defendant for its loss of monopoly profits from 

customers that shift from dealing with the 

defendant to dealing with the plaintiff.68 Two 

other panelists endorsed focusing the inquiry 

on whether the practice “would make no 

economic sense for the defendant but for its 

tendency to eliminate or lessen competition.”69 

After reviewing and considering the case 

law and commentary, as well as the panelists’ 

views, the Department believes that there is a 

significant risk of long-run harm to consumers 

from antitrust intervention against unilateral, 

unconditional refusals to deal with rivals, 

particularly considering the effect of economywide disincentives and remedial difficulties. 

Then-Judge Breyer’s assessment of the 

difficulties inherent in establishing whether a 

price is illegally high under the antitrust laws 

applies with equal force to evaluating the 

sufficiency of an offer in refusal-to-deal cases: 

[H]ow is a judge or jury to determine a “fair 

price?” Is it the price charged by other 

suppliers of the [monopoly] product? None 

exist. Is it the price that competition 

“would have set” were the [market] not 

monopolized? How can the court 

determine this price without examining 

costs and demands, indeed without acting 

like a rate-setting regulatory agency, the 

rate-setting proceedings of which often last 

for several years? . . . Must it be [sufficient] 

prices often provide a good benchmark.”). 

67 July 18 Hr’g Tr., supra note 2, at 16 (Kolasky); id. 

at 21–22, 25–26 (Pitofsky). 

68 Id. at 48 (Salop). 

69 May 8 Hr’g Tr., supra note 46, at 115 (Melamed); 

R. Hewitt Pate, Refusals to Deal and Essential Facilities 

23 (July 18, 2006) (hearing submission). 
 

 

 

 

UNILATERAL, UNCONDITIONAL REFUSALS TO DEAL WITH RIVALS 127 

for all independent competing firms to 

make a “living profit,” no matter how 

inefficient they may be? If not, how does 

one identify the “inefficient” firms? And 

how should the court respond when costs 

or demands change over time, as they 

inevitably will? 70 

The Department thus concludes that 

antitrust liability for unilateral, unconditional 

refusals to deal with competitors should not 

play a meaningful part in section 2 

enforcement.71 

B. The Essential-Facilities Doctrine 

The essential-facilitiesdoctrine derives from 

the 1912 United States v. Terminal Railroad Ass’n 

of St. Louis decision in which the Supreme 

Court condemned a consortium’s combination 

of railroad facilities necessary to carry freight 

traffic or passengers across the Mississippi 

River at St. Louis. Rather than order 

dissolution, the Court held that the consortium 

could continue so long as it either admitted 

other railroads into the consortium or agreed to 

charge railroads that were not in the 

consortium fees that would “place every such 

[railroad] upon as nearly an equal plane . . . as 

that occupied by the [consortium members].”72 

Although the case involved a joint venture 

among competitors, lower courts have drawn 

from Terminal Railroad the essential-facilities 

doctrine—the proposition that the antitrust 

laws require a single firm in control of a facility 

essential to its competitors to provide 

reasonable access to the facility if possible.73 In 

MCI, the Seventh Circuit set forth a leading 

70 Town of Concord v. Boston Edison Co., 915 F.2d 

17, 25 (1st Cir. 1990) (Breyer, C.J.). 

71 This is consistent with the conclusion of the 2007 

report of the Department and the FTC regarding 

antitrust enforcement and intellectual property. See 

U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, supra note 

48, at 32. 

72 United States v. Terminal R.R. Ass’n of St. Louis, 

224 U.S. 383, 411 (1912). 

73 See, e.g., MetroNet Servs. Corp. v. Qwest Corp., 

383 F.3d 1124, 1128–29 (9th Cir. 2004); MCI Commc’ns 

Corp. v. AT&T, 708 F.2d 1081, 1132–33 (7th Cir. 1983); 

Hecht v. Pro-Football, Inc., 570 F.2d 982, 992–93 (D.C. 

Cir. 1977); United States v. AT&T, 524 F. Supp. 1336, 

1360–61 (D.D.C. 1981). 

formulation of the doctrine, under which a 

plaintiff must prove four elements to establish 

liability and defendant’s obligation to provide 

access: “(1) control of the essential facility by a 

monopolist; (2) a competitor’s inability practically 

or reasonably to duplicate the essential facility; (3) 

the denial of the use of the facility to a 

competitor; and (4) the feasibility of providing 

the facility.”74 

Aspen Skiing contains the Supreme Court’s 

first explicit mention of the essential-facilities 

doctrine. The Tenth Circuit had affirmed 

liability on multiple grounds, including the 

theory that the joint lift ticket constituted an 

essential facility to which plaintiff had a right of 

access.75 The Supreme Court declined “to 

consider the possible relevance of the ‘essential 

facilities’ doctrine” and affirmed on other 

grounds.76 In Trinko, the Supreme Court 

similarly declined “either to recognize . . . or to 

repudiate” the doctrine, noting that, even if it 

were to exist, it would be inapplicable where 

government regulations included “extensive 

provision for access” to the allegedly essential 

facility.77 

Many commentators criticize the essentialfacilities doctrine, noting that the doctrine fails 

to provide clear guidance as to what constitutes 

a facility, what makes a facility essential, and 

what constitutes a denial of access.78 Similarly, 

74 MCI, 708 F.2d at 1132–33; see also Hecht, 570 F.2d 

at 992 (“The essential facility doctrine . . . states that 

‘where facilities cannot practicably be duplicated by 

would-be competitors, those in possessionofthemmust 

allow them to be shared on fair terms.’”(citations 

omitted)); July 18 Hr’g Tr., supra note 2, at 96 (Pitofsky) 

(stating that “virtually every lower court adheres to” 

the Seventh Circuit’s definition of essential facilities set 

forth in the 1983 MCI decision). 

75 Aspen Highlands Skiing Corp. v. Aspen Skiing 

Co., 738 F.2d 1509, 1520–21 (10th Cir. 1984), aff’d, 472 

U.S. 585 (1985). 

76 472 U.S. at 611 n.44. 

77 540 U.S. 398, 411 (2004). 

78 See, e.g., 3A PHILLIP E. AREEDA & HERBERT 

HOVENKAMP, ANTITRUST LAW, ¶ 771c, at 173 (2d ed. 

2002) (noting that “the essential facility doctrine is both 

harmful and unnecessary and should be abandoned”); 

Areeda, supra note 36, at 852 (“Compulsory access, if it 

exists at all, is and should be very exceptional.”); 

Donald I. Baker, Compulsory Access to Network Joint 
 

 

 

128 SECTION 2 REPORT 

many panelists recommended that it be 

expressly repudiated,79 although some others 

supported a limited application of the doctrine 

in “extraordinary cases.”80 

As critics of the doctrine have observed, 

each MCI factor raises difficult issues for courts. 

For example, a court must determine what 

constitutes a facility and how critical access to 

the facility is to effective competition.81 The 

second MCI element, asking whether a 

competitor can reasonably duplicate the 

facility, may require the court to determine 

whether the costs of duplicating the facility are 

reasonable.82 The third element, denial of 

Ventures Under the Sherman Act: Rules or Roulette?, 1993 

UTAH L. REV. 999, 1006 (stating that “competition 

among networks, rather than judicial compulsion, 

should be the preferred option”); Michael Boudin, 

Antitrust Doctrine and the Sway of Metaphor, 75 GEO. L.J. 

395, 402 (1986) (noting “embarrassing weakness” of 

essential facilities doctrine); Abbott B. Lipsky, Jr. & J. 

Gregory Sidak, Essential Facilities, 51 STAN. L. REV. 1187, 

1195 (1999) (stating that “mandatory access remedies, 

such as the essential facilities doctrine, do not fit 

comfortably within antitrust law”); Gregory J. Werden, 

The Law and Economics of the Essential Facility Doctrine, 32 

ST. LOUIS U. L.J. 433, 480 (1987) (asserting that “courts 

should reject the doctrine”). 

79 July 18 Hr’g Tr., supra note 2, at 116 (Kolasky) (“I 

think the essential facilities doctrine should be 

abandoned all together.”);id. (Whitener) (stating that he 

“would eliminate the doctrine”). 

80 Id. at 99 (Salop); see also id. at 26 (Pitofsky) (stating 

that essential facilities doctrine is needed to deal with 

“bottleneck monopol[ies]”); id. at 98–99 (Salop) 

(asserting that there is no reason a court should not step 

in when, by “an accident of history,” an industry that 

should be regulated is not, and urging that, although 

regulation by courts is “rare,” that is “not to say that it 

should never be done”). 

81 See, e.g., Lipsky & Sidak, supra note 78, at 1212 

(“‘[E]ssentiality’ and the ‘practicability of duplication’ 

are issues that can depend on matters of degree. . . . It 

may be difficult indeed to determine whether exclusion 

from the use of a particular facility will mean 

inconvenience, extinction, or some intermediate degree 

of harm to the excluded competitor.”); Werden, supra 

note 78, at 452–53 (discussing lack of clarity in case law 

regarding what constitutes a facility). 

82 See Lipsky & Sidak, supra note 78, at 1211–13; see 

also Fishman v. Estate of Wirtz, 807 F.2d 520, 540 (7th 

Cir. 1986) (finding a basketball arena to be an essential 

facility because it “was not duplicable without an 

expenditure that would have beenunreasonable in light 

access, may appear uncomplicated when an 

absolute denial is involved, but can become 

complex when a more limited denial is alleged 

or when parties merely disagree on the price or 

other terms at which access to some asset can be 

bought.83 Some cases suggest that essential 

facilities must be made available on terms that are 

“just and reasonable”84 or “nondiscriminatory,”85 

but they do not provide any useful guidance on 

when terms of access will be regarded to be 

“unreasonable.”86 Analysis of this issue may 

involve evaluation of the outcome of price 

negotiations between the monopolist and its 

competitor, making judicial administrability 

difficult.87 Finally, evaluating the feasibility of 

providing the facility may require the court to 

make difficult judgments about the impact of 

forced sharing on the efficient and safe 

functioning of the facility.88 

More basically, commentators point out that 

the concerns about innovation incentives and 

judicial capacity arising in refusal-to-deal cases 

apply equally in essential-facility cases. For 

of the size of the transaction such duplication would 

have facilitated”). 

83 See Werden, supra note 78, at 456 (discussing the 

difficulties of evaluating “less overt methods of 

disadvantaging a competitor” than complete denial of 

access to a facility). 

84 United States v. Terminal R.R. Ass’n of St. Louis, 

224 U.S. 383, 411 (1912). 

85 MCI Commc’ns v. AT&T, 708 F.2d 1081, 1148 (7th 

Cir. 1983). 

86 See, e.g., Werden, supra note 78, at 456 (“The cases 

provide no guidance as to when terms of access are 

unreasonable.”). 

87 See, e.g., id. 

88 See, e.g., State of Ill. ex rel. Burris v. Panhandle E. 

Pipe Line Co., 935 F.2d 1469, 1483 (7th Cir. 1991) 

(stating that the feasibility requirement “excuses 

refusals to provide access [to an essential facility] 

justified by the owner’s legitimate business concerns”); 

Hecht v. Pro-Football, Inc., 570 F.2d 982, 992–93 (D.C. 

Cir. 1977) (“The antitrust laws do not require that an 

essential facility be shared if such sharing would be 

impractical or would inhibit the defendant’s ability to 

serve its customers adequately.”); see also Thomas E. 

Kauper, Section Two of the Sherman Act: The Search for 

Standards, 93 GEO. L.J. 1623, 1626 n.21 (2005) (“Recent 

cases indicate that sharing even an essential facility is 

not required where there is an efficiency reason for not 

doing so.”). 
UNILATERAL, UNCONDITIONAL REFUSALS TO DEAL WITH RIVALS 129 

example, a firm may be unwilling to assume 

the risk and costs of creating a facility if it could 

later be compelled to share that facility on 

terms it would not otherwise have chosen.89 

Moreover, commentators note that courts 

granting relief under the doctrine would face 

the nettlesome task of setting prices and other 

terms of dealing.90 In short, the consequences 

of forcing a firm to deal with its rivals do not 

disappear with the substitution of the rubric 

essential facilities for refusals to deal. 

The Department agrees that the essentialfacilities doctrine is a flawed means of deciding 

whether a unilateral, unconditional refusal to 

deal harms competition. The doctrine is 

essentially a “label that beguiles some 

commentators and courts into pronouncing a 

duty to deal without analyzing [its] 

implications.”91 In addition to the ambiguities 

and difficulties of application discussed above, 

the doctrine does not explicitly require harm to 

competition, rather than to competitors; does 

not require that conferring access substantially 

improve competition; and does not expressly 

allow for a full consideration of legitimate 

business justifications. As Professor Areeda put 

it, essential facilities “is less a doctrine than an 

89 See e.g., Areeda, supra note 36, at 851 (“Required 

sharing discourages building facilities . . . even though 

they benefit consumers.”); Paul D. Marquardt & Mark 

Leddy, The Essential Facilities Doctrine and Intellectual 

Property Rights: A Response to Pitofsky, Patterson, and 

Hooks, 70 ANTITRUST L. J. 847, 856 (2003) (“If innovation 

did not carry the promise of potential economic return, 

there would of course be much less of it.”). Cf. AREEDA 

& HOVENKAMP, supra note 78, ¶ 771b, at 172 (stating 

that forced sharing of an essential facility “discourages 

firms from developing their own alternative inputs”). 

90 See e.g., Frank H. Easterbrook, When Is It 

Worthwhile to Use Courts to Search for Exclusionary 

Conduct?, 2003 COLUM.BUS.L.REV. 345, 352 (“A duty to 

[share an essential facility] leaves the price term open, 

so it fails to handle monopoly unless the court becomes 

a rate regulator—and few think that the isolated 

examples of judicial rate regulation, such as the blanket 

license decree for copyrights, have been 

successful.”(footnote omitted)); Lipsky & Sidak, supra 

note 78, at 1248 (stating that courts “feel ill-equipped[] 

to prescribe and monitor price, terms, and condition of 

access”). 

91 AREEDA & HOVENKAMP, supra note 78, ¶ 772a, at 

175. 

epithet, indicating some exception to the right 

to keep one’s creations to oneself, but not 

telling us what those exceptions are.”92 

The Department agrees that the 

essential-facilities doctrine is a flawed 

means of deciding whether a unilateral, 

unconditional refusal to deal harms 

competition. 

IV. Conclusion 

The Department believes that there is a 

significant risk of long-run harm to consumers 

from antitrust intervention against unilateral, 

unconditional refusals to deal with rivals, 

particularly considering the effects of economywide disincentives and remedial difficulties. 

The Department thus concludes that antitrust 

liability for unilateral, unconditional refusals to 

deal with rivals should not play a meaningful 

part in section 2 enforcement. 

The Department believes that antitrust 

liability for unilateral, unconditional 

refusals to deal with rivals should not 

play a meaningful part in section 2 

enforcement. 

92 Areeda, supra note 36, at 841. 

 

CHAPTER 8 

EXCLUSIVE DEALING 

I. Introduction 

Exclusive dealing describes an arrangement 

whereby one party’s willingness to deal with 

another is contingent upon that other party (1) 

dealing with it exclusively or (2) purchasing a 

large share of its requirements from it.1 

Exclusive dealing is common and can take 

many forms.

2 It often requires a buyer to deal 

exclusively with a seller. For example, a 

manufacturer may agree to deal with a 

distributor only if the distributor agrees not to 

carry the products of the manufacturer’s 

competitors.3

 And many franchise outlets agree 

to buy certain products exclusively from a 

franchisor.4 But it also may involve a seller 

dealing exclusively with a single buyer. 

Exclusive dealing also occurs between 

sellers and consumers, as when a consumer 

agrees to purchase all its requirements of a 

particular product from a single supplier. 

Firms may agree to deal exclusively in contracts 

1 See, e.g., 1 SECTION OF ANTITRUST LAW, AM. BAR 

ASS’N,ANTITRUST LAW DEVELOPMENTS 210 (6th ed. 2007) 

(“Exclusive dealing describes a set of practices that have 

the effect of inducing a buyer to purchase most or all 

products or services for a period of time from one 

supplier.”). Firms sometimes engage in bundling and 

loyalty-discount practices with competitive effects 

similar to those of exclusive dealing. Chapter 6 

discusses those practices. 

2 See, e.g., Sherman Act Section 2 Joint Hearing: 

Exclusive Dealing Session Hr’g Tr. 41, Nov. 15, 2006 

[hereinafter Nov. 15 Hr’g Tr.] (Marvel) (“It is obvious 

that exclusive dealing is a very common thing . . . .”); id. 

at 121 (Lipsky) (“Exclusive dealing is a very elastic 

label. It applies to a lot of different things.”); Richard 

M. Steuer, Exclusive Dealing in Distribution, 69 CORNELL 

L. REV. 101, 101 (1983) (“Exclusive dealing is one of the 

most common practices within the sweep of the 

antitrust laws . . . .”). 

3 See, e.g., Nov. 15 Hr’g Tr., supra note 2, at 41 

(Marvel); see also, e.g., Steuer, supra note 2, at 102. 

4 See, e.g., HERBERT HOVENKAMP, THE ANTITRUST 

ENTERPRISE 202 (2005). 

prohibiting one party from dealing with 

others,5

 or the exclusive-dealing arrangement 

can take other forms, as when a seller enacts 

policies effectively requiring customers to deal 

exclusively with it. 

Exclusive dealing is frequently procompetitive, as when it enables manufacturers and 

retailers to overcome free-rider issues 

misaligning the incentives for these verticallyrelated firms to satisfy the demands of 

consumers most efficiently. For example, a 

manufacturer may be unwilling to train its 

distributors optimally if distributors can take 

that training and use it to sell products of the 

manufacturer’s rivals. Other benefits can occur 

as well, as when an exclusivity arrangement 

assures a customer of a steady stream of a 

necessary input. 

But exclusive dealing also can be 

anticompetitive in some circumstances. For 

example, exclusive dealing may allow one 

manufacturer, in effect, to monopolize efficient 

distribution services and thereby prevent its 

rivals from competing effectively. As thenJudge Breyer explained, exclusive dealing can 

harm consumers by thwarting entry or 

inhibiting the growth of existing rivals: 

Exclusive dealing arrangements may 

sometimes be found unreasonable under the 

antitrust laws because they may place 

enough outlets, or sources of supply, in the 

hands of a single firm (or small group of 

firms) to make it difficult for new, 

potentially competing firms to penetrate the 

market. To put the matter more technically, 

the arrangements may “foreclose” outlets 

or supplies to potential entrants, thereby 

5 See also Nov. 15 Hr’g Tr., supra note 2, at 64 

(Jacobson) (“I think the ‘no contract, no problem’ 

scheme is a problem . . . .”); id. at 117 (Calkins) (“[I]t 

should be possible for a short-term contract or contract 

that is cancellable still to be . . . unlawful.”). 
 

 

132 SECTION 2 REPORT 

raising entry barriers. Higher entry barriers 

make it easier for existing firms to exploit 

whatever power they have to raise prices 

above the competitive level because they 

have less to fear from potential new 

entrants.6 

Sometimes exclusive dealing can both 

provide benefits and at the same time impede 

the ability of a manufacturer’s rivals to compete 

effectively. In those situations, determining 

whether the arrangement should be illegal can 

be difficult because “what makes exclusive 

dealing potentially harmful is the very same 

mechanism that makes the arrangement 

efficient and may lead to lower prices for 

consumers.”7 

Historically, Supreme Court exclusivedealing jurisprudence has focused on whether 

the arrangement “foreclose[s] competition in a 

substantial share of the line of commerce 

affected.”8

 Current practice in the courts of 

appeals, however, assesses the legality of 

exclusive dealing by examining a broad set of 

factors.9 This chapter reviews exclusive-dealing 

law, discusses exclusive dealing’s potential 

anticompetitive and procompetitive effects, and 

sets forth the Department’s view on certain 

legal issues regarding the treatment of 

exclusive dealing. 

II. Background 

Courts have condemned exclusive dealing 

under four provisions of the antitrust laws: 

(1) section 1 of the Sherman Act, which 

prohibits contracts “in restraint of trade,”10 (2) 

section 2 of the Sherman Act, which makes it 

illegal to “monopolize,”11 (3) section 3 of the 

6 Interface Group, Inc. v. Mass. Port Auth., 816 F.2d 

9, 11 (1st Cir. 1987) (Breyer, J.) (emphasis in original) 

(citations omitted). 

7 Nov. 15 Hr’g Tr., supra note 2, at 53 (Jacobson); see 

also, e.g., id. at 138 (Farrell) (noting the difficulty of 

“disentangling all of these difficult concepts”). 

8 Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 

320, 327 (1961). 

9 See, e.g., Nov. 15 Hr’g Tr., supra note 2, at 72–73 

(Steuer, Jacobson, Wright); id. at 122–23 (Lipsky). 

10 15 U.S.C. § 1 (2000). 

11 Id. § 2. 

Clayton Act, which prohibits exclusivity 

arrangements that may “substantially lessen 

competition,”12 and (4) section 5 of the FTC Act, 

which prohibits “[u]nfair methods of 

competition.”13 “The extent to which exclusive 

dealing jurisprudence under Section 2 differs 

from exclusive dealing claims in other contexts 

is not precisely clear.”14 Some courts, however, 

find that the different statutory provisions 

create different standards of legality.15 

This chapter discusses exclusive-dealing 

cases arising under both section 2 of the 

Sherman Act and other statutory provisions. 

Courts today consider a wide variety of 

competitive factors when assessing the legality 

of an exclusive-dealing arrangement.16 Among 

those factors, one panelist asserted that the 

three most significant are (1) “the nature of the 

product and relationship” between the parties 

to the arrangement, (2) the “percentage of the 

market” foreclosed to rivals as a result of the 

arrangement, and (3) the “duration” of the 

arrangement.17 Professor Hovenkamp states 

that exclusive dealing requires “a plaintiff to 

show that the defendant has significant market 

power, that the exclusivity agreement serves to 

deny market access to one or more significant 

rivals, and that market output to consumers is 

lower (or prices higher) as a result.”18 These 

considerations, however, are broader than 

those addressed in older Supreme Court 

precedent, which, as described below, focused 

on whether the exclusive dealing foreclosed a 

substantial amount of trade, a focus that would 

12 Id. § 14. Among other limitations, section 3 

appliesonlyto “goods, wares, merchandise, machinery, 

supplies, or other commodities.” Id. 

13 Id. § 45(a)(1). This report does not address section 

5, which is beyond the scope of this report. 

14 SECTION OF ANTITRUST LAW, supra note 1, at 248. 

15 See, e.g., United States v. Dentsply Int’l, Inc., 399 

F.3d 181, 197 (3d Cir. 2005). 

16 See, e.g., id. at 187, 196; United States v. Microsoft 

Corp., 253 F.3d 34, 71–74 (D.C. Cir. 2001) (en banc) (per 

curiam); Barry Wright Corp. v. ITT Grinnell Corp., 724 

F.2d 227, 236–37 (1st Cir. 1983) (Breyer, J.). 

17 Nov. 15 Hr’g Tr., supra note 2, at 72–73 (Steuer); 

see also SECTION OF ANTITRUST LAW, supra note 1, at 

217–20. 

18 HOVENKAMP, supra note 4, at 206. 
 

 

 

 

EXCLUSIVE DEALING 133 

prohibit many exclusive-dealing arrangements 

that courts today uphold. 

A. Supreme Court 

In its first decision condemning exclusive 

dealing under the antitrust laws, the Supreme 

Court considered a contract prohibiting one of 

Standard Fashion’s retailers from carrying 

other manufacturers’ garment patterns. After 

the retailer began carrying another line of 

patterns, Standard Fashion sought damages 

from the retailer for breach of contract. The 

Court affirmed dismissal of the action on the 

ground that the contract violated the Clayton 

Act. Noting that Standard Fashion controlled 

forty percent of the pattern retailers in the 

country, the Court found that Standard 

Fashion’s exclusive-dealingarrangements “‘must 

in hundreds, perhaps in thousands, of small 

communities amount to . . . a monopoly.’”19 

In its 1949 Standard Oil Co. of California v. 

United States (Standard Stations) decision, the 

Court similarly upheld an injunction 

prohibiting Standard Oil from enforcing 

contractual provisions requiring gas stations in 

seven states to purchase only Standard Oil 

gas.20 The Court noted that exclusive dealing 

“may well be of economic advantage to buyers 

as well as to sellers, and thus indirectly of 

advantage to the consuming public,”21 but 

found these potential procompetitiv e 

justifications irrelevant because (1) Congress 

did not intend the courts to weigh “in each case 

the ultimate demands of the ‘public interest’”22 

and (2) courts are “ill-suited” to the task of 

ascertaining pro- and anticompetitive effects.23 

Because “the affected proportion of retail sales of 

petroleum products [was] substantial”24—Standard 

Oil had exclusive-dealing contracts with “16% of 

the retail gasoline outlets” in the seven-state 

area25—the Court held that the contract violated 

19 Standard Fashion Co. v. Magrane-Houston Co., 

258 U.S. 346, 357 (1922) (quoting circuit court). 

20 337 U.S. 293, 314 (1949). 

21 Id. at 306. 

22 Id. at 311. 

23 Id. at 310. 

24 Id. at 314. 

25 Id. at 295. 

the Clayton Act.26 

Shortly thereafter, the Court considered a 

newspaper’s refusal to sell advertising to firms 

that also bought advertising from a new radio 

station.27 Some commentators view this 

practice as an attempt by the newspaper to be 

its customers’ exclusive supplier of local 

advertising.28 The Court found that section 2 of 

the Sherman Act prohibited the newspaper’s 

attempt to “regain” its “substantial monopoly” 

by forcing the radio station out of business,29 

holding that the newspaper violated the 

antitrust laws “when it use[d] its monopoly to 

destroy threatened competition.”30 Some 

commentators assert that this case is an 

example of an exclusivity arrangement with 

clear anticompetitive effects but no redeeming 

procompetitive effects.31 

In 1961, the Court upheld a contract 

whereby Nashville Coal agreed to sell all the 

coal Tampa Electric required to operate some of 

its power plants. When Nashville Coal refused 

to honor the contract, Tampa Electric sued. 

Nashville Coal defended on the ground that the 

Clayton Act prohibited the exclusive-dealing 

contract, which required, over a twenty-year 

period, delivery of coal worth about $128 

million, about one percent of the relevant 

market. Although analyzing the issue under 

the substantiality framework set forth in 

Standard Stations, the Court stated that the 

legality of the arrangement depended on many 

26 Id. at 314. 

27 Lorain Journal Co. v. United States, 342 U.S. 143 

(1951). 

28 Compare, e.g., Jonathan M. Jacobson, Exclusive 

Dealing, “Foreclosure,” and Consumer Harm, 70 

ANTITRUST L.J. 311, 321 (2002) (characterizing 

defendant’s conduct as “an exclusive dealing policy”), 

with John E. Lopatka & Andrew N. Kleit, The Mystery of 

Lorain Journal and the Quest for Foreclosure in Antitrust, 

73 TEX. L. REV. 1255, 1287 (1995) (“Perhaps the most 

productive way to explore the Lorain Journal case is 

through application of a tying paradigm.”). 

29 Lorain Journal, 342 U.S. at 153. 

30 Id. at 154. 

31 See, e.g., 3A PHILLIP E. AREEDA & HERBERT 

HOVENKAMP,ANTITRUST LAW ¶ 768e3, at 155 (2d ed. 2002) 

(“A supplier’s requirement that a customer not deal with 

a specific rival seems particularly hard to justify.”). 
 

134 SECTION 2 REPORT 

factors that it had deemed irrelevant in Standard 

Stations: 

To determine substantiality in a given case, 

it is necessary to weigh the probable effect 

of the contract on the relevant area of 

effective competition, taking into account 

the relative strength of the parties, the 

proportionate volume of commer ce 

involved in relation to the total volume of 

commerce in the relevant market area, and 

the probable immediate and future effects 

which pre-emption of that share of the 

market might have on effective competition 

therein.32 

Applying these competitive factors, the Court 

upheld the arrangement, noting that the 

contract assured a steady source of supply for 

Tampa Electric and enabled Nashville Coal to 

reduce selling expenses.33 

Despite the Court’s less hostile treatment of 

exclusive dealing in Tampa Electric, the Court 

soon thereafter condemned, under section 5 of 

the FTC Act, Brown Shoe’s exclusivity 

arrangements with approximately one percent 

of U.S. shoe retailers. Finding that these 

arrangements required “shoe retailers . . . 

substantially to limit their trade with Brown’s 

competitors,” the Court held that the 

exclusivity program “obviously conflicts with 

the central policy of both § 1 of the Sherman 

Act and § 3 of the Clayton Act against contracts 

which take away freedom of purchasers to buy 

in an open market.”34 

Finally, the Supreme Court mentioned 

exclusive dealing in its 1984 Jefferson Parish 

Hospital District No. 2 v. Hyde decision, 

observing that an “exclusive-requirements 

contract . . . could be unlawful if it foreclosed so 

much of the market from penetration by . . . 

competitors as to unreasonably restrain 

32 Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 

320, 329 (1961). 

33 Id. at 334. 

34 FTC v. Brown Shoe Co., 384 U.S. 316, 321 (1966); 

see also In re Brown Shoe Co., 62 F.T.C. 679, 716 (1963) 

(noting that “[t]he stores under the franchise plan 

constitute approximately one percent” of all U.S. “retail 

shoe outlets”). 

competition in the affected market.”35 Although 

the case was decided under the rubric of tying, 

the four concurring Justices noted that the 

contract at issue “unquestionably does 

constitute exclusive dealing.”36 They would 

have found no liability under section 1 of the 

Sherman Act because the arrangement— 

between four anesthesiologists and one of 

several hospitals in the area—affected “only a 

very small fraction of the total number of 

anesthesiologists whose services are available 

for hire by other hospitals.”37 

B. Courts of Appeals 

With no Supreme Court case ruling on 

exclusive dealing since Brown Shoe, 

jurisprudence has developed in the courts of 

appeals. The courts of appeals have interpreted 

Tampa Electric as abandoning the Court’s 

narrow focus in Standard Stations on 

substantiality, and they thus consider a variety 

of competitive factors when assessing exclusive 

dealing. A theme throughout these cases is that 

the extent to which rivals are foreclosed from 

the market is only one factor in the analysis; 

courts also consider procompetitiv e 

justifications when assessing the practice’s 

legality. 

In 1983, the First Circuit upheld a series of 

contracts whereby Grinnell agreed to purchase 

from Pacific Scientific a high portion of 

Grinnell’s expected demand for snubbers, 

which are safety devices used in nuclear 

facilities. Barry Wright, a competing snubber 

manufacturer, sought damages from Pacific 

(which historically held an eighty-percent share 

of the snubber market) under section 2 of the 

Sherman Act. Barry Wright characterized the 

contracts as exclusive-dealing arrangements 

that effectively precluded it from selling 

snubbers to Grinnell, which purchased about 

fifty percent of all snubbers. Noting that 

“courts have judged the lawfulness of 

[exclusive dealing] not under per se rules but 

under a ‘rule of reason,’”38 the court upheld the 

35 466 U.S. 2, 30 n.51 (1984). 

36 Id. at 44 (O’Connor, J., concurring). 

37 Id. at 46. 

38 Barry Wright Corp. v. ITT Grinnell Corp., 724 
EXCLUSIVE DEALING 135 

arrangements, asserting that the relevant 

inquiry was “whether the ‘size’ of the contract 

to purchase is reasonable”39 in view of “both 

the extent of the foreclosure and the buyer’s 

and seller’s business justifications.”40 The court 

found the arrangements justified in view of, 

among other things, “their fairly short time 

period”41—the longest covered a two-anda-half-year period—and the existence of 

“legitimate business justifications”4 2— 

Grinnell’s desire for “a stable source of supply” 

and “a stable, favorable price” and Pacific’s 

desire to engage in “production planning that 

was likely to lower costs.”43 

The next year, the Seventh Circuit vacated a 

preliminary injunction under the Clayton Act 

prohibiting a manufacturer from terminating a 

dealer that had begun carrying a competing 

line. Without deciding the issue on the merits, 

the court noted that exclusive dealing may 

increase welfare by “lead[ing] dealers to 

promote each manufacturer’s brand more 

vigorously than would be the case under 

nonexclusive dealing” and “prevent[ing] 

dealers from taking a free ride” on one 

manufacturer’s promotional efforts.44 The 

decision is known particularly for the court’s 

statement that “[e]xclusive-dealing contracts 

terminable in less than a year are 

presumptively lawful.”45 

In another important First Circuit decision, 

that court approved an exclusivity arrangement 

challenged under sections 1 and 2 of the 

Sherman Act in 1993. The arrangement here 

involved a seller’s commitment to sell its 

output only to a specifi ed buyer: 

approximately twenty-five percent of New 

Hampshire’s primary-care physicians agreed to 

sell their services to Healthsource and no other 

F.2d 227, 236 (1st Cir. 1983) (Breyer, J.). 

39 Id. at 237. 

40 Id. at 236–37. 

41 Id. at 238. 

42 Id. at 237. 

43 Id. 

44 Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 

380, 395 (7th Cir. 1984) (Posner, J.). 

45 Id. 

health maintenance organization (HMO). The 

court found no section 1 violation since plaintiff 

(a competing HMO) failed to offer “proof of 

substantial foreclosure,” which the court 

characterized as the “cardinal requirement of a 

valid claim.”46 The court rejected the section 2 

claim on the ground that plaintiff failed to 

establish “a properly defined product market in 

which [defendant] could approach monopoly 

size.”47 The court noted that exclusivity 

arrangements may have “benign” purposes, 

including “assurance of supply or outlets, 

enhanced ability to plan, reduced transaction 

costs, [and] creation of dealer loyalty.”48 

Four years later, the Ninth Circuit upheld, 

under section 3 of the Clayton Act, a 

manufacturer’s policy of refusing to sell its 

equipment (a variety of products used at 

gasoline stations) to retailers carrying 

competing equipment on the ground that the 

arrangement only “foreclosed roughly 38% of 

the relevant market.”49 In reaching its 

conclusion, the court stated that “exclusive 

dealing arrangements imposed on distributors 

rather than end-users are generally less cause 

for anticompetitive concern”50 because rivals 

can sell directly to end-users. Further, “the 

short duration and easy terminability” of an 

exclusivity arrangement “negate[s ] 

substantially [its] potential to foreclose 

competition.”51 

Two prominent decisions condemning 

exclusive dealing followed. In 2001, the D.C. 

Circuit upheld under section 2 of the Sherman 

Act the condemnation of several exclusivity 

agreements between Microsoft and original 

equipment manufacturers, internet access 

providers, independent software vendors, and 

Apple on the ground that they “bar[red]” 

Microsoft’s rivals from “means of distribution” 

46 U.S. Healthcare, Inc. v. Healthsource, Inc., 986 

F.2d 589, 597 (1st Cir. 1993) (Boudin, J.). 

47 Id. at 599. 

48 Id. at 595. 

49 Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 

1162 (9th Cir. 1997). 

50 Id. 

51 Id. at 1163. 
 

 

 

 

 

 

 

 

 

136 SECTION 2 REPORT 

that were “cost-efficient.”52 The court stated 

that in a monopoly-maintenance case, two 

important concerns are whether the exclusive 

dealing “‘reasonably appear[s] capable of 

making a significant contribution to . . . 

maintaining monopoly power’”53 and whether 

competing firms that wanted to use the 

distribution channels subject to the exclusivity 

arrangement “constituted nascent threats” to 

defendant’s monopoly power.54 

Similarly, in Dentsply, the Third Circuit held 

in 2005 that Dentsply’s practice of refusing to 

sell to distributors that carried other 

manufacturers’ artificial teeth violated section 2 

because it unlawfully maintained Dentsply’s 

monopoly power.55 This practice left Dentsply’s 

rivals with distribution methods entailing 

“significantly higher transaction costs, 

extension of credit burdens, and credit risks,”56 

thereby “keep[ing] sales of competing teeth 

below the critical level necessary for any rival 

to pose a real threat to Dentsply’s market 

share.”57 Finding that Dentsply’s policy 

“exclude[d] its rivals from access to dealers,”58 

the court held that Dentsply’s proffered 

efficiency justifications were “pretextual” and 

“did not excuse its exclusionary practices.”59 

Notably, the Dentsply court distinguished 

several other courts’ assertions that short-term 

exclusive-dealing contracts are presumptively 

legal,60 explaining that a policy of not dealing 

with customers also patronizing a rival can 

“realistically make the arrangements . . . as 

effective as those in written contracts.”61 

52 United States v. Microsoft Corp., 253 F.3d 34, 64 

(D.C. Cir. 2001) (en banc) (per curiam); see also id. at 70, 

72, 73. 

53 Id. at 79 (quoting 3 AREEDA & HOVENKAMP, supra 

note 31, ¶ 651c, at 78 (1996) (alteration in original)). 

54 Id. 

55 United States v. Dentsply Int’l, Inc., 399 F.3d 181, 

191–93 (3d Cir. 2005). 

56 Id. at 193. 

57 Id. at 191. 

58 Id. at 185. 

59 Id. at 197. 

60 Id. at 194 n.2. 

61 Id. at 193. 

Finally, some lower courts reviewing other 

exclusivity arrangements have implied a safe 

harbor for arrangements that in the aggregate 

affect less than thirty to forty percent of existing 

customers or distribution. For example, the 

First Circuit stated that “[f]or exclusive dealing, 

foreclosure levels are unlikely to be of concern 

where they are less than 30 or 40 percent.”62 

Similarly, in Minnesota Mining & Manufacturing 

Co. v. Appleton Papers Inc., the court noted that 

“[g]enerally speaking, a foreclosure rate of at 

least 30 percent to 40 percent must be found to 

support a violation of the antitrust laws.”63 

III. Analysis 

Panelists described and discussed conditions 

under which exclusive dealing can be 

anticompetitive and procompetitive.64 As 

discussed below, assessing in practice whether 

the net effect of exclusive dealing is 

anticompetitiveor procompetitive can at times be 

difficult. Notwithstanding that difficulty, the 

Department believes that the general approach 

used by lower courts today—focusing on 

whether the exclusive dealing allows a firm to 

acquire or maintain monopoly power and also 

taking into account procompetitive effects in 

those situations where harm to competition is 

likely—is the appropriate way to determine the 

legality of exclusive dealing. 

A. Potential Anticompetitive Effects 

Some have argued that exclusive dealing can 

never have anticompetitive effects because it is 

against buyers’ interests to help a seller acquire 

or maintain monopoly power. Implicit in this 

argument is the presumption that, if buyers 

enter into exclusivity arrangements, it must be 

because the arrangements create efficiencies. 

Buyers will demand to be fully compensated by 

62 Stop & Shop Supermarket Co. v. Blue Cross & 

Blue Shield of R.I., 373 F.3d 57, 68 (1st Cir. 2004) 

(Boudin, C.J.). 

63 35 F. Supp. 2d 1138, 1143 (D. Minn. 1999); see also, 

e.g., Nov. 15 Hr’g Tr., supra note 2, at 75–76 (Steuer); id. 

at 96 (Jacobson); 11 HERBERT HOVENKAMP, ANTITRUST 

LAW ¶ 1821c, at 176 (2d ed. 2005). 

64 See, e.g., Nov. 15 Hr’g Tr., supra note 2, at 18 

(Steuer); id. at 31–39 (Wright); id. at 50 (Marvel); id. at 

53–54 (Jacobson); id. at 127 (Lipsky). 
EXCLUSIVE DEALING 137 

the seller before entering into an arrangement 

subjecting them to future monopoly power. If 

the arrangement is anticompetitive, the 

monopoly profit to the seller will be less than 

the harm to the victims, and the would-be 

monopolist will not be able to compensate its 

potential victims fully. Hence, they would 

never agree.65 

But it is now generally accepted that the 

assumptions necessary to support this 

argument do not always apply. For example, 

when buyers are “unable to coordinate their 

actions to defeat the tactic,” a monopolist “can 

scare victims into selling cheaply; no single 

victim can stop the exclusion by itself, so no 

single victim has any bargaining power.”66 Put 

another way, under certain circumstances, 

buyers may agree to inefficient exclusivedealing arrangements because each buyer 

believes that, no matter what it does, other 

buyers will agree. Thus, buyers will not 

necessarily resist exclusive dealing that harms 

them collectively. And if those entering into 

exclusive-dealing arrangements are 

distributors, the manufacturer may be able to 

obtain their acquiescence by sharing with them 

some of its expected monopoly profits.67 Thus, 

65 See, e.g.,ROBERT H.BORK,THE ANTITRUST PARADOX 

304–09 (1978). 

66 Eric B. Rasmusen et al., Naked Exclusion: Reply, 90 

AM. ECON. REV. 310, 310 (2000); see also, e.g., Nov. 15 

Hr’g Tr., supra note 2, at 49 (Marvel); id. at 114 

(Calkins); Joseph Farrell, Deconstructing Chicago on 

Exclusive Dealing, 50 ANTITRUST BULL. 465, 476 (2005); 

Jonathan M. Jacobson & Scott A. Sher, “No Economic 

Sense” Makes No Sense for Exclusive Dealing, 73 

ANTITRUST L.J. 779, 791 (2006) (“[I]t is now common 

ground that, in many contexts, exclusive dealing can be 

deployed in a way that . . . allows the defendant to reap 

gains from the arrangement that far exceed the 

associated costs.”); Eric B. Rasmusen et al., Naked 

Exclusion, 81 AM. ECON. REV. 1137, 1140 (1991); Ilya R. 

Segal & Michael D. Whinston, Naked Exclusion: 

Comment, 90 AM.ECON.REV.296, 307 (2000) (stating that 

when many buyers already have agreed to exclusivity 

arrangements, a monopolist “will not have to pay 

much” to induce other buyers to agree as well). 

67 See, e.g., A. Douglas Melamed, Exclusive Dealing 

Agreements and Other Exclusionary Conduct—Are There 

Unifying Principles?, 73 ANTITRUST L.J. 375, 404 (2006) 

(“If the manufacturer expects to gain or preserve 

market power by excluding its rivals, it could induce 

exclusive dealing can be anticompetitive in 

some instances, notwithstanding the seeming 

anomaly of buyers agreeing to arrangements 

allowing a seller to acquire or maintain a 

monopoly. 

In particular, exclusive dealing may be 

harmful when it deprives rivals “of the 

necessary scale to achieve efficiencies, even 

though, absent the exclusivity,” more than one 

firm “would . . . be large enough to achieve 

efficiency.”68 In other words, exclusive dealing 

can be a way that a firm acquires or maintains 

monopoly power by impairing the ability of 

rivals to grow into effective competitors that 

erode the firm’s position. As one panelist put 

it, “the exclusive dealing case that you ought to 

worry about” is where exclusivity deprives 

rivals of the ability to obtain economies of 

scale.69 

the distributors to go along with the exclusionary 

scheme by sharing with them a portion of the 

anticipated supracompetitive profits.”). 

68 Dennis W. Carlton, A General Analysis of 

Exclusionary Conduct and Refusal to Deal—Why Aspen 

and Kodak Are Misguided, 68 ANTITRUST L.J. 659, 663 

(2001); see also Nov. 15 Hr’g Tr., supra note 2, at 8 

(Steuer) (assessing exclusionary arrangements requires 

“looking more at foreclosure of competitors than 

anything else”); id. at 54 (Jacobson) (noting that 

exclusive dealing can harm consumers by “deny[ing] 

the rivals access to customers or supplies and hav[ing] 

the effect of driving their costs up and rendering them 

less effective competitors”); id. at 83 (Wright) 

(characterizing most modern theories of competitive 

harm from exclusive dealing as dependent upon 

preventing rivals from obtaining “minimum efficient 

scale”); MICHAEL D. WHINSTON, LECTURES ON 

ANTITRUST ECONOMICS 133–97 (2006); Eric B. Rasmusen 

et al., Naked Exclusion, 81 AM. ECON. REV. 1137, 1144 

(1991). 

69 Nov. 15 Hr’g Tr., supra note 2, at 94 (Jacobson); see 

also, e.g., RICHARD A. POSNER, ANTITRUST LAW 229 (2d 

ed. 2001) (noting that exclusive dealing may “increase 

the scale necessary for new entry, and . . . increase the 

time required for entry and hence the opportunity for 

monopoly pricing”); Carlton, supra note 68, at 665 n.15 

(asserting that the “key issue” is that exclusive dealing 

can “impair[] the competitive effectiveness of the rival 

with a resulting harm to competition”). 
 

138 SECTION 2 REPORT 

Exclusive dealing can be a way that a 

firm acquires or maintains monopoly 

power by impairing the ability of rivals 

to grow into effective competitors that 

erode the firm’s position. 

Panelists noted many issues relevant to the 

question of when exclusive dealing potentially 

could be harmful.70 In the context of exclusive 

dealing between a manufacturer and retailers, 

for example, exclusive dealing is likely to harm 

consumers only when it affects a significant 

portion of effective distribution methods. As 

one panelist explained, “I think everybody 

would agree that below some percent, no 

agency should worry about it, and no court 

should find illegality . . . .”71 Thus, exclusive 

dealing is more likely to harm consumers when 

rivals do not have other effective ways to 

distribute their products. As one panelist put 

it, if “access to the customers . . . is very easy . . . 

then exclusive dealing will not present any 

problems.”72 A number of panelists noted that 

exclusive dealing between a manufacturer and 

retailers is more likely to pose a threat to 

consumers when rivals cannot “establish their 

own distributionnetworks.”73 Accordingly, the 

adequacy of other potential alternatives can be 

a crucial issue in assessing exclusive dealing’s 

potential to foreclose a competitor and thereby 

harm consumers.74 

Panelists also asserted that “the level of 

distribution really matters”75 and that the 

70 See, e.g., Nov. 15 Hr’g Tr., supra note 2, at 8–10 

(Steuer); id. at 83, 89–90 (Wright); id. at 86 (Sullivan); id. 

at 136–37 (Farrell). 

71 Id. at 174 (Calkins). 

72 Id. at 183 (Calkins). 

73 Id. at 10 (Steuer); cf. id. at 84 (Wright) (questioning 

the likelihood of anticompetitive exclusive dealing “if 

you have free entry at the retail level”). 

74 See SECTION OF ANTITRUST LAW, supra note 1, at 

218 & nn.1269–70; see also United States v. Denstply 

Int’l, Inc., 399 F.3d 181, 193 (3d Cir. 2005) (“The proper 

inquiry is not whether direct sales enable a competitor 

to ‘survive’ but rather whether direct selling ‘poses a 

real threat’ to defendant’s monopoly.” (quoting United 

States v. Microsoft, 253 F.3d 34, 71 (D.C. Cir. 2001) (en 

banc) (per curiam))). 

75 Nov. 15 Hr’g Tr., supra note 2, at 8 (Steuer). 

competitive effects of exclusive dealing with 

wholesalers may differ from those with 

retailers or end users.76 At least one observed 

that the potential for anticompetitive harm may 

depend on the product involved, claiming that 

if the product is one for which customers are 

likely to shop around, then exclusive dealing 

may be less likely to harm rivals because 

consumers “are more likely to . . . look[] at 

other . . . dealers” if a “dealer only has one 

brand.”77 

B. Potential Procompetitive Effects 

Exclusive dealing can help consumers in 

many ways.78 For instance, several panelists 

noted that (1) a distributor selling the product 

of only one manufacturer is likely to promote 

that product more effectively than it would if it 

sold multiple manufacturers’ products, and (2) 

increased interbrand competition benefits 

consumers. One panelist stated that exclusive 

76 See id. at 8–9 (Steuer); id. at 136–37 (Farrell) 

(discussing potentially different effects of exclusivity 

arrangements with retailers as opposed to consumers); 

see also, e.g., Kenneth L. Glazer & Abbott B. Lipsky, Jr., 

Unilateral Refusals to Deal Under Section 2 of the Sherman 

Act, 63 ANTITRUST L.J. 749, 790 (1995) (“Cooperation 

between a supplier and downstream intermediaries in 

promoting the product may stimulate interbrand 

competition. By contrast, consumers or end-users 

rarely play any role in activities that promote successful 

distribution of the product—their only role in the 

process is that of customer.”); Steuer, supra note 2, at 

118. 

77 Nov. 15 Hr’g Tr., supra note 2, at 9 (Steuer). 

78 See, e.g., POSNER, supra note 69, at 230 (“Exclusive 

dealing can promote efficiency by increasing the 

likelihood that a distributor will use his best efforts to 

promote the manufacturer’s brand rather than try to 

substitute a cheap knock-off, and (a related point) it can 

help a seller of intellectual property to prevent piracy, 

a serious concern in intellectual-property markets.” 

(footnote omitted)); Jacobson, supra note 28, at 312 

(“Exclusive dealing arrangements generally promote 

moreeffective distribution by increasing dedicationand 

loyalty; and they can minimize free-riding, improve 

product quality, and ensure customers and suppliers of 

a reliable source of supply.”); Benjamin Klein & Kevin 

M. Murphy, Vertical Restraints as Contract Enforcement 

Mechanisms, 31 J.L.& ECON. 265, 288 (1988) (When used 

in conjunction with exclusive territories or resale price 

maintenance, exclusive-dealing arrangements 

“prevent[] free riding on the manufacturer’s payment 

scheme for dealer services.”). 
 

 

 

 

EXCLUSIVE DEALING 139 

dealing can “stimulate distributors” because 

“[i]f the distributor only has one brand of a 

product, it is going to devote all of its efforts to 

that brand.”79 Another observed that “undivided 

dealer loyalty . . . increases the dealer’s incentives 

to supply . . . desired services and to more actively 

promote the manufacturer’s products.”80 

Panelists also agreed that exclusive dealing 

can align distributor and manufacturer 

incentives and thereby prevent free-rider 

problems. As Judge Posner has noted, 

Exclusive dealing may also enable a 

manufacturer to prevent dealers from 

taking a free ride on his efforts (for 

example, efforts in the form of national 

advertising) to promote his brand. The 

dealer who carried competing brands as 

well might switch customers to a 

lower-priced substitute on which he got a 

higher margin, thus defeating the 

manufacturer’s effort to recover the costs of 

his promotional expenditures by charging 

the dealer a higher price.81 

Exclusive dealing can align distributor 

and manufacturer incentives and 

thereby prevent free-rider problems. 

Put another way, exclusive dealing 

“encourages the supplier itself to give the 

distributors more support by eliminating what 

may be called the ‘interbrand free rider effect’; 

suppliers will strengthen their distributors 

because other brands cannot take a ‘free ride’ on 

the supplier’s investment by selling through the 

same distributors.”82 

79 Nov. 15 Hr’g Tr., supra note 2, at 11 (Steuer). 

80 Id. at 150 (Klein); see also Roland Mach. Co. v. 

Dresser Indus., Inc., 749 F.2d 380, 395 (7th Cir. 1984) 

(Posner, J.) (“If . . . exclusive dealing leads dealers to 

promote each manufacturer’s brand more vigorously 

than would be the case under nonexclusive dealing, the 

quality-adjusted price to the consumer (where quality 

includes the information and other services that dealers 

render to their customers) may be lower with exclusive 

dealing than without, even though a collateral effect of 

exclusive dealing is to slow the pace at which new 

brands . . . are introduced.”). 

81 Roland Mach., 749 F.2d at 395. 

82 Steuer, supra note 2, at 115 (emphasis in original). 

Panelists generally agreed that this sort of 

free riding is one of the basic theories of 

exclusive dealing’s procompetitive effects: “the 

manufacturer invests in a product or a 

reputation that brings in customers,” thereby 

enticing customers to patronize a dealer, but 

“then the dealer says, by the way, I have got a 

better deal for you,” to patrons drawn by the 

manufacturer’s investment.83 As one panelist 

explained, exclusive dealing can “stimulate[] 

suppliers to put more time and effort and 

money behind their channels of distribution, 

because . . . they do not have to worry about 

divided loyalties where they are wasting their 

effort.”84 In effect, exclusive dealing can help 

consumers by “encourag[ing] people to make 

specific investments in the relationship.”85 

Panelists identified manufacturer advertising,86 

training of dealer staff,87 sharing of trade secrets 

with retailers,88 and promotional investments89 

as examples of services that ultimately benefit 

consumers yet might not be provided but for 

exclusive dealing. 

Panelists suggested a host of other potential 

benefits from exclusive dealing, including 

allowing manufacturers to better assess and 

improve dealer quality90 and lowering the cost 

of monitoring certain kinds of contracts.91 

Likewise, exclusive dealing may help assure 

supply, afford protection against price 

increases, and allow long-term cost planning. 

For instance, requirements contracts where a 

buyer promises to purchase all its needs for an 

input from a specified seller “allow suppliers to 

anticipate demand while providing customers 

83 Nov. 15 Hr’g Tr., supra note 2, at 44–45 (Marvel); 

see also id. at 53–54 (Jacobson) (noting that exclusive 

dealing can allow a manufacturer to obtain “more 

effective distribut[ion]” by providing services to its 

dealers “without concern of free riding by competing 

suppliers”). 

84 Id. at 11–12 (Steuer). 

85 Id. at 185 (Klein). 

86 Id. at 167 (Calkins). 

87 Id. at 147 (Klein). 

88 Id. at 12 (Steuer). 

89 Id. at 148 (Klein). 

90 Id. at 12 (Steuer). 

91 Id. at 38 (Wright). 
 

 

140 SECTION 2 REPORT 

with protection against shortages of needed 

inputs.”92 Another commentator noted that 

competition among manufacturers to become 

the exclusive supplier to a retailer can result in 

significant savings for the ultimate consumer.93 

The limited empirical literature available is 

consistentwith these theories of procompetitive 

benefits.94 

In summary, although exclusive dealing can 

harm consumers in some circumstances, it can 

also generate efficiencies, and there is no simple 

way of determining—even where harm is 

possible—whether a particular exclusivedealing arrangement should be condemned as 

anticompetitive.95 As one panelist noted, 

current economic theory regarding exclusivity 

provides “‘possibility results’ in simple 

settings,” demonstrating that harm could occur 

under certain circumstances, not that it will.96 

Similarly, while all panelists recognized that 

exclusive dealing can benefit consumers, 

demonstrating the existence of those benefits, 

much less estimating their magnitude, is 

92 Richard M. Steuer, Customer-Instigated Exclusive 

Dealing, 68 ANTITRUST L.J. 239, 242 (2000); see also Nov. 

15 Hr’g Tr., supra note 2, at 16 (Steuer) (noting that 

requirements contracts ensure “dependable supply”). 

93 Nov. 15 Hr’g Tr., supra note 2, at 38–39 (Wright); 

see also Benjamin Klein, Exclusive Dealing as Competition 

for Distribution “On the Merits,” 12 GEO. MASON L. REV. 

119, 120 (2003) (“[C]ompetition for distribution is . . . an 

important part of the normal competitive process that 

benefits consumers.”). 

94 See, e.g., James Cooper et al., Vertical Restrictions 

and Antitrust Policy: What About the Evidence?, 

COMPETITION POL’Y INT’L, Autumn 2005, at 45, 63; cf. 

Francine Lafontaine & Margaret E. Slade, Retail 

Contracting: Theory and Practice, 45 J. INDUS. ECON. 1, 

13–14 (1997); Tim R. Sass, The Competitive Effects of 

Exclusive Dealing: Evidence from the U.S. Beer Industry, 23 

INT’L J. INDUS. ORG. 203, 222 (2005). 

95 See, e.g., Nov. 15 Hr’g Tr., supra note 2, at 49 

(Marvel)(questioning how frequently, if ever, exclusive 

dealing harms consumers, although acknowledging 

that consumer harm “is possible, in principle”). See 

generally Cooper et al., supra note 94, at 55. 

96 Nov. 15 Hr’g Tr., supra note 2, at 50 (Marvel). 

difficult.97 

IV. Conclusion 

Courts currently consider the possibility of 

both anticompetitive and procompetitive 

effects when assessing the legality of exclusive 

dealing. The first step in that analysis is to 

determine whether the arrangement has the 

potential to harm competition and consumers. 

In situations where competitive harm is 

implausible—for instance, where other 

efficient distribution methods are available in 

sufficient size and number to rivals—courts 

appropriately uphold the arrangement. 

When actual or probable harm to 

competition is shown, the Department believes 

that exclusive dealing should be illegal only 

when (1) it has no procompetitive benefits, or 

(2) if there are procompetitive benefits, the 

exclusivity arrangement produces harms 

substantially disproportionate to those 

benefits.98 Where exclusive dealing has both 

anticompetitive and procompetitive effects, this 

standard requires plaintiffs to show that the 

anticompetitive effects substantially outweigh 

its procompetitive benefits. For example, a 

trivial benefit should not save an arrangement 

that has substantial anticompetitive effects. The 

Department believes this approach is prudent 

in view of the uncertainty that can surround 

exclusive dealing’s competitive effects and the 

costs of inadvertently imposing antitrust 

liability on conduct that, while potentially 

hampering a rival’s ability to compete, often 

lowers costs and benefits consumers. 

Further, the Department believes that, 

although exclusivity arrangements of short 

duration are less likely to harm competition 

than those of long duration, even arrangements 

that are terminable at will can at times be 

anticompetitive. The Third Circuit endorsed 

this view in Dentsply, explaining that the 

economic effect of a policy of terminating 

97 See id. at 50 (noting that the procompetitive 

benefits of exclusive dealing can be “really hard to 

prove”); cf. id. at 143–44 (Farrell). 

98 See 3 AREEDA & HOVENKAMP, supra note 31, 

¶ 651a, at 72. 
 

 

 

EXCLUSIVE DEALING 141 

customers that deal with a rival can 

“realistically make the arrangements . . . as 

effective as those in written contracts.”99 

Panelists differed with one another on this 

point,

100

 but the Department believes that the 

legality of exclusive dealing should not depend 

solely on its length. 

The legality of exclusive dealing should 

not depend solely on its length. 

Finally, in cases where the firm engaging in 

exclusive dealing already has legally acquired 

monopoly power, the Department will 

examine whether the exclusivity contributed 

significantly to maintaining that power and 

whether alternativedistribution channels allow 

competitors to “pose a real threat” to its 

continued existence.101 A significant factor in 

making this assessment is the portion of 

customers or dealers with which a monopolist’s 

rival cannot deal as a result of the exclusivity 

arrangement. As discussed above, a treatise 

notes that “single-firm foreclosure percentages 

of less than 30 percent would seem to be 

harmless,”102 and several panelists agreed that 

courts typically recognize a safe harbor for 

exclusive dealing affecting less than a thirtypercent market share.103 The Department 

99 United States v. Dentsply Int’l, Inc., 399 F.3d 181, 

193 (3d Cir. 2005). 

100 Compare Nov. 15 Hr’g Tr., supra note 2, at 51 

(Marvel) (advocating a rule that exclusivity arrangements 

should be legal if they do not involve a contract), with id. at 

117 (Calkins) (stating that “a short-term contract or 

contract that is cancellable” can harm consumers). 

101 United States v. Microsoft Corp., 253 F.3d 34, 71, 

79 (D.C. Cir. 2001) (en banc) (per curiam); see also 

Dentsply, 399 F.3d at 193. 

102 HOVENKAMP, supra note 63, ¶ 1821c, at 176; see 

also Stop & Shop Supermarket Co. v. Blue Cross & Blue 

Shield of R.I., 373 F.3d 57, 68 (1st Cir. 2004) (Boudin, 

C.J.) (stating that “foreclosure levels are unlikely to be 

of concern where they are less than 30 or 40 percent”); 

Minn. Mining & Mfg. Co. v. Appleton Papers Inc., 35 F. 

Supp. 2d 1138, 1143 (D. Minn. 1999) (“Generally 

speaking, a foreclosure rate of at least 30 percent to 40 

percent must be found to support a violation of the 

antitrust laws.”). 

103 See, e.g., Nov. 15 Hr’g Tr., supra note 2, at 75–76 

(Steuer); id. at 96 (Jacobson). 

likewise believes that exclusive-dealing 

arrangements that foreclose less than thirty 

percent of existing customers or effective 

distribution should not be illegal, but 

emphasizes that exclusive dealing affecting 

more than thirty percent should be neither 

automatically nor presumptively illegal. 

The Department believes that 

exclusive-dealing arrangements that 

foreclose less than thirty percent of 

existing customers or effective 

distribution should not be illegal. 

 

 

 

 

 

CHAPTER 9 

REMEDIES 

I. Introduction 

Without a proper remedy, winning a 

judgment of a section 2 violation is similar to 

winning a battle but losing the war. Designing 

and implementing effective remedies in 

unilateral conduct cases often is a daunting 

challenge. The central goals of remedies in 

government section 2 cases are to terminate the 

defendant’s unlawful conduct, prevent its 

recurrence, and re-establish the opportunity for 

competition in the affected market. Section 2 

remedies should achieve these goals without 

unnecessarily chilling legitimate competitive 

conduct and incentives. 

In some instances, these remedial goals can 

be achieved through a prohibitory injunction 

banning repetition of specific past acts. In other 

instances, more may be required, including 

“fencing-in” provisions or affirmative 

obligations. In addition to these conduct 

remedies, structural remedies are sometimes 

considered. However, both conduct and 

structural remedies can have high administrative 

costs that must be considered when determining 

what remedy, if any, should apply in a given 

case. Indeed, different remedial approaches 

generally have different effects on efficiency 

and innovation as well as different 

administrative costs, and selecting the optimal 

approach requires careful thought. In 

particular, structural remedies, often preferred 

in merger cases where they can be “‘simple, 

relatively easy to administer, and sure’ to 

preserve competition,”1

 are less favored in 

section 2 cases where they often would require 

structural change to an existing unitary firm 

that had not grown by acquisition. In those 

1 ANTITRUST DIV., U.S. DEP’T OF JUSTICE, ANTITRUST 

DIVISION POLICY GUIDE TO MERGER REMEDIES 7–8 (2004), 

available at http://www.usdoj.gov/atr/public/ 

guidelines/205108.pdf (quoting United States v. E. I. du 

Pont de Nemours & Co., 366 U.S. 316, 331 (1961)). 

situations, the advantages typically associated 

with structural relief in merger cases may not 

exist, and the source of the violation may not 

have the same nexus with the structure of the 

defendant. Furthermore, in the section 2 

context, structural remedies may undermine 

productive efficiencies achieved by unitary 

firms, a lesser risk in merger cases. 

Notwithstanding their importance, the 

study of remedies has been somewhat 

neglected. As one panelist quipped, 

“‘Everybody likes to catch them, but nobody 

wants to clean them.’”2

 Because selecting and 

implementing a suitable remedy is such a 

crucial yet difficult task, panelists stressed that 

the antitrust enforcement agencies need to give 

careful consideration to potential remedies 

early in their investigations.3

 As now-FTC 

2 Sherman Act Section 2 Joint Hearing: Remedies 

Hr’g Tr. 47, Mar. 28, 2007 [hereinafter Mar. 28 Hr’g Tr.] 

(Lipsky) (quoting former Assistant Attorney General 

William Baxter). 

3 Sherman Act Section 2 Joint Hearing: Final Session 

Hr’g Tr. 149–50, May 8, 2007 [hereinafter May 8 Hr’g 

Tr.] (Sidak) (asserting it was “unfortunate” that “at the 

very beginning of the [Microsoft] case there wasn't a 

clear statement as to what the desired remedies were on 

the part of the federal government”); Sherman Act 

Section 2 Joint Hearing: Section 2 Policy Issues Hr’g Tr. 

13, May 1, 2007 [hereinafter May 1 Hr’g Tr.] 

(Krattenmaker) (“you begin with remedies” in a section 

2 case); id. at 32 (Baer) (advocating “thinking about 

remedy . . . as a front-end issue”); Sherman Act Section 

2 Joint Hearing: Remedies Hr’g Tr. 12, Mar. 29, 2007 

[hereinafter Mar. 29 Hr’g Tr.] (Shelanski) (stating that 

a remedy “needs to be clearly articulable at the start of 

a case”); id. at 18 (Hesse) (focusing on the remedy at an 

early stage “helps you try to figure out what your goal 

is”); Sherman Act Section 2 Joint Hearing: Welcome and 

Overview of Hearings Hr’g Tr. 52–53, June 20, 2006 

(Hovenkamp) (“The only purpose in bringing [section 

2] cases is to make the economy work better, and if you 

do not have a clear picture of the kind of remedy you 

want when you go in, then you really have to wonder 

whether it is worth bringing the action to begin with.”). 
144 SECTION 2 REPORT 

Chairman William E. Kovacic explained, 

“Responsible prosecutorial practice dictates 

that government enforcement agencies begin an 

abuse of dominance case only after they first 

have defined their remedial aims clearly and 

devised a convincing strategy for achieving 

them if the defendant’s liability is established.”4 

This chapter addresses a range of section 2 

remedial issues. Part II reviews the basic goals 

of section 2 remedies. Part III identifies the 

various trade-offs in crafting equitable 

remedies. Part IV discusses the major types of 

equitable remedies, ranging from prohibitory 

provisions to structural remedies. Part V 

discusses monetary remedies and whether the 

current mix of available remedies is 

appropriate. 

II. Goals of Section 2 Remedies 

Three central goals of section 2 remedies in 

government cases are terminating defendant’s 

wrongful conduct, preventing its recurrence, 

and re-establishing the opportunity for 

competition in the affected market.5 As the 

Supreme Court stated, “We start from the 

premise that adequate relief in a 

monopolization case should put an end to the 

combination and deprive the defendants of any 

of the benefits of the illegal conduct, and break 

up or render impotent the monopoly power 

found to be in violation of the Act.”6 

4 William E. Kovacic, Designing Antitrust Remedies 

for Dominant Firm Misconduct, 31 CONN. L. REV. 1285, 

1310 (1999); see also LAWRENCE A.SULLIVAN,HANDBOOK 

OF THE LAW OF ANTITRUST 146 (1977) (“The ideal 

presentation in a monopoly case would be one in which 

[the] remedial proposal arose organically out of the 

theory of the case. . . . The remedy would be . . . a 

public policy goal integral to the entire proceeding.”); 

Edward Cavanagh, Antitrust Remedies Revisited, 84 OR. 

L. REV. 147, 201 (2005) (“Remedies should be at the top 

of the agenda from the outset of litigation. Enforcers 

should be considering remedies from the moment an 

investigation is commenced.”). 

5 United States v. Microsoft Corp., 253 F.3d 34, 103 

(D.C. Cir. 2001) (en banc) (per curiam). In private 

actions and actions brought by the government as a 

victim, compensation through damage awards is also 

an important goal. 

6 United States v. Grinnell Corp., 384 U.S. 563, 577 

(1966); see also United States v. United Shoe Mach. 

It is important that any remedy re-establish 

the opportunity for competition in the affected 

market.7

 This entails “unfetter[ing] a market 

from anticompetitive conduct” and creating an 

opportunity for the market to work, not 

necessarily creating a competitive market or 

any specific level of competition.8

 As the D.C. 

Circuit held, “[D]epriving an antitrust violator 

of the fruits of its violation does not entail 

conferring a correlative benefit upon the 

particular competitor harmed by the 

violation.”9

 Section 2 remedies should not 

attempt to redress harm to competition by 

“providing aid to a particular competitor,” but 

rather should aim to “restor[e] conditions in 

which the competitive process is revived and 

any number of competitors may flourish (or 

not) based upon the merits of their offerings.”10 

For example, in a monopoly-maintenance case, 

conditions before the unlawful conduct may 

have involved a lawful monopoly, and reestablishing the opportunity for competition 

would not necessarily produce new 

competitors or reduce the monopolist’s market 

share. In contrast, in a monopoly-acquisition 

case, the pre-conduct setting may have been 

competitive, so eliminating the anticompetitive 

consequences of the violation might include 

dismantling the monopoly to restore the 

competitive environment that would have 

existed without the violation. In both instances, 

however, the focus is on re-establishing the 

Corp., 391 U.S. 244, 250 (1968) (“[I]n a [section] 2 case 

. . . it is the duty of the court to prescribe relief which 

will terminate the illegal monopoly, deny to the 

defendant the fruits of its statutory violation, and 

ensure that there remain no practices likely to result in 

monopolization in the future.”). 

7 See, e.g., United Shoe, 391 U.S. at 251–52 (approving 

additional measures to achieve “‘principal objects’” of 

district court’s remedy, “namely, ‘to extirpate practices 

that have caused or may hereafter cause 

monopolization, and to restoreworkable competition in 

the market’” (quoting United States v. United Shoe 

Mach. Corp., 110 F. Supp. 295, 343 (D. Mass. 1953), aff’d, 

347 U.S. 521 (1954) (per curiam))). 

8 Ford Motor Co. v. United States, 405 U.S. 562, 577 

(1972) (discussing merger remedies). 

9 Massachusetts v. Microsoft Corp., 373 F.3d 1199, 

1243 (D.C. Cir. 2004) (en banc). 

10 Id. at 1231. 
REMEDIES 145 

opportunity for the market to work, unfettered 

by the defendant’s illegal practices. 

Panelists and commentators frequently 

identified re-establishing the opportunity for 

competition as the central remedial goal in 

section 2 cases.11 They also stated that 

achieving this goal requires, at a minimum, 

terminating the unlawful conduct and 

preventing its recurrence.12 In some cases, 

however, additional steps may be necessary. 

Practices similar to the unlawful conduct that 

could give rise to the same anticompetitive 

effects may also need to be prohibited.13 

11 See Mar. 29 Hr’g Tr., supra note 3, at 48 (Page) 

(“The goals of Section 2 remedies should be to restore 

[the] competitive conditions that would have existed 

but for the illegal conduct.”); Mar. 28 Hr’g Tr., supra 

note 2, at 107 (Fisher) (“[O]ne ought to want to restore 

competition. That ought to be a primary objective. One 

ought to want to undo the anticompetive effects of the 

violation.”); 2 PHILLIP E. AREEDA ET AL., ANTITRUST LAW 

¶ 325a, at 246 (2d ed. 2000) (“Ultimately . . . the purpose 

of the decree is to create a situation in which 

unrestrained competition can occur.”); id. ¶ 325c, at 

253–55; John E. Lopatka & William Page, Devising a 

Microsoft Remedy that Serves Consumers, 9 GEO. MASON 

L. REV. 691, 700 (2001) (stating that “the goal of the 

remedy should be to return the market to a baseline 

condition that would have prevailed in the market but 

for the defendant’s anticompetitive acts”). 

12 See 3 PHILLIP E. AREEDA & HERBERT HOVENKAMP, 

ANTITRUST LAW ¶ 653b, at 98 (2d ed. 2002) (“[T]here is 

no unfairness or disincentive to meritorious 

competition in simply preventing the conduct at the 

outset or ordering the monopolist to stop.”); Charles A. 

James, The Real Microsoft Case and Settlement, 

ANTITRUST, Fall 2001, at 58, 60–62 (stating that an 

“antitrust remedy for a Section 2 violation must stop the 

offending conduct, prevent its recurrence, and restore 

competition” and explaining the focus of restoration is 

on “lost competition”); John E. Lopatka & William H. 

Page, A (Cautionary) Note on Remedies in the Microsoft 

Case, ANTITRUST, Summer 1999, at 25, 26 (“The starting 

point . . . is an order prohibiting the defendant from 

engaging in the proven illegal conduct. . . . Only if the 

circumstances of the case demonstrate that such an 

approach would be ineffective in restoring competition 

to the condition that would have existed but for the 

illegal conduct should the court consider broader 

conduct relief or structural relief.”). 

13 See Zenith Corp. v. Hazeltine Research, Inc., 395 

U.S. 100, 132 (1969) (“In exercising its equitable 

jurisdiction, ‘(a) federal court has broad power to 

restrain acts which are of the same type or class as 

Beyond this, affirmative steps sometimes may 

be needed to re-establish the opportunity for 

competition.14 One panelist contended that 

“focusing the remedy on the specific conduct 

found to be unlawful[] will not return 

competition to the status quo; thus drafting or 

crafting forward-looking remedies is quite 

important.”15 

The reach of remedies is not unlimited, 

however. Panelists warned that remedies 

reaching beyond re-establishment of the 

opportunity for competition and aiming 

instead to create a particular market structure 

run the risk of engineering a market outcome 

that may deprive consumers of the benefit of 

the normal competitive process.16 One panelist 

cautioned that government remedies should 

“focus on competitive opportunity rather than 

outcome of market shares.”17 As another 

unlawful acts which the court has found to have been 

committed or whose commission in the future unless 

enjoined, may fairly be anticipated from the 

defendant’s conduct in the past.’” (quoting NLRB v. 

Express Publ’g Co., 312 U.S. 426, 435 (1941))); Int’l Salt 

Co. v. United States, 332 U.S. 392, 400 (1947) (“[I]t is not 

necessary that all of the untraveled roads . . . be left 

open and that only the worn one be closed.”); Microsoft, 

373 F.3d at 1233 (approving remedial actions that 

denied Microsoft “the ability to take the same or similar 

actions to limit competition in the future”); AREEDA ET 

AL., supra note 11, ¶ 325c, at 253 (stating that decrees 

may “forbid conduct that is different from the conduct 

that was actually condemned” and “may even prohibit 

lawful conduct if such a prohibition ‘represents a 

reasonable method of eliminating the consequences of 

the illegal conduct’” (quoting Nat’l Soc’y of Prof’l 

Eng’rs v. United States, 435 U.S. 679, 697 (1978))). 

14 See Mar. 29 Hr’g Tr., supra note 3, at 70–72 (Lao) 

(discussing scenarios where it “would be helpful . . . to 

impose affirmative duties on the dominant firm” and 

listing forms of affirmative remedies). 

15 Id. at 67 (Lao); see also Mar. 28 Hr’g Tr., supra note 

2, at 108 (Fisher) (arguing that barring practices similar 

to those found unlawful may be insufficient if 

defendant had used exclusionary conduct to ward off 

a competitive threat “at a crucial moment”). 

16 See, e.g., Mar. 28 Hr’g Tr., supra note 2, at 10 

(Heiner) (suggesting that remedies should be designed 

“to safeguard competitive opportunities but not 

necessarily to engineer any particular market 

outcome”). See generally Microsoft, 373 F.3d at 1243. 

17 Mar. 28 Hr’g Tr., supra note 2, at 11 (Heiner); see 

also id. at 10. 
 

146 SECTION 2 REPORT 

panelist elaborated: “The goals of Section 2 

remedies should be to restore competitive 

conditions that would have existed but for the 

illegal conduct. They should not be to try to 

restore or to create some sort of ideal 

competitive condition or to supervise market 

outcomes.”18 

The Department agrees. A section 2 remedy 

in a government case is neither a chance to fix 

all perceived competitive problems in an 

industry nor an opportunity to punish the 

defendants.19 Thus, the Department will focus 

its unilateral-conduct remedies on reestablishing the opportunity for competition in 

the affected market rather than dictating a 

market outcome or any particular level of 

competition.20 This means that the remedy 

should be tailored to the violation charged and 

to its actual competitive harm.21 

III. Considerations in Crafting Remedies 

Crafting a successful section 2 remedy often 

18 Mar. 29 Hr’g Tr., supra note 3, at 48 (Page); see also 

Lopatka & Page, supra note 11, at 700 (noting that a 

remedy should not attempt “to reshape the market to 

approximate a competitive ideal”). 

19 See United States v. E. I. du Pont de Nemours & 

Co., 366 U.S. 316, 326 (1961) (“Courts are not authorized 

in civil proceedings to punish antitrust violators, and 

relief must not be punitive.”); Int’l Salt Co. v. United 

States, 332 U.S. 392, 401 (1947) (“the end to be served is 

not punishment of past transgressions”); HartfordEmpire Co. v. United States, 323 U.S. 386, 409 (1945) (a 

court “may not impose penalties in the guise of 

preventing future violations” (footnote omitted)). 

Private plaintiffs, of course, are entitled to seek treble 

damages. 

20 See generally Thomas O. Barnett, Assistant 

Attorney Gen., U.S. Dept. of Justice, Section 2 Remedies: 

What to Do After Catching the Tiger by the Tail (June 4, 

2008), available at http://www.usdoj.gov/atr/public/ 

speeches/233884.pdf; Thomas O. Barnett, Section 2 

Remedies: A Necessary Challenge, in 2007 ANNUAL 

PROCEEDINGS OF THE FORDHAM COMPETITION LAW 

INSTITUTE 551, 557 (Barry E. Hawk ed., 2008). 

21 See Microsoft, 373 F.3d at 1243 (stating that the 

proposed judgment “addressesand remediesprecisely” 

the “fruit of Microsoft’s unlawful conduct” in order to 

“restore the competitive conditions” potentially created 

by middleware threats similar to those previously 

restricted by Microsoft’s conduct (internal quotation 

marks omitted)). 

requires balancing a number of important, 

sometimes competing, considerations. For 

instance, the sufficiency of the remedy must be 

balanced against the danger of overbreadth. 

Similarly, the remedy’s impact on efficiency 

and innovation must be considered. 

Moreover, the remedy must be sufficiently 

specific yet also adaptable. And finally, a 

remedy’s administrability must be taken into 

account. 

Sufficiency Versus Overbreadth. Reestablishing the opportunity for competition 

may require going beyond mere prohibition 

of the offending conduct.22 For example, 

“‘proactive steps to address conduct of [a] 

similar nature’” may be necessary.23 Further, if 

the conduct has so changed market structure 

that ending the unlawful practice will not reestablish the opportunity for competition, the 

defendant may be required to take affirmative 

22 See Mar. 29 Hr’g Tr., supra note 3, at 14 (Shelanski) 

(noting that in some cases an unlawfully obtained 

monopoly position may not be “easily eroded, even if 

exclusionary or predatory conduct that contributed to 

that monopoly is stopped”); id. at 70 (Lao) (“[I]f the 

dominant firm has already successfully excluded its 

competitor and potential competitors, simply stopping 

the conduct and preventing its recurrence is not going 

to be enough to restore competition.”); AREEDA & 

HOVENKAMP, supra note 12, ¶ 653f, at 102–04 

(“[I]njunctive relief must be tailored with sufficient 

breadth to ensure that a certain ‘class’ of acts, or acts of 

a certain type or having a certain effect, not be 

repeated.”); AREEDA ET AL., supra note 11, ¶ 325c, at 253 

(“The decree may also contemplate and forbid conduct 

that is different from the conduct that was actually 

condemned. Indeed, the court may even prohibit 

lawful conduct if such a prohibition ‘represents a 

reasonable method of eliminating the consequences of 

illegal conduct.’” (quoting Nat’l Soc’y of Prof’l Eng’rs v. 

United States, 435 U.S. 679, 697 (1978))); Lopatka & 

Page, supra note 12, at 26 (“Conduct relief should, in 

some instances, proscribe morethan the precise conduct 

found unlawful.”); R. Craig Romaine & Steven C. Salop, 

Alternative Remedies for Monopolization in the Microsoft 

Case, ANTITRUST, Summer 1999, at 15, 20 (“If the court 

finds that the present and likely future effects of 

Microsoft’s illegal conduct are to maintain the 

monopoly, then those findings could support broader 

relief to undo those effects and prevent their 

recurrence.”). 

23 Mar. 28 Hr’g Tr., supra note 2, at 44 (Hellstrom) 

(quoting James, supra note 12, at 61). 
REMEDIES 147 

steps.24 

At the same time, remedies must be 

“commensurate with the offense.”25 

Implementing a remedy that extends too 

broadly runs the risk of distorting markets and, 

ultimately, impairing competition, often 

through wholly unintended consequences.26 

Impact on Efficiency and Innovation. 

Imposing a remedy sufficient to re-establish the 

opportunity for competition sometimes may be 

in tension with maintaining the efficiency of 

defendant’s operations or its incentives and 

ability to innovate. As two commentators 

explain, although a remedy should “deprive 

the offender of the benefits of the violation,” it 

should not take away “the benefits of lawful 

conduct.”27 The courts and the federal 

enforcement agencies, they caution, should aim 

to implement remedies that do not “harm 

consumers by deterring hard competition, 

efficient arrangements, or innovation.”28 

Although this problem may arise in remedies 

requiring divestiture, it can also result from 

certain conduct remedies, particularly those 

24 See Mar. 29 Hr’g Tr., supra note 3, at 67 (Lao) 

(notingshortcomings of “narrowly focusing the remedy 

on the specific conduct found to be unlawful”); id. at 70. 

25 Lopatka & Page, supra note 11, at 700; see also Mar. 

28 Hr’g Tr., supra note 2, at 107 (Fisher) (“It is natural to 

require that the remedy be reasonably consonant with 

the liability findings.”); Cavanagh, supra note 4, at 201 

(“The overarching principle of equitable remedies in 

monopolization cases is that the remedy must be 

proportional to the wrongdoing.”). 

26 See, e.g., Microsoft, 373 F.3d at 1223–24 (limiting 

discretion of the district court in crafting forwardlooking remedy that covered conduct not found to have 

been exclusionary); id. at 1232–33 (identifying the 

“fruits” of Microsoft’s violations and discussing 

whether the remedy denied Microsoft those fruits); 

AREEDA & HOVENKAMP, supra note 12, ¶ 653e, at 102 

(“Wholly apart from fairness, . . . a policy [of far 

reaching equitable sanctions] would undesirably deter 

firms from engaging in superficially restrictive conduct 

that is in fact reasonably necessary to competition on 

the merits.”); E. Thomas Sullivan, The Jurisprudence of 

Antitrust Divestiture: The Path Less Traveled, 86 MINN. L. 

REV. 565, 612 (2002) (“[C]ourts should be wary when 

brandishing the club of divestiture.”). 

27 Lopatka & Page, supra note 11, at 700 (citation 

omitted). 

28 Id. 

that impose affirmative-conduct obligations. In 

addition to potentially blunting defendant’s 

incentives to innovate, affirmative-conduct 

obligations, especially ones imposing a duty to 

provide competitors access to assets, may also 

lessen the incentives of those competitors to 

develop their own assets or to innovate around 

defendant’s assets.29 Nevertheless, preserving 

a defendant’s efficiency does not take 

precedence over ensuring that a remedy 

effectively addresses the illegal conduct. 

Specificity VersusAdaptability. A remedial 

decree ideally will be sufficiently specific for 

defendant readily to understand its obligations 

and for the supervising court (or agency) to 

determine whether its terms are being satisfied. 

Uncertainty about a decree’s requirements may 

cause defendant to refrain from engaging in 

procompetitive conduct that the decree did not 

intend to prohibit or lead to conduct that 

violates the spirit of the decree but is not clearly 

prohibited.30 Specificity, however, may limit 

the adaptability of relief to changes. A lack of 

adaptability may reduce the efficacy of a 

decree, particularly when a market is 

29 See, e.g., Verizon Commc’ns Inc. v. Law Offices of 

Curtis V. Trinko, LLP, 540 U.S. 398, 407–08 (2004) 

(observing that compelling firms that have acquired 

monopoly power “to share the source of their 

advantage is in some tension with the underlying 

purpose of antitrust law, since it may lessen the 

incentive for the monopolist, the rival, or both to invest 

in those economically beneficial facilities”); Mar. 29 

Hr’g Tr., supra note 3, at 93 (Shelanski) (urging caution 

in mandating interoperability, even in network 

markets, due to risk of “eliminat[ing] the incentive to 

try to create the new network standard”); Mar. 28 Hr’g 

Tr., supra note 2, at 52 (Lipsky) (noting that access 

remedies may potentially cause competitors to “invest 

their resources in legal maneuvering rather than . . . in 

innovation that would destroy the monopoly”). 

30 Cf. Int’l Salt Co. v. United States, 332 U.S. 392, 400 

(1947) (“[I]t is desirable, in the interests of the court and 

of both litigants, that the decree be as specific as 

possible, not only in the core of its relief, but in its 

outward limits, so that parties may know their duties 

and unintended contempts may not occur.”); Lopatka 

& Page, supra note 11, at 704 (“A conduct remedy, 

however well-crafted, raises a significant possibility of 

future litigation, because it is likely to require some 

interpretation.”). 
148 SECTION 2 REPORT 

undergoing rapid change.31 Accordingly, 

successful remedies must balance sufficient 

specificity against the adaptability necessary to 

address future developments. 

The importance of adaptability in crafting 

specific remedies may be tied to the decree’s 

duration. For most section 2 decrees to 

succeed, they must be of sufficient duration to 

encourage entrants to invest in competing 

products or otherwise re-establish the 

opportunity for competition in the market.32 In 

fast-changing markets, however, absent 

sufficient adaptability, decrees of long duration 

can soon become obsolete, with unintended 

effects that potentially can stifle a defendant’s 

ability to compete, thereby harming 

consumers.33 Although in recent years both the 

Department and the FTC have avoided the 

perpetual decrees they sometimes sought in the 

past,34 the decree’s duration remains an 

important consideration in any particular case. 

Administrability. Administrability is 

another critical consideration in shaping a 

remedy. Panelists and commentators have 

urged close attention to the complexity and cost 

of administration.35 Ideally, 

31 See Mar. 29 Hr’g Tr., supra note 3, at 72–73 (Lao) 

(arguing for continuing jurisdiction clauses in decrees 

to allow courts to modify them to ensure their success); 

HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE 

299–300 (2005) (“By the time each round of Microsoft 

litigation had produced a ‘cure,’ the victim was already 

dead. This makes it vitally important that settlements 

such as the one in Microsoft contain a clause that 

permits a court to retain its jurisdiction and assess 

future developments.”). 

32 See, e.g., Mar. 29 Hr’g Tr., supra note 3, at 100 

(Page) (noting that forward-looking remedies may 

require lengthy decrees). 

33 See United States v. Microsoft Corp., 231 F. Supp. 

2d 144, 195–96 (D.D.C. 2002) (finding five-year decree 

reasonable in light of rapid technological change and 

fear of decree becoming unduly regulatory), aff’d sub 

nom. Massachusetts v. Microsoft Corp., 373 F.3d 1199 

(D.C. Cir. 2004) (en banc). 

34 See Mar. 29 Hr’g Tr., supra note 3, at 102–03 

(Hesse) (“[B]oth of the agencies have gone away from 

the idea of doing perpetual decrees[;] ten years is 

generally the standard.”). 

35 See, e.g., id. at 20 (urging consideration of 

“whether or not the problem is subject to a fix that’s 

a remedy should be “self-executing” in the 

sense that it should not require significant 

oversight or intervention from the courts or 

a government enforcement agency. But as 

a practical matter, few injunctive remedies 

are truly self-executing, and the 

effectiveness of most remedial solutions 

will therefore depend in part on how easily 

they can be administered or enforced.36 

Complex remedies may have high 

implementation or enforcement costs, 

ultimately borne by businesses and consumers. 

According to one panelist, the judicial oversight 

needed to continuously fine-tune complex 

remedial decrees may create an enormous drag 

on affected businesses, lowering their efficiency 

and diminishing their innovation.37 Similarly, 

remedies that require courts to prescribe (or to 

determine the fairness or reasonableness of) 

pricing or price-related terms of sale may 

convert courts into de facto regulators, a role 

for which they are not suited. Indeed, in 

Verizon Communications Inc. v. Law Offices of 

Curtis V. Trinko, LLP, the Supreme Court 

warned against remedies that would place 

courts in the role of “‘assum[ing] the day-today controls characteristic of a regulatory 

agency.’”38 At the extreme, a remedy may be so 

worth the investment of resources in not only the 

investigation and prosecution of the matter, but also the 

compliance and enforcement activities that will happen 

post judgment”); Mar. 28 Hr’g Tr., supra note 2, at 62 

(Lipsky)(“Theadministrative costs and complexities [of 

a remedy] . . . mean[] that you don’t mess around with 

lemon carts even if they are monopolies.”); Howard A. 

Shelanski & J. Gregory Sidak, Antitrust Divestiture in 

Network Industries, 68 U. CHI. L. REV. 1, 31 (2001) (“The 

importance of taking enforcement costs into account is 

enormous, though often underemphasized.”); id. at 32 

(“Any complete analysis of enforcement costs needs 

systematically to compare the litigation, monitoring, 

and other administrative costs of remedies under 

consideration.”). 

36 Shelanski & Sidak, supra note 35, at 34; see also 

Mar. 28 Hr’g Tr., supra note 2, at 106 (Fisher) 

(“[I]njunctive relief . . . can require continuing and 

perhaps continual judicial supervision.”). 

37 RICHARD A.EPSTEIN,ANTITRUST CONSENTDECREES 

IN THEORY AND PRACTICE 107 (2007). 

38 Verizon Commc’ns Inc. v. Law Offices of Curtis V. 

Trinko, LLP, 540 U.S. 398, 415 (2004) (quoting Phillip E. 

Areeda, Essential Facilities: An Epithet in Need of Limiting 
 

 

REMEDIES 149 

difficult or expensive to administer that it is 

effectively unenforceable and, as a result, will 

not succeed in stopping defendant’s illegal 

conduct or re-establishing the opportunity for 

competition.39 

IV. Equitable Remedies 

Equitable remedies in section 2 cases run 

along a spectrum. Traditionally, remedies have 

been categorized as either conduct remedies 

(often less drastic) or structural remedies (often 

more drastic). Many antitrust remedies, 

however, do not fit neatly into one category or 

the other; many contain both conduct and 

structural components. Consequently, 

although this chapter relies on the traditional 

categories for ease of exposition, many 

remedies blend attributes from across the 

spectrum. 

Conduct remedies typically seek to 

terminate the conduct that was found unlawful 

or similar conduct. They also may impose 

affirmative obligations to foster the competitive 

process, including requiring a defendant to sell 

to, or provide interconnection with, a rival in 

order to lower entry barriers.40 

Structural remedies typically re-establish the 

opportunity for competition by requiring a 

violator to divest certain assets or even to 

dissolve. Some licensing requirements may 

also have structural characteristics.41 

Principles, 58 ANTITRUST L.J. 841, 853 (1990)); see also 

Sherman Act Section 2 Joint Hearing: Predatory Pricing 

Hr’g Tr. 95, June 22, 2006 (Elzinga) (warning against 

making antitrust a “price regulatory regime”). 

39 See Lopatka & Page, supra note 11, at 701–03 

(noting that conduct relief can be ineffective where a 

conductordermightbe “unenforceable” and discussing 

the difficulties in drafting a conduct remedy of 

“sufficient specificity to prohibit the full range of 

exclusionary practices Microsoft might employ”). 

40 See generally ANTITRUST DIV., supra note 1, at 

23–24. While an access requirement may, under certain 

circumstances, be an appropriate remedy, denial of 

access to an asset should rarely, if ever, serve as the 

basis for antitrust liability. See generally supra Chapter 

7 (concluding that antitrust liability for unilateral, 

unconditional refusals to deal with competitors should 

not play a meaningful part in section 2 enforcement). 

41 See, e.g., Massachusetts v. Microsoft Corp., 373 

In the merger context, structural remedies 

generally are preferred over conduct remedies 

because they are “relatively clean and certain, 

and generally avoid costly government 

entanglement in the market.”42 Since the 

parties to a merger have either not yet or only 

recently merged, there generally still exist clear 

demarcations between entities and units, 

facilitating a structural solution. Further, there 

typically is a close nexus between the firm’s 

structure and the antitrust violation (i.e., the 

merger). 

These advantages usually are absent in the 

section 2 context, especially where the firm in 

question has not grown through acquisition.43 

As a result, many panelists and commentators 

favor conduct remedies over structural relief in 

section 2 cases.44 To the extent that conduct 

remedies can be tailored to address specific 

exclusionary conduct, they may serve to reestablish the opportunity for competition 

without the disruption often associated with 

divestitures. As two commentators summarize, 

“Even if structural and conduct relief would be 

equally effective, a conduct remedy is 

nevertheless preferable if any higher 

administrative costs it entails are outweighed 

by lower costs of lost efficiencies and stifled 

innovation.”45 While both conduct and 

structural remedies can impose high 

administrative costs, an advantage of conduct 

remedies in the section 2 context is that they 

may more easily be fine-tuned over time in 

response to changing market circumstances. 

F.3d 1199, 1233 (D.C. Cir. 2004) (en banc) (describing a 

proposal to require Microsoft to offer royalty-free 

licenses as a “structural remedy”). 

42 See ANTITRUST DIV., supra note 1, at 7. 

43 Lopatka & Page, supra note 12, at 27 (“[I]n cases 

where the defendant lawfully acquired its monopoly 

position by internal expansion in an unregulated 

market, structural relief will rarely be appropriate.”). 

44 See, e.g., Mar. 29 Hr’g Tr., supra note 3, at 7 

(Shelanski) (“I think while innovation makes structural 

remedies more difficult, it may in some cases make 

conduct remedies particularly valuable.”); Mar. 28 Hr’g 

Tr., supra note 2, at 141 (Joskow) (asserting that in 

section 2 cases, “it is more likely desirable to focus on 

some form of conduct remedy”). 

45 Lopatka & Page, supra note 11, at 701. 
 

 

 

150 SECTION 2 REPORT 

Therefore, while both conduct and structural 

remedies may produce unanticipated 

consequences, it may be easier to adjust conduct 

remedies as these consequences emerge. 

As FTC Chairman William E. Kovacic 

observes, however, “[C]onduct remedies do not 

enjoy a sturdy reputation in the antitrust 

literature.”46 He notes one “frequently voiced 

criticism” of conduct remedies is that they are 

insufficient to “unravel existing accumulations 

of market power” and are “feeble alternatives” 

to structural remedies that can “directly 

dismantle positions of dominance.”47 Others 

contend that conduct remedies may prove 

insufficient “if the market is locked into a 

position that is the result of prior exclusionary 

behavior.”48 Moreover, as one panelist argued, 

“[I]njunctive relief can simply turn into an 

effort to prohibit actions already in the past and 

already obsolete . . . .”49 

Conduct and structural remedies need not 

be mutually exclusive. In some instances, relief 

with both conduct and structural aspects may 

be needed. The trial court consequently is 

“clothed with ‘large discretion’ to fit the decree 

to the special needs of the individual case.”50 

A. Conduct Remedies 

1. Prohibitory Provisions 

Many conduct remedies focus on 

prohibiting the defendant from engaging in 

specific anticompetitive acts in the future. 

Prohibitory provisions have been used 

frequently to remedy a variety of unlawful 

exclusionary conduct, including exclusive 

46 Kovacic, supra note 4, at 1292. 

47 Id. at 1292–93. 

48 Lopatka & Page, supra note 11, at 701; see also Mar. 

28 Hr’g Tr., supra note 2, at 117 (Fisher) (asserting that 

the Microsoft decree “didn’t restore competition” after 

competitive threats had been “destroyed”). 

49 Mar. 28 Hr’g Tr., supra note 2, at 106 (Fisher). 

50 Ford Motor Co. v. United States, 405 U.S. 562, 573 

(1972) (quoting Int’l Salt Co. v. United States, 332 U.S. 

392, 401 (1947)); see also Md. & Va. Milk Producers 

Ass’n v. United States, 362 U.S. 458, 473 (1960) (“The 

formulation of decrees is largely left to the discretion of 

the trial court . . . .”). 

dealing and tying,51 and they take two general 

forms. First, where sufficient to achieve proper 

remedial goals, prohibitory provisions can be 

designed to prohibit only the specific practices 

found to be unlawful.52 These provisions are 

sometimes referred to as “cease and desist” or 

“sin no more” provisions. Second, where 

appropriate, they may go beyond prohibiting 

specific prior unlawful acts and prohibit other 

conduct that may result in recurrence of the 

violation. These measures are often referred to 

as “fencing in” provisions.53 

One panelist argued that orders prohibiting 

specific illegal conduct are the optimal 

remedies: “[I]njunctions should be limited to 

preventing reoccurrence of proven anticompetitive 

behavior. The Sherman Act . . . reflects the 

assumption that if specific impediments to 

51 See, e.g., United States v. Microsoft Corp., 231 F. 

Supp. 2d 144, 183 (D.D.C. 2002) (prohibiting 

exclusive-dealing arrangements “that have a significant 

degree of foreclosure of the market”), aff’d sub nom. 

Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. 

Cir. 2004) (en banc); United States v. Gen. Motors Corp., 

1965 Trade Cas. (CCH) ¶ 71,624 (E.D. Mich. 1965) 

(prohibiting contracts that required bus operators or 

manufacturers to purchase all or a stated percentage of 

their requirements of buses or bus parts from General 

Motors); United States v. W. Elec. Co., 1956 Trade Cas. 

(CCH) ¶ 68,246 (D.N.J. 1956) (prohibiting exclusive 

distributorship and requirements contracts); United 

States v. IBM, 1956 Trade Cas. (CCH) ¶ 68,245 (S.D.N.Y. 

1956) (prohibiting requiring lessees or purchasers of 

IBM tabulating or electronic data processing machines 

to purchase IBM tabulating cards); United States v. 

Eastman Kodak Co., 1954 Trade Cas. (CCH) ¶ 67,920 

(W.D.N.Y. 1954) (prohibiting Kodak tying or otherwise 

connecting sale of its color film to processing of that 

film); see also In re Biovail Corp., 134 F.T.C. 407 (2002) 

(prohibiting improper Orange Book listings); In re 

Bristol-Myers-Squibb, 135 F.T.C. 444 (2003) (barring 

misuse of FDA Orange Book listings based on false or 

misleading information, or other specified forms of 

misconduct, in order to initiate or maintain a stay of 

FDA generic drug approvals). 

52 See AREEDA&HOVENKAMP, supra note 12, ¶ 653b2, 

at 99 (“Where the prohibited conduct is discrete and 

well defined, a prohibitory injunction may be sufficient 

to remedy the problem, particularly where it is clear 

that the defendant is unlikely to exercise its market 

power in other ways.”). 

53 See, e.g., Mar. 29 Hr’g Tr., supra note 3, at 59 

(Page). 
REMEDIES 151 

competition are removed, then private 

contracting within the market will lead to the 

efficient outcome.”54 Another panelist 

explained that a remedy’s effectiveness “is 

likely to be tied to the precision with which one 

can define the cause of anticompetitive harm, 

and in some cases, this can be done quite 

clearly, and in those cases, I think behavioral 

injunctions can be quite effective.”55 

Although commentators generally agree that 

provisions prohibiting the actual illegal 

conduct found to violate section 2 are the 

proper first step in crafting a remedy,56 those 

provisions are not always sufficient to reestablish the opportunity for competition.57 

Fencing-in provisions, which prohibit conduct 

not specifically described in the complaint but 

capable of effecting a recurrence of the 

violation, may also be appropriate. They may 

prohibit conduct not charged as part of the 

violation, but which would have been unlawful 

if defendant had engaged in it, or conduct not 

unlawful by itself, but which needs to be 

prohibited to re-establish the opportunity for 

competition. 

Fencing-in provisions can take several 

forms. First, they can prohibit the “same type 

or class” of acts that created the violation “or 

whose commission in the future, unless 

enjoined, may fairly be anticipated from the 

54 Id. at 49; see also id. at 59 (conceding that “forwardlooking or fencing in kinds of provisions may be 

necessary” but urging that they be applied only when 

the record establishes that they are needed). 

55 Id. at 12–13 (Shelanski). 

56 See, e.g., supra notes 52, 54–55. 

57 See, e.g., Mar. 29 Hr’g Tr., supra note 3, at 59 (Page) 

(stating that “forward-looking or fencing in kinds of 

remedies may be necessary”); id. at 67 (Lao) 

(concluding that in high-technology markets, after a 

competitor has been forced out of the market, “focusing 

the remedy on the specific conduct found to be 

unlawful[] will not return competition to the status quo; 

thus drafting or crafting forward-looking remedies is 

quite important”); cf. Robert W. Crandall & Kenneth G. 

Elzinga, Injunctive Relief in Sherman Act Monopolization 

Cases, 21 RES. LAW AND ECON. 277, 335–37 (2004) 

(analyzing ten separate conduct remedies imposed on 

firms charged with monopolization and finding “little 

evidence that any of them contributed favorably to 

consumer welfare”). 

defendant’s conduct in the past.”58 That can 

mean prohibiting different but reasonably 

related acts, or the same past acts directed 

against different but reasonably related product 

or geographic markets. Further, “[a]cts entirely 

proper when viewed alone may be prohibited.”59 

Thus, if necessary or appropriate, remedial 

provisions may constrain conduct in markets 

distinct from, but logically related to, the 

market at issue in the complaint, and may 

prohibit the defendant from taking otherwise 

lawful acts in those markets. 

Second, fencing-in provisions can prohibit 

acts that are not similar to the defendant’s past 

illegal acts but that could be used to repeat the 

same basic violation. To reach every new way 

that a defendant might act anticompetitively, 

fencing-in provisions often would need to 

contain broad language that also constrains 

normal, competitive behavior. As a result, 

seeking to entirely eliminate the chance of 

recurrence, if possible at all, may lead to such 

sweeping prohibitions that the remedy could 

create more harm than good for consumers. It 

is important to evaluate carefully the likely 

impact of each fencing-in provision to avoid 

unnecessarily constraining normal competitive 

behavior in order to reach behavior that is 

possible but unlikely to occur or to cause 

competitive harm.60 

The Department believes that, where based 

on clear and objective criteria and sufficient to 

stop the violation, prevent its recurrence, and 

re-establish the opportunity for competition, a 

prohibitory provision is the proper remedy. If, 

however, a prohibitory provision is insufficient 

to achieve these goals, then the Department will 

not hesitate to seek additional relief. 

58 Zenith Radio Corp. v. Hazeltine Research, Inc., 

395 U.S. 100, 132 (1969) (quoting NLRB v. Express 

Publ’g Co., 312 U.S. 426, 435 (1941)). 

59 United States v. U.S. Gypsum Co., 340 U.S. 76, 89 

(1950). 

60 Cf. Richard Craswell, Regulating Deceptive 

Advertising: The Role of Cost Benefit Analysis, 64 S.CAL.L. 

REV. 549, 552 (1991) (“The required level of precautions 

should therefore be defined as the point at which the 

value of any further precautions would be outweighed 

by any costs those precautions would inflict.”). 
 

152 SECTION 2 REPORT 

The Department believes that, where 

based on clear and objective criteria and 

sufficient to stop the violation, prevent 

its recurrence, and re-establish the 

opportunity for competition, a 

prohibitory provision is the proper 

remedy. If, however, a prohibitory 

provision is insufficient to achieve 

these goals, then the Department will 

not hesitate to seek additional relief. 

2. Affirmative-Obligation Remedies 

Designing and implementing an effective 

remedy can be particularly difficult when the 

defendant’s conduct extensively changed the 

market, precluding the opportunity for 

competition. For example, unlawful exclusionary 

conduct can deprive rivals of economies of scale 

or network economies. Once a defendant 

denies these economies to rivals (and secures 

them for itself), it may be difficult or impossible 

to re-establish the opportunity for competition 

simply by barring continuation of the specific 

exclusionary practices or other, related conduct. 

In addition, a company may engage in 

unlawful exclusionary practices when there is 

competition for a market. In those situations, a 

remedy that requires a defendant to take 

affirmative steps may be necessary to reestablish the opportunity for competition.61 

Some panelists recognized a need for 

affirmative-obligation remedies in appropriate 

circumstances.62 When, for example, scale 

economies make successful entry by new 

61 See Lopatka & Page, supra note 11, at 705–07 

(observing that “if predatory behavior has irreversible 

anticompetitive effects, an order that does more than 

stop the anticompetitive conduct may be justified”). 

62 See, e.g., Mar. 29 Hr’g Tr., supra note 3, at 70–71 

(Lao) (describing “the importance of implementing 

creative affirmative obligations”); Tad Lipsky, 

Remedies for Monopolization 4 (Mar. 28, 2007) (hearing 

submission) (“Mandatory access has benefits and 

deserves consideration.”); see also Philip J. Weiser, 

Goldwasser, The Telecom Act, and Reflections on Antitrust 

Remedies, 55 ADMIN. L. REV. 1, 15 (2003) (asserting that 

conduct remedies need not “mire courts in supervisory 

roles for which they are ill-suited” because courts can 

rely on (1) an arrangement regulated by a regulatory 

agency; (2) an existing access arrangement; (3) a prior 

course of dealing; or (4) a non-discrimination standard). 

competitors unlikely, an affirmative remedy 

may allow potential competitors to enter with 

a cost structure similar to a defendant’s.63 Even 

when a defendant already has established its 

technology as the current market standard, an 

affirmative remedy may be able to approximate 

the competitive conditions that would have 

prevailed but for the exclusionary conduct.64 

Finally, forward-looking affirmative remedies 

that go beyond the precise conduct at issue may 

help ensure that a defendant does not use 

similar tactics to foreclose competition in the 

future.65 

While affirmative-obligation remedies 

potentially can be effective,66 these remedies 

also run the risk of being overbroad and 

disproportionate to the unlawful conduct. 

Careful consideration of the nexus between the 

remedy and the exclusionary conduct helps 

reduce this risk.67 

Access remedies, which may mandate 

63 See Mar. 29 Hr’g Tr., supra note 3, at 70 (Lao) 

(where the dominant firm has already successfully 

excluded rivals, an affirmative remedy that requires the 

“dominant firm to reduce rivals’ costs” may be 

necessary). 

64 See, e.g., Mar. 28 Hr’g Tr., supra note 2, at 121 

(Fisher) (arguing that requiring Microsoft to auction 

“licenses to Windows,” along with “the requisite knowhow,” would have been an appropriate remedy). 

65 See Mar. 29 Hr’g Tr., supra note 3, at 67–69 (Lao); 

Willard K. Tom & Gregory F. Wells, Raising Rivals’ 

Costs: The Problem of Remedies, 12 GEO. MASON L. REV. 

389, 404 (2003) (noting that an antitrust remedy “must 

take into account the evolution of the market between 

the time the violation occurred and the time the remedy 

is being entered, as well as the likely future course of 

the market”). 

66 See generally Massachusetts v. Microsoft Corp.,373 

F.3d 1199 (D.C. Cir. 2004) (en banc). But cf. Mar. 29 

Hr’g Tr., supra note 3, at 57 (Page) (arguing that if the 

original rationale for the Microsoft remedy “was to 

preserve the middleware threat to the Microsoft 

monopoly in the network . . . the [remedy] has not 

succeeded, because it’s attracted very few licensees, 

despite these enormous efforts”). 

67 See, e.g., United States v. Microsoft Corp., 231 F. 

Supp. 2d 144, 183 (D.D.C. 2002) (finding it “entirely 

appropriate” that the remedy “prohibit only those 

contracts that have a significant degree of foreclosure of 

the market”), aff’d sub nom. Massachusetts v. Microsoft 

Corp., 373 F.3d 1199 (D.C. Cir. 2004) (en banc). 
REMEDIES 153 

selling or licensing physical assets or 

intellectual property, offering services, or 

providing interconnection to a network, can 

particularly raise significant administrability 

concerns. They can be the most complex 

remedies to design, implement, and supervise. 

At the design stage, an access remedy typically 

requires specifying the nature of access, its 

price, and other terms. In many instances, 

however, adequately specifying these 

conditions in advance may prove difficult. As 

one panelist explained, price-setting in a 

regulatory context is often “complicated” and 

raises the “familiar problems of traditional 

public utility-style regulation.”68 Similarly, 

another panelist noted that “the many complex 

and unforeseeable consequences of a forced 

sharing regime are extremely difficult to 

administer.”69 

Any access remedy requires a pricing 

determination. The price cannot be left to 

defendant’s unilateral determination; 

otherwise, it could set a price so high as to 

effectively deny access, which would subvert 

the remedial goals of the decree. At the same 

time, some panelists expressed significant 

concern that courts and antitrust enforcement 

agencies are not well-equipped to determine 

appropriate prices.70 However, others 

challenged that proposition, arguing that in 

some contexts an appropriate price may be 

established easily. For instance, where the 

monopolist already has been selling to other 

buyers in a more competitive setting, the price 

established in that market may be appropriate 

for the remedy.71 Other commentators observe, 

68 Mar. 28 Hr’g Tr., supra note 2, at 50 (Lipsky); see 

also id. at 24 (Crandall) (“[I]n any regulated access there 

is going to be an argument about the price.”). 

69 Sherman Act Section 2 Joint Hearing: Refusals to 

Deal Panel Hr’g Tr. 35, July 18, 2006 (Pate). 

70 See id. at 30 (Pate) (“Government-imposed duties 

to assist competitors force courts into setting prices, a 

task for which they are not very well equipped . . . .”); 

id. at 110 (Walton) (“[H]ow do we get this pricing?”). 

See generally supra Chapter 4 (discussing remedial 

difficulties in predatory-pricing cases); Chapter 7 

(discussing remedial difficulties in refusal-to-deal 

cases). 

71 See, e.g., May 8 Hr’g Tr., supra note 3, at 107 

however, that using prior-course-of-dealing 

comparisons to craft a remedy may be difficult 

in practice, particularly in fast-moving markets 

where terms may change quickly.72 

Access remedies that mandate selling or 

licensing physical assets or intellectual 

property, offering services, or providing 

interconnection to a network can also require 

extensive continuing oversight.73 In some 

circumstances, they may require the antitrust 

enforcement agencies and courts to make 

decisions traditionally vested in regulatory 

agencies with features better suited for these 

determinations, including a large permanent 

staff, well-established reporting requirements, 

and specialized expertise in evaluating the 

relevant industry.74 

The Microsoft decree highlights the 

complexities that interconnection remedies can 

create. It requires Microsoft to share certain 

communications protocols with potential 

middleware providers so that personal 

computers can interconnect with Microsoft 

servers. The purpose is to ensure that rival 

middleware is able to interconnect with 

Microsoft-based servers and thereby compete 

(Pitofsky) (“I don’t think the remedy [in Aspen Skiing] is 

very difficult. You take whatever the arrangement was 

in the other resort areas and apply it to Aspen.”); Mar. 

28 Hr’g Tr., supra note 2, at 53 (Lipsky) (noting that 

setting prices may be less challenging in a regulated 

industry, at least where prices already have been set 

through the regulatory process). 

72 See, e.g., Weiser, supra note 62, at 18–19 (urging 

caution in using prior course of dealing as the basis for 

crafting a remedy, especially in “markets that move 

very quickly”). 

73 See Verizon Commc’ns Inc. v. Law Offices of 

Curtis V. Trinko, LLP, 540 U.S. 398, 414–15 (2004) 

(“Effective remediation of violations of regulatory 

sharingrequirements will ordinarily require continuing 

supervision of a highly detailed decree.”); Kovacic, 

supra note 4, at 1293. 

74 See, e.g., Trinko, 540 U.S. at 415 (“An antitrust 

court is unlikely to be an effective day-to-day enforcer 

of . . . detailed sharing obligations.”); RICHARD A. 

POSNER, ANTITRUST LAW 242 (2d ed. 2001) (noting that 

“supervision of an ongoing commercial relationship” is 

“a function that courts are not equipped to perform 

effectively”). 
154 SECTION 2 REPORT 

with Microsoft’s middleware.75 This 

interconnection provision, according to one 

panelist, “has turned out to be the most difficult 

and the most problematic in its enforcement,”76 

and, according to another panelist, it has taken 

up “the lion’s share of compliance work for 

Microsoft and the agencies.”77 The 

technological complexity of the protocols has 

made implementation, he claimed, “quite 

challenging.”78 He noted that the Department 

and the district court have had to rely upon 

assistance from a forty-person “technical 

committee” for determining and enforcing 

Microsoft’s compliance with the consent 

decree.79 

Access remedies also raise efficiency and 

innovation concerns. By forcing defendant to 

share the benefits of its investments and 

relieving rivals of the incentive to develop 

comparable assets, access remedies can reduce 

an industry’s competitive vitality.80 One 

panelist, for example, argued that subjecting an 

industry to regulatory scrutiny over technical 

aspects of network interconnection drains the 

industry of its entrepreneurial energy or 

“mojo.”81 Similarly, one commentator notes 

that others maintain that access remedies tend 

to lead to “creeping regulation” by courts and 

75 United States v. Microsoft Corp., 231 F. Supp. 2d 

144, 189–90 (D.D.C. 2002), aff’d sub nom. Massachusetts 

v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004) (en 

banc). 

76 Mar. 29 Hr’g Tr., supra note 3, at 45 (Page). 

77 Mar. 28 Hr’g Tr., supra note 2, at 16 (Heiner); see 

also Mar. 29 Hr’g Tr., supra note 3, at 57 (Page) (stating 

that 313 Microsoft employees work on this portion of 

the decree). 

78 Mar. 28 Hr’g Tr., supra note 2, at 16 (Heiner); see 

also id. at 16–17. 

79 Id. at 16–17 (Heiner); see also Mar. 29 Hr’g Tr., 

supra note 3, at 47 (Page). But see id. at 30 (Hesse) 

(asserting that “hiring technical experts to help out was 

an innovative thing to do and . . . has proven to be a 

pretty successful component of the Microsoft decree”). 

80 See Verizon Commc’ns Inc. v. Law Offices of 

Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004) 

(recognizing that forced sharing may “lessen the 

incentive for the monopolist, the rival, or both to invest 

in . . . economically beneficial facilities”). 

81 May 8 Hr’g Tr., supra note 3, at 102 (Sidak). 

competition agencies, which have to regulate 

the defendant’s day-to-day efforts to comply 

with the decree.82 However, as another panelist 

observed, when the market in question is one 

“where you can’t assume that there is a 

competitive structure that will automatically 

achieve optimal performance,” it is appropriate 

to assess the possibility that “some kind of 

access remedy, despite all the costs and 

burdens . . . might actually be better than doing 

nothing or might be better than applying some 

other regulatory remedy.”83 Even in that 

situation, however, panelists cautioned that 

careful design is required to ensure a decree of 

sufficient duration for the opportunity for 

competition to take root but not so long as to 

interfere unnecessarily with the efficiency and 

innovation incentives of the companies 

involved.84 

The Department believes that, in certain 

circumstances, affirmative-obligation remedies 

will play an important role in remedying 

section 2 violations. In some settings, merely 

barring a defendant’s exclusionary conduct, or 

other similar conduct, is insufficient to reestablish the opportunity for competition, and 

affirmative relief is needed. The Department 

recognizes, however, that any affirmative 

obligation must carefully balance the benefits it 

brings to consumers with the costs it may 

impose on the Department and courts in 

designing and supervising the remedy, on 

defendant’s and competitors’ business 

82 Francois Leveque, The Controversial Choice of 

Remedies to Cope with the Anti-Competitive Behavior of 

Microsoft 8 (Berkeley Program in Law & Econ. Working 

Paper Series, Paper No. 34, 2000), available at http:// 

repositories.cdlib.org/cgi/viewcontent.cgi?article= 

1055&context=blewp. 

83 See Mar. 28 Hr’g Tr., supra note 2, at 53 (Lipsky). 

84 See, e.g., Mar. 29 Hr’g Tr., supra note 3, at 99–100 

(Page) (noting that longer decrees may be preferable 

with access remedies, as in Microsoft, to assure 

competitors that investments made in interconnecting 

with the monopolist will be worthwhile); id. at 102 

(Hesse) (arguing that length of decree in a network 

market will depend on whether there is a quick way to 

lower entry barriers or otherwise overcome network 

effects and concluding that longer decrees will be 

appropriate in most technology markets). 
 

REMEDIES 155 

operations and incentives, and on consumers. 

The Department believes that, in 

certain circumstances, affirmativeobligation remedies will play an 

important role in remedying section 2 

violations. 

B. Structural Remedies 

Structural remedies typically dissolve the 

defendant, split it into two or more entities, or 

require divestiture of assets to a new owner. 

The Supreme Court has recognized that, along 

the spectrum of antitrust remedies, these are 

the “most drastic.”85 Similarly, in Microsoft, the 

D.C. Circuit cautioned that “structural relief, 

which is ‘designed to eliminate the monopoly 

altogether . . . require[s] a clearer indication of 

a significant causal connection between the 

conduct and creation or maintenance of the 

market power.’”86 The court indicated that the 

further the relief under consideration is toward 

the structural end of the remedial spectrum, the 

greater the need for “a sufficient causal 

connection between [the] anticompetitive 

conduct and [the firm’s] dominant position.”87 

The court also suggested that structural 

remedies are best suited to instances involving 

a firm “that has expanded by acquiring its 

competitors,”88 because, while it is likely to be 

difficult to divide a unitary company into 

efficient competitors, a company formed 

through mergers may still have identifiable 

structural divisions.89 

85 United States v. E. I. du Pont de Nemours & Co., 

366 U.S. 316, 326 (1961). 

86 United States v. Microsoft Corp., 253 F.3d 34, 106 

(D.C. Cir. 2001) (en banc) (per curiam) (quoting AREEDA 

& HOVENKAMP, supra note 12, ¶ 653b, at 91–92) 

(alteration in original) (emphasis in original); see also 

Mar. 29 Hr’g Tr., supra note 3, at 60 (Page) (“[R]emedies 

should be proportional to the strength of the proof that 

[defendant’s] illegal actions actually reduced 

competition. . . . [Y]ou need more evidence to support 

more Draconian remedies.”). 

87 See Microsoft, 253 F.3d at 106. 

88 Id. 

89 Id. (citing United States v. United Shoe Mach. 

Corp., 110 F. Supp. 295, 343 (D. Mass. 1953), aff’d, 347 

U.S. 521 (1954) (per curiam)). 

Some commentators favor structural 

remedies in section 2 cases as a general matter: 

Structural relief is the most far-reaching 

category of remedies, but there are several 

reasons for the presumption favoring 

structural remedies in monopolization 

cases. If the aim is to “terminate the 

monopoly”, the most straightforward 

solution is to break it up in some fashion. 

This is consistent with the economic view 

that structural relief goes to the root of the 

problem, even if the problem is merely 

conduct that unlawfully maintains the 

monopoly. . . . If there are significant 

reasons why restraining conduct or 

licensing remedies are not likely to be 

effective in . . . terminating the monopoly . . . 

then the case for some sort of structural 

remedy is compelling.90 

Some commentators also note that 

divestiture, and other structural remedies, offer 

the possibility of swiftly dissipating a 

defendant’s monopoly power by introducing 

new competitors into the market.91 In addition, 

some panelists argued that structural remedies 

can be administratively efficient. As one 

panelist noted, “[S]tructural remedies generally 

eliminate, although not entirely, the need for 

ongoing enforcement in compliance activity, 

which also can be an extremely time consuming 

and resource intensive process.”92 Another 

panelist observed that a structural remedy 

“doesn’t require continued and long judicial 

supervision and continued wrangling and 

litigation that can go with that.”93 

What structural remedies may gain by 

reducing long-term administration burdens, 

however, they may lose by imposing significant 

up-front implementation costs. Some 

commentators have observed that breaking up 

a company can present acute administrability 

challenges. As one panelist explained: 

90 Robert E. Litan & William D. Nordhaus, Effective 

Structural Relief in U.S. v. Microsoft 2 (May 2000) 

(unpublished manuscript), available a t 

http://aei-brookings.org/admin/authorpdfs/redirectsafely.php?fname=../pdffiles/Structural_Relief.pdf. 

91 Kovacic, supra note 4, at 1294. 

92 Mar. 29 Hr’g Tr., supra note 3, at 24 (Hesse). 

93 Mar. 28 Hr’g Tr., supra note 2, at 110 (Fisher). 
156 SECTION 2 REPORT 

[T]he structural remedy is very difficult 

because firms just aren’t divided up this 

way. 

In the case of a horizontal divestiture, it 

is not necessarily neatly divided in that 

way. 

What are the necessary assets, what are 

the necessary intellectual property, what 

are the necessary employees to create a 

going concern and have these separated 

entities?94 

A court crafting a structural remedy that 

entails dismantling a defendant to terminate an 

unlawfulmonopoly may face difficult decisions 

regarding allocation of personnel and assets 

that serve the company as a whole. For 

example, if the firm’s operations are carried out 

in fully integrated teams, the court would need 

to decide how personnel who serve in the 

integrated teams will be allocated among the 

new enterprises.95 Because of these challenges, 

one panelist noted that “courts are traditionally 

reluctant to grant structural relief” and 

“crafting [a structural remedy] is not easy and 

may sometimes be impossible.”96 Another 

panelist advised that because of these 

challenges, divestiture “should be a last resort” 

for an integrated or “unitary” company.97 

In addition, major restructuring may have 

serious consequences for business efficiency 

and innovation. Just as the problems of 

dividing a company into parts present 

challenges for a court, the separate entities 

created by divestiture may face challenges postbreakup due to lack of personnel, 

organizations, or information necessary to 

compete. These challenges may be particularly 

acute in technologically dynamic markets 

characterized by rapid innovation. For 

example, an order splitting up a company 

might leave one post-divestiture entity without 

research and development operations, or two 

entities each with diminished research and 

94 Id. at 136 (Joskow). 

95 See, e.g., United States v. Microsoft Corp., 253 F.3d 

34, 106 (D.C. Cir. 2001) (en banc) (per curiam); Kovacic, 

supra note 4, at 1294–95. 

96 Mar. 28 Hr’g Tr., supra note 2, at 110 (Fisher). 

97 Mar. 29 Hr’g Tr., supra note 3, at 49 (Page). 

development capability, making it difficult 

for these entities to maintain the level of 

innovation necessary to compete in a rapidly 

changing market.98 Concern with undermining 

the efficiency of post-divestiture operations was 

one of the issues that led the Microsoft court to 

reject the divestiture remedy initially ordered 

by the district court.99 As one panelist 

concluded, “[M]ost of the structural remedies 

are a case of too much at too high a cost.”100 In 

exceptional cases, however, a simple divestiture 

of intellectual property might be an adequate 

structural remedy that would impose a 

relatively modest cost. 

Panelists were also divided on whether 

structural remedies actually work. One argued 

that structural remedies are more likely to be 

successful than conduct remedies: “The lines 

are clearer, and if you’ve actually proven a 

violation where you can support imposition of 

a structural remedy, I think the likelihood of 

that structural remedy having an effect is 

probably higher.”101 Other panelists disagreed. 

One asserted that “the effectiveness of 

structural remedies in Section 2 cases is not 

assured and there’s certainly quite a bit of 

debate of effectiveness historically over 

structural remedies.”102 Another writes more 

bluntly that attempts to break up monopolists 

have been “costly exercises in futility.”103 

98 See id. at 9 (Shelanski). 

99 Microsoft, 253 F.3d at 106 (“[A] ‘corporation, 

designed to operate effectively as a single entity, cannot 

readily be dismembered of parts of its various 

operations without a marked loss of efficiency.’” 

(quoting United States v. Aluminum Co. of Am., 91 F. 

Supp. 333, 416 (S.D.N.Y. 1950))). These concerns are 

similar to those that, in the merger context, cause the 

Department to disfavor divestitures of less than an 

existing, standalone business entity. See ANTITRUST 

DIV., supra note 1, at 12–13. 

100 Mar. 28 Hr’g Tr., supra note 2, at 172 (Epstein). 

101 Mar. 29 Hr’g Tr., supra note 3, at 25 (Hesse); see 

also id. at 24 (Hesse) (arguing that structural remedies 

are “generally less easy to evade” because “[i]t’s pretty 

clear what you’re supposed to do”). 

102 Id. at 8 (Shelanski). 

103 Robert W. Crandall, Costly Exercises in Futility: 

Breaking Up Firms to Increase Competition 1 (Dec. 

2003) (unpublished manuscript), available at 

http://www.brookings.edu/~/media/Files/rc/ 
REMEDIES 157 

Evaluating the efficacy of past structural 

remedies in monopolization cases is difficult 

because generally there is no way of 

determining how competition in the relevant 

market would have fared had the remedy not 

been imposed. One panelist questioned 

whether anyone has an adequate “tool kit” for 

evaluating whether decrees systematically 

improve or reduce consumer welfare.104 

Indeed, commentators continue to debate 

whether past divestiture remedies were 

successful. For example, some commentators 

point to the breakup of Standard Oil in the 

early 1900s as an example of a successful 

structural remedy.105 That divestiture “ordered 

the dissolution of the trust by directing the 

combination to distribute the stock of thirtyseven subsidiaries to its shareholders”106 and 

created a number of sizable, enduring, 

independent competitors, including the 

companies that became Amoco, Chevron, 

Exxon, and Mobil.107 Despite Standard Oil’s 

predictions, dissolution did not disrupt the 

industry’s provision of goods and services, or 

significantly undermine the operations of the 

divested companies.108 Some, however, have 

questioned the overall success of the remedy.109 

papers/2003/12_competition_crandall/12_ 

competition_crandall.pdf. 

104 See May 8 Hr’g Tr., supra note 3, at 39 (Sidak). 

105 William S. Comanor & F. M. Scherer, Rewriting 

History: The Early Sherman Act Monopolization Cases, 2 

INT’L J. ECON. BUS. 263, 266–71 (1995); Kovacic, supra 

note 4, at 1295–1302. See generally Standard Oil Co. of 

N.J.v. United States, 221 U.S. 1, 77–82 (1911) (describing 

breakup). 

106 Kovacic, supra note 4, at 1295, 1300. 

107 Id.; see also 1 SIMON N. WHITNEY, ANTITRUST 

POLICIES 103–10(1958) (arguing that over time vigorous 

competitiondeveloped among the divested companies). 

108 Kovacic, supra note 4, at 1298 (“The transition 

proceed[ed] relatively smoothly even though most of 

the newly independent entities were deprived of the 

full-scale integration that Standard had argued was 

vital to their survival.”). 

109 See Sherman Act Section 2 Joint Hearing: 

Business History Session Hr’g Tr. 15–18, 63–65, Oct. 26, 

2006 [hereinafter Oct. 26 Hr’g Tr.] (May); Walter 

Adams, Dissolution, Divorcement, Divestiture: The Pyrrhic 

Victories of Antitrust, 27 IND. L.J. 1, 2 (1951); POSNER, 

supra note 74, at 107 (“The decree had substituted a 

Evaluations of the structural remedy 

imposed on AT&T in the 1980s are also mixed. 

The order split the Bell System between its 

monopoly local exchange business (assigned to 

the seven Regional Bell Operating Companies 

(RBOCs)) and its competitive long distance and 

manufacturing businesses (assigned to 

AT&T).110 Some panelists believed that these 

divestitures had important positive benefits. 

One suggested that “it is arguable” that many 

innovations in the telecommunications industry 

“might [never] have occurred without the 

divestiture decree.”111 Another contended that 

“the structural remedy in the AT&T case 

unleashed innovation from smaller 

telecommunications firms on an unprecedented 

scale, which enhanced consumer welfare.”112 

Other observers, however, viewed the AT&T 

remedy as less successful and possibly costly 

from the standpoint of lost efficiencies.113 Two 

panelists argued that Bell’s vertical integration 

had been efficient, as demonstrated by the 

RBOCs’ subsequent vertical re-integration.114 

series of regional monopolies for a national 

monopoly.”). 

110 United States v. AT&T, 552 F. Supp. 131, 141–43 

(D.D.C. 1982), aff’d mem. sub nom. Maryland v. United 

States, 460 U.S. 1001 (1983). 

111 Mar. 28 Hr’g Tr., supra note 2, at 55 (Lipsky); see 

also Oct. 26 Hr’g Tr., supra note 109, at 185 (Smith). 

112 Mar. 29. Hr’g Tr., supra note 3, at 67 (Lao). 

113 See, e.g., Mar. 28 Hr’g Tr., supra note 2, at 34 

(Crandall) (“The cost of the vertical divestiture was 

extremely high. Was it necessary? I think in retrospect 

I can say probably not.”); Oct. 26 Hr’g Tr., supra note 

109, at 46 (Galambos) (“There was no consideration of 

whether deregulation might not serve the public 

interest better than structural settlements under the 

Sherman Act. There was, instead, dedication to a policy 

that was rooted in the past . . . .”); id. at 77–78 (stating 

that the breakup of AT&T, in the long term, did not 

lead to the increased innovation and productivity that 

the government had sought in the case). 

114 See Mar. 28 Hr’g Tr., supra note 2, at 33 (Crandall) 

(“[A]fter 12 years of the AT&T decree and nine years 

after the 1996 [A]ct, we reverted back to a vertically 

integrated telecom sector.”); id. at 147–48 (Thorne) 

(“Some of the efficiencies of a larger firm were 

sacrificed. Many of those efficiencies have been 

recreated since, reachieved since the divestiture 

happened.”); see also Oct. 26 Hr’g Tr., supra note 109, at 

83 (Galambos) (“I do not think we are moving back to 
158 SECTION 2 REPORT 

One panelist estimated that the economy “lost 

about $5 billion of output just in the transition 

from the old AT&T to the new AT&T.”115 

The Department believes that structural 

remedies remain an important part of the 

government’s remedial arsenal. They may be 

appropriate if a section 2 violation has a clear, 

significant causal connection to a defendant’s 

acquisition of monopoly power. Radical 

restructuring of a defendant, however, is 

appropriate only after a determination that 

alternative remedies would not satisfactorily 

achieve the remedial goals or would do so at an 

unacceptable cost and a determination that the 

structural remedy is likely to benefit 

consumers. 

C. The Special Challenge of Remedies 

in Technologically Dynamic Industries 

The rapid changes and innovation typical of 

new-economy industries raise the question 

whether current antitrust enforcement 

mechanisms, which often involve lengthy 

investigation, followed by complex, timeconsuming trials, are suitable for implementing 

effective remedies that adequately protect 

competition. Developing an equitable remedy 

in these markets has been likened to “trying to 

shoe a galloping horse.”116 One panelist 

observed that “the system seems broken in 

terms of speed, cost, and effectiveness of 

remedies.”117 Professor Hovenkamp explained 

the problem in the context of the Microsoft 

litigation: “[T]he legal wheels turn far too 

slowly. By the time each round of Microsoft 

litigation had produced a ‘cure,’ the victim was 

already dead.”118 Similar criticisms were 

the Bell System, but we are getting reconsolidation. It 

seems to me . . . you are seeing the effect of economies 

of scale and some economies of scope, so you are 

getting reconsolidation.”). 

115 Mar. 28 Hr’g Tr., supra note 2, at 28 (Crandall). 

116 New York v. Microsoft Corp., 224 F. Supp. 2d 76, 

184 (D.D.C. 2002), aff’d sub nom. Massachusetts v. 

Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004) (en 

banc). 

117 Mar. 29 Hr’g Tr., supra note 3, at 36 

(Cunningham). 

118 HOVENKAMP, supra note 31, at 299; see also United 

States v. Microsoft Corp., 253 F.3d 34, 49 (D.C. Cir. 

directed to the long-running litigation against 

IBM. A panelist concluded that the IBM case 

highlights the “need for speed” and 

demonstrates “how the industry and the 

technology tend to change in a manner that by 

the time you are done, everything you thought 

when you started the case is irrelevant.”119 

The time required for litigation may present 

particularly acute concerns in new-economy 

industries because in many instances, if 

anticompetitive conduct has eliminated 

potential competitors, the opportunity for 

robust competition may be difficult to recreate. 

As one panelist explained, in fast-moving, hightechnology markets, “it’s extremely difficult to 

resuscitate a competitor, after the competitor 

has been crushed. The convergence of factors 

that produced a competitive challenge before it 

was anticompetitively excluded[] may never reappear, not in the same fashion, anyway.”120 

To be sure, antitrust litigation ideally would 

be more rapid, reaching resolution and a 

remedy before the markets change 

significantly. In some cases, this issue can be 

addressed by consent decrees entered into 

before litigation; in others, it may suggest 

seeking preliminary injunctive relief. More 

generally, the effort to develop clear, objective 

standards for liability discussed in chapters 1-8 

can help address this concern. The clearer and 

more objective the standard for liability, the 

more efficient and effective the antitrust 

enforcement. Violations are more likely to be 

deterred, litigation is likely to be faster and less 

expensive, and parties are more likely to reach 

prompt and effective settlements. 

Once an appropriate judgment has been 

issued, steps can be taken to ensure the efficacy 

of relief in dynamic industries. One possibility 

is to fashion remedies that go beyond the 

precise conduct at issue. For example, some 

panelists suggested that, before the Microsoft 

2001) (en banc) (per curiam) (noting that in the 

computer industry, “[b]y the time a court can assess 

liability, firms, products, and the marketplace are likely 

to have changed dramatically”). 

119 Mar. 28 Hr’g Tr., supra note 2, at 56 (Lipsky). 

120 Mar. 29 Hr’g Tr., supra note 3, at 67 (Lao). 
REMEDIES 159 

litigation ended, “the browser wars were 

over.”121 For that reason, the remedies at least 

partially focused on protecting competition that 

might arise through future middleware 

technologies. 

Of course, even when an industry’s dynamic 

nature makes effective injunctive relief 

problematic, antitrust enforcement continues to 

play an important role. Thus, the Microsoft 

court recognized that, while the passage of time 

in fast-changing settings 

threatens enormous practical difficulties for 

courts considering the appropriate measure 

of relief . . . . [e]ven in those cases where 

forward-looking remedies appear limited, 

the Government will continue to have an 

interest in defining the contours of the 

antitrust laws so that law-abiding firms will 

have a clear sense of what is permissible 

and what is not.”122 

The same potential for dynamic change 

between complaint and judgment that 

complicates crafting a remedy in the first place 

raises further complexity after a remedy is in 

place. Panelists warned that when technology 

is changing rapidly, a fixed remedy running 

years into the future may have damaging, 

unintended consequences.123 Panelists’ general 

admonitions that decrees should provide 

adequate flexibility124 and should run no longer 

than necessary for re-establishing the 

opportunity for competition are therefore 

particularly applicable to cases in 

121 Id. at 50 (Page); see also Mar. 28 Hr’g Tr., supra 

note 2, at 117–18 (Fisher). 

122 Microsoft, 253 F.3d at 49. 

123 See Mar. 29 Hr’g Tr., supra note 3, at 7 (Shelanski) 

(stating that “innovative markets are cause for agencies 

and courts to be more cautious about remedies”); 

Crandall & Elzinga, supra note 57, at 287–88 (arguing 

that the 1956 Western Electric settlement provisions 

confining AT&T and its manufacturing and research 

arms to markets involving common carrier 

communications services and equipment “cut off a 

major potential source of innovation” in the computer 

and other electronics markets). 

124 See Mar. 29 Hr’g Tr., supra note 3, at 72–73 (Lao) 

(explaining that continued judicial supervision over 

decrees is “helpful in a dynamic high technology 

market because it allows the court to assess the success 

of the remedy, and to assess future development”). 

technologically dynamic settings.125 

V. Monetary Remedies 

The antitrust-remedial system in the United 

States is not limited to conduct and structural 

remedies. There are also a variety of monetary 

remedies available that can both deter future 

anticompetitive conduct and help restore 

injured parties to the position they would have 

been in without the unlawful conduct. Private 

plaintiffs in antitrust cases can seek monetary 

damages, which by law are trebled 

automatically.126 Similarly, the federal 

government may seek treble damages in 

instances in which anticompetitive conduct 

harmed the United States itself,127 and the states 

may recover damages they suffered themselves 

as well as on behalf of injured citizens in their 

parens patriae capacity.128 In addition, certain 

monetary equitable remedies, such as 

disgorgement and restitution, may be 

available.129 The antitrust enforcement 

agencies, however, do not have the authority to 

impose civil fines. 

A. Private Monetary Remedies— 

Treble Damages 

The U.S. antitrust laws permit private 

plaintiffs to recover three times the damages 

they prove they have suffered. Although treble 

damages can increase deterrence and overall 

enforcement, a number of observers argue that, 

125 See supra notes 32–34 and accompanying text. 

But cf. Tom & Wells, supra note 65, at 407 (noting that, 

where rapid change “takes place against a background 

of powerful network effects,” decree should be longer 

to account for fact that challenges to a dominant 

position rarely arise). 

126 15 U.S.C. § 15(a) (2000). 

127 Id. § 15a. 

128 Id. §§ 15(a), 15c; see also Georgia v. Evans, 316 

U.S. 159, 162–63 (1942) (holding that states are 

“persons” capable of bringing treble damage actions 

when they are “immediate victim[s] of a violation of the 

Sherman Law”). 

129 See, e.g., FTC Policy Statement on Monetary 

Equitable Remedies in Competition Cases, 68 Fed. Reg. 

45,820 (Aug. 4, 2003). Although the FTC has sought 

disgorgement, see FTC v. Mylan Labs., Inc., 62 F. Supp. 

2d 25, 36–37 (D.D.C. 1999), modified, 99 F. Supp. 2d 1, 

4–5 (D.D.C. 1999), the Department has not done so. 
 

 

 

160 SECTION 2 REPORT 

in the section 2 context, treble damages also can 

chill procompetitive conduct and that the 

rationale for trebling is weaker here than in 

other contexts. As explained below, these 

concerns have led to questions about the 

appropriateness of treble damages in private 

section 2 cases. 

A successful plaintiff in a section 2 case is 

entitled to recover “threefold the damages by 

him sustained.”130

 Plaintiffs also may recover 

attorneys’ fees and, in limited circumstances, 

pre-judgment interest.131 These private 

monetary remedies provide incentives for 

private enforcement and advance at least three 

important goals: deterrence, punishment of 

wrongdoers, and compensation of victims.132 

Trebling damages generally increases 

deterrence by compensating for the possibility 

that anticompetitive conduct will not be 

detected and prosecuted.133 Likewise, the 

possibility of winning multiple damages 

enhances plaintiffs’ incentives to seek out and 

detect anticompetitive conduct and to bear the 

time, expense, and uncertainty of bringing 

suit.134 

The Department believes that private actions 

and resulting monetary remedies play an 

important role in overall antitrust enforcement. 

The government has finite resources to 

130 15 U.S.C. § 15(a). There are a limited number of 

exemptions from this general rule. See, e.g., Export 

Trading Company Act § 306, 15 U.S.C. § 4016(b)(1) 

(limiting to single damages claims against export 

trading companies for conduct undertaken pursuant to 

certificates of review issued by the Department of 

Commerce). 

131 15 U.S.C. § 15(a). 

132 See, e.g., Edward Cavanagh, Detrebling Antitrust 

Damages: An Idea Whose Time Has Come?, 61 TUL. L. REV. 

777, 783 (1987); see also ANTITRUST MODERNIZATION 

COMM’N, REPORT AND RECOMMENDATIONS 246 (2007), 

available at http://govinfo.library.unt.edu/amc/report_ 

recommendation/amc_final_report.pdf. 

133 See, e.g., Cavanagh, supra note 133, at 803; Frank 

H. Easterbrook, Detrebling Antitrust Damages, 28 J.L. & 

ECON. 445, 454–55 (1985). 

134 See May 1 Hr’g Tr., supra note 3, at 94 (Jacobson) 

(noting that “treble damages are there for the principal 

reason of inducing private enforcement of the antitrust 

laws”); Cavanagh, supra note 133, at 786; Easterbrook, 

supra note 133, at 451–52, 455. 

prosecute antitrust violations; private 

enforcement supplements these efforts. Indeed, 

private plaintiffs, rather than the government, 

undertake a significant portion of antitrust 

enforcement, including section 2 enforcement.135 

Moreover, by deterring violations, private 

damages can reduce the need for government 

enforcement in the first instance. 

Panelists expressed a variety of opinions 

regarding the suitability of treble damages in 

section 2 cases. A number voiced policy 

concerns. One argued that enhanced incentives 

for bringing suit lead to baseless litigation.136 

Other commentators suggest that the prospect 

of treble damages has led courts to apply 

section 2 more narrowly than they might 

otherwise.137 Along these lines, one panelist 

stressed that the prospect of treble damages 

should not distort the agencies’ analysis of 

potential section 2 liability.138 

Some commentators and panelists argued 

that the key goals of trebling—deterrence, 

punishment of violators, and compensation of 

victims—apply less forcefully in the section 2 

context. With regard to deterrence, to ensure 

that the expected penalty for violating the 

antitrust laws exceeds the benefit to the 

perpetrator, the penalty must be set as a 

multiple of the actual harm to compensate for 

the possibility that the violation will not be 

detected.139 However, one panel moderator 

suggested that because section 2 violations are 

rarely covert and instead are typically open and 

known to customers, competitors, and the 

public, the justification for trebling damages is 

weaker in most section 2 contexts than with 

135 See, e.g., Douglas H. Ginsburg & Leah Brannon, 

Determinants of Private Antitrust Enforcement in the 

United States, COMPETITION POL’Y INT’L, Autumn 2005, 

at 29, 32 & fig. 1. 

136 See Mar. 28 Hr’g Tr., supra note 2, at 108–09 

(Fisher). 

137 See William E. Kovacic, Gen. Counsel, Fed. Trade 

Comm’n, Private Participation in the Enforcement of 

Public Competition Laws § III & nn.13–14 (May 15, 

2003), available at http://www.ftc.gov/speeches/other/ 

030514biicl.shtm. 

138 May 8 Hr’g Tr., supra note 3, at 25 (Creighton). 

139 See, e.g., Easterbrook, supra note 133, at 454–55. 
 

 

REMEDIES 161 

regard to other antitrust violations.140 

Further, private section 2 cases sometimes 

follow on government investigations into the 

same conduct. In those cases, a plaintiff bears 

substantially reduced risk and expense, and 

treble damages may not be necessary to create 

incentives to sue. 

In addition to deterrence, treble damages 

have a punitive element. In most civil actions, 

a defendant is required to pay for damage 

actually caused, and that amount is not 

multiplied. Antitrust, in contrast, adds the 

punitive element of trebling. However, in 

section 2 cases, determining whether the 

conduct is anticompetitive or procompetitive 

often requires a probing analysis.141 For 

example, in predatory-pricing cases, consumers 

benefit from deep discounts in the short run; 

similarly, tying and exclusive-dealing 

arrangements, which sometimes have 

anticompetitive impact, can have procompetitive 

effects as well. Resolving whether these types of 

business conduct are unlawfully exclusionary in 

particular contexts usually requires a difficult and 

fact-intensive inquiry. Punishment through 

treble damages, some observers conclude, may 

be inappropriate because it could chill similar 

conduct that may be procompetitive.142 

140 May 1 Hr’g Tr., supra note 3, at 91–92 (Carlton) 

(“[I]t would suggest a different multiple between covert 

and overt; whether it is one to three is a different 

question.”). See ANTITRUST MODERNIZATION COMM’N, 

Separate StatementofCommissioner Carlton, supra note 

132, at 399 (“I favor a reduction in the multiple to single 

damages when the actions are overt.”); Richard A. 

Epstein, Structural Remedies in Section 2 Cases 1 (Mar. 

27, 2007) (hearing submission). 

141 See Cavanagh, supra note 133, at 794. See generally 

Dennis W. Carlton, Market Definition: Use and Abuse, 

COMPETITION POL’Y INT’L, Spring 2007, at 3, 8 (noting 

that, in section 2 contexts, “any increase in market 

power typically has to be weighed against any benefits 

of the alleged bad act” and “the alleged bad act may 

have some efficiency justification, but price must 

typically rise in order to create the incentives to 

generate the efficiency”). 

142 See, e.g., Cavanagh, supra note 4, at 171 (noting 

that where conduct is not concealed “[c]ritics assert that 

the consequence of mandatory trebling in these types of 

cases is to chill the conduct that is procometitive”); 

HOVENKAMP, supra note 31, at 67. But see Robert H. 

Treble damages also may be unnecessary to 

compensate victims of anticompetitive conduct 

adequately. As one treatise observes, 

compensation is generally aided by “liberal 

proof of damages, other procedural and 

substantial rules favorable to plaintiffs, and 

awards of substantial attorney’s fees.”143 

Accordingly, it notes, “excessive awards only 

encourage increasingly marginal suits.”144 

These qualms regarding treble damages are 

by no means universally shared. A number of 

panelists countered that the length and cost of 

a typical section 2 case, the general lack of prejudgment interest, and the promotion of 

deterrence and private enforcement provide 

support for trebling damages.145 For example, 

a panelist observed that damages may not 

compensate fully for foregone sales and may 

not be awarded to all who bear the burden of 

higher prices.146

 Similarly, one commentator 

concludes, “[T]he reality is that plaintiffs are 

unlikely to undertake the arduous task of 

prosecuting a civil antitrust claim if their 

recovery is limited to actual damages. Without 

trebling, therefore, antitrust violators may not 

be sued and may well be able to reap the 

benefits of their illegal conduct.”147 

B. Civil Fines 

The federal enforcement agencies lack civilfine authority.148 Several panelists, however, 

Lande, Are Antitrust “Treble” Damages Really Single 

Damages?, 54 OHIO ST. L.J. 115, 172–73 (1993). 

143 AREEDA & HOVENKAMP, supra note 12, ¶ 656c, at 

111. 

144 Id. 

145 See May 1 Hr’g Tr., supra note 3, at 91–92 

(Elhauge) (stressing the need to compensate for the cost 

of bringing successful litigation); id. at 92–93 (Willig) 

(stressing the role of treble damages in enhancing 

deterrence); id. at 93 (McDavid) (stressing the 

contribution of treble damages as a substitute for prejudgment interest); id. at 94–95 (Jacobson) (concluding 

that “you do not have private enforcement of antitrust 

without treble damages”). 

146 See id. at 91–92 (Elhauge). 

147 Cavanagh, supra note 4, at 172. 

148 Under the Sherman Act, the Department may 

seek criminal fines of up to $100 million for violations 

of either section 1 or section 2. See 15 U.S.C. § 2 (2000). 

The Department also can proceed under the 
 

 

162 SECTION 2 REPORT 

suggested that civil fines would be a potentially 

useful federal-enforcement remedy. Civil fines 

would be particularly useful, they contended, 

when a section 2 violation is otherwise difficult 

or costly to remedy.149 

A remedial scheme under which 

government agencies have authority to seek 

civil fines as part of a comprehensive array of 

remedies may have certain attractive aspects. 

Coupled with a prohibitory provision, fines 

may prevent recurrence without resort to more 

costly and disruptive remedies. Under the 

current U.S. antitrust remedial scheme, 

however, private litigation has the potential to 

impose similar, if not greater, payment 

obligations than a system of civil fines.150 In 

comparison, jurisdictions with civil fine 

authority tend not to have as robust a system of 

private monetary remedies as the United 

States.151 Thus, adding civil fines to existing 

“alternative fines” statute, 18 U.S.C. § 3571(d), to seek 

even greater criminal fines. See Antitrust Div., Sherman 

Act Violations Yielding a Corporate Fine of $10 Million 

or More (2008), available at http://www.usdoj.gov/atr/ 

public/criminal/225540.pdf (reportingfines of as much 

as $500 million). The Department has not criminally 

prosecuted section 2 violations in several decades and 

seeks criminal fines only for “hard-core” violations of 

section 1, such as price-fixing and bid-rigging. The 

government must prove a criminal violation beyond a 

reasonable doubt, while it must prove a civil violation 

only by a preponderance of the evidence. 

149 See, e.g., Mar. 28 Hr’g Tr., supra note 2, at 84 

(Lipsky) (stating that a fine might be a desirable remedy 

in a predatory-pricing case); id. at 140 (Joskow) (same). 

150 See, e.g., Mar. 28 Hr’g Tr., supra note 2, at 108 

(Fisher); Franklin M. Fisher, Remedy Issues in Section 

2 Cases 2 (Mar. 28, 2007) (hearing submission). For 

example, the European Union fined Microsoft i497 

million (approximately $610 million at the time) in 

connection with Microsoft’s alleged anticompetitive 

conduct relating to its Windows software. In 

comparison, Microsoft entered into several 

settlements—with IBM, AOL, and Sun, among others— 

which, in combination, vastly exceeded that amount. 

See May 8 Hr’g Tr., supra note 3, at 151 (Rule) 

(Microsoft’s settlement payments may exceed $10 

billion); Mar. 29 Hr’g Tr., supra note 3, at 104 (Page) 

(citing reports that Microsoft consents totaled close to 

$9 billion). 

151 In countries belonging to the Organisation for 

Economic Co-Operation and Development, monetary 

sanctions are frequently imposed for abuse of 

private remedies could run the risk of making 

total available monetary remedies unduly 

punitive.152 

Further, the availability of civil fines in the 

section 2 context could lead to chilling of 

procompetitive business conduct. At present, 

defendants in section 2 cases generally face an 

injunction from government enforcement and 

treble-damage liability from privat e 

enforcement. The possibility of additional 

substantial fines from governmental enforcement 

may discourage firms from engaging in conduct 

that would not violate the antitrust laws, 

especially without clear, objective standards for 

defining violations.153 

Some have raised the issue whether it might 

be appropriate to reduce the private section 2 

remedy to single damages but, at the same 

time, enable the antitrust enforcement agencies 

to seek civil fines.154 The Department believes 

that further consideration of the appropriate 

monetary-penalty system for section 2 

violations may be useful. Such consideration 

would need to examine the complicated 

interplay among various factors, including 

dominance. Private damages, however, generally are 

unavailable. Private damages are an “idea that has not 

quite taken off yet outside of a small number of 

jurisdictions.” DIRECTORATE FOR FIN. AND ENTER. 

AFFAIRS COMPETITION COMM., ORG. FOR ECON. 

COOPERATION AND DEV., REMEDIES AND SANCTIONS IN 

ABUSE OF DOMINANCE CASES 45 (2007), available at 

http://www.oecd.org/dataoecd/20/17/38623413.pdf. 

152 See Mar. 28 Hr’g Tr., supra note 2, at 108 (Fisher) 

(loss of treble-damages suit likely to result in payment 

greater than disgorgement of monopoly profits). 

153 Additionally, to the extent such fines were 

applicable for antitrust violations generally, they might 

tend to blur the clear demarcation between civil and 

criminal antitrust enforcement. The Department has 

spent decades establishing a clear demarcation between 

civil and criminal antitrust violations. This effort has 

been crucial to the successful efforts to increase criminal 

antitrust penalties appropriately and dramatically. 

154 See, e.g., ANTITRUST MODERNIZATION COMM’N, 

supra note 132, at 287 (“If the Commission had 

recommended reducing or eliminating treble damages 

recoveries, or significantly limiting their availability, it 

might have been appropriate to consider whether civil 

fine authority should take their place. The Commission 

has not recommended any change to treble damage 

recovery, however.”). 
 

 

REMEDIES 163 

adequate deterrence of anticompetitive 

behavior, chilling procompetitive behavior, the 

role of private enforcement, the pros and cons 

of governmental civil-fine authority, and the 

full compensation of section 2 victims. 

VI. Conclusion 

Early and careful consideration of remedies 

in section 2 cases is vitally important. 

Designing and implementing appropriate 

remedies may be at least as challenging as 

reaching the initial determination of liability, if 

not more so. Remedies should terminate the 

defendant’s unlawful conduct, prevent its 

recurrence, and re-establish the opportunity for 

competition in the market. Engineering a 

specific market outcome that may favor a given 

rival or achieve a particular market structure 

should never be the goal. 

Section 2 remedies must carefully balance a 

number of potentially conflicting considerations. 

A remedy should be sufficiently specific to allow 

a defendant to comply with its terms and the 

court to supervise that compliance, but should 

also be flexible enough to handle changed 

circumstances. Duration should be considered 

carefully. Considerations of efficacy must be 

e valuated alongside concerns wit h 

administrability and the desire to maintain 

efficiency and innovation. 

Because prohibitory remedies are generally 

the least costly to implement and supervise and 

also the least disruptive in this context, the 

Department generally prefers them in section 2 

cases when they are sufficient to re-establish 

the opportunity for competition. In other 

instances, however, more extensive affirmativeobligation remedies may be needed. Finally, 

when warranted by the circumstances, the 

Department may seek divestiture or other 

structural relief. In each case, the Department 

will seek to ensure that its chosen remedy 

preserves and protects competition and does 

more good than harm. 

The availability of monetary remedies for 

section 2 violations encourages private 

enforcement efforts and thus supplements 

injunctive relief by providing deterrence. The 

Department believes further consideration of 

the range and level of monetary remedies 

available in section 2 cases would be useful to 

determine whether adjustment may be 

appropriate. 

 

CHAPTER 10 

AN INTERNATIONAL PERSPECTIVE 

I. Introduction 

Over one hundred nations now have 

antitrust laws, most of which include 

provisions condemning monopolization or, 

more commonly, abuse of dominance.1 Many 

regard this blossoming of competition regimes 

as good news, because it shows recognition that 

markets generally are the best means for 

economies to allocate their scarce resources. 

However, the proliferation of antitrust regimes 

throughout the world—each with its own 

substantive laws, enforcement priorities, and 

policy objectives—has raised concerns about 

procedural and substantive conflicts among 

jurisdictions and the impact of those conflicts 

on firms doing business internationally. As one 

panelist observed, 

[T]he growing proliferation of antitrust 

enforcement around the world, together 

with the globalization of business[,] creates 

increasing risk of conflict in the application 

of antitrust rules to single-firm conduct. 

These conflicts impose costs on firms and 

harm consumers and are becoming 

potential barriers to international trade.2 

In opening remarks at the hearings, 

Assistant Attorney General Thomas O. Barnett 

observed that single-firm business conduct is 

“at the forefront of people’s minds as we talk to 

officials on every continent.”3

 Then-FTC 

1 See EINER ELHAUGE & DAMIEN GERADIN, GLOBAL 

COMPETITION LAW AND ECONOMICS 53, 235 (2007). 

2 Sherman Act Section 2 Joint Hearing: Business 

Testimony Hr’g Tr. 127–28, Feb. 13, 2007 [hereinafter 

Feb. 13 Hr’g Tr.] (Heather);see also Sherman Act Section 

2 Joint Hearing: Business Testimony Hr’g Tr. 26, Jan. 30, 

2007 [hereinafter Jan. 30 Hr’g Tr.] (Heiner) 

(“Increasingly we see foreign agencies stepping uptheir 

antitrust enforcement . . . . And while that’s of course 

a useful thing, we may find that some of these agencies 

have differing interests, differing views as to how the 

antitrust laws should be applied.”). 

3 Sherman Act Section 2 Joint Hearing: Welcome 

Chairman Deborah Platt Majoras emphasized 

that it is “the most heavily discussed and 

debated area of competition policy in the 

international arena.”4 

The proliferation of antitrust regimes 

throughout the world—each with its 

own substantive laws, enforcement 

priorities, and policy objectives—has 

raised concerns about procedural and 

substantive conflicts among 

jurisdictions and the impact of those 

conflicts on firms doing business 

internationally, particularly with regard 

to single-firm conduct. 

This chapter addresses policy issues arising 

from the proliferation of diverse antitrust 

regimes around the world with respect to 

monopolization and abusive conduct by 

dominant firms. Part II considers various 

policy concerns that have arisen as a result of 

the diversity in approaches to single-firm 

conduct. Part III describes efforts to promote 

international convergence and cooperation, 

including the adoption of recommended 

practices for the assessment of substantial 

market power and dominance at the 2008 

meeting of the International Competition 

Network (ICN) in Kyoto, Japan. Part IV 

describes a number of initiatives the 

Department will explore to address the policy 

concerns identified at the hearings.

 II. Concerns Raised by the Diversity in

 Approaches to Single-Firm Conduct 

Virtually all antitrust laws contain provisions 

that address unilateral conduct by firms 

holding substantial market power. Although 

and Overview Hr’g Tr. 24, June 20, 2006 [hereinafter 

June 20 Hr’g Tr.] (Barnett). 

4 Id. at 10 (Majoras). 
 

 

166 SECTION 2 REPORT 

the terminology differs, the general 

requirements in most cases are similar: (1) the 

firm must have sufficient market power, and (2) 

the firm must have engaged in conduct that is 

“abusive,” “anticompetitive,” or “exclusionary.”5 

Like the United States, most jurisdictions do not 

regard monopoly in and of itself to be unlawful; 

rather, there must also be some anticompetitive 

conduct.6 Significant differences exist between 

the United States and other jurisdictions, 

however, as to how much market power is 

required,7

 what types of conduct are considered 

anticompetitive, the analytical frameworks 

used to determine if there is a violation, and 

enforcement policies.8

 Jurisdictions also have 

different institutional frameworks for enforcing 

their antitrust laws. 

The diversity of substantive laws and 

enforcement objectives pursued by competition 

regimes in different jurisdictions raises 

important policy concerns regarding singlefirm conduct. Individual jurisdictions, of 

course, should strive to make their own laws 

and enforcement policies clear and transparent. 

5 ELHAUGE & GERADIN, supra note 1, at 235. 

6 UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, DOMINANCE/SUBSTANTIAL 

MARKET POWER ANALYSIS PURSUANT TO UNILATERAL 

CONDUCT LAWS 1 (2007), available at http://www. 

internationalcompetitionnetwork.org/media/library/ 

unilateral_conduct/Unilateral_WG_1.pdf [hereinafter 

2007 ICN REPORT] (“All jurisdictions agree that 

unilateral conduct laws address specific conduct and its 

anticompetitive effects, rather than the mere possession 

of dominance/substantial market power or its creation 

through competition on the merits.”). 

7 See Feb. 13 Hr’g Tr., supra note 2, at 57–58 (Stern) 

(noting that foreign competition authorities generally 

have set the presumption of dominance at thirty-three 

to fifty percent, below “essentially the U.S. safe 

harbor”). See generally James F. Rill, Prepared Remarks 

of James F. Rill 7–11 (Sept. 12, 2006) (hearing 

submission) (discussing different national standards for 

defining dominance and the variance in the marketshare thresholds that suggest dominance and noting the 

differences in the evidentiary weight accorded to 

market-share data in different jurisdictions). 

8 See Brian A. Facey & Dany H. Assaf, 

Monopolization and Abuse of Dominance in Canada, the 

United States, and the European Union: A Survey, 70 

ANTITRUST L.J. 513, 523–29 (2002). 

Beyond this, there is a recognized need both to 

reduce conflicts in the way laws governing 

single-firm conduct are applied globally and to 

ensure that one jurisdiction’s remedies do not 

have undue, adverse spillover repercussions 

elsewhere. 

The basic problem is that antitrust laws are 

national (or regional) but markets are 

increasingly global. As one panelist observed, 

We live and work in an era characterized 

by increasingly globalized markets and 

increasing concentration levels [in] many 

sectors. Ensuring the “right” approach to 

assessing allegations of abuse [of] 

dominance in this context is critical. . . . [I]t 

also poses a challenge to competition 

agencies attempting to apply domestic 

antitrust laws to business markets that are 

global and business practices which are 

globalizing.9 

The basic problem is that antitrust laws 

are national (or regional) but markets 

are increasingly global. 

While there has been notable success in 

achieving international convergence in cartel 

and merger-enforcement policies,10 the same is 

less true of single-firm conduct policies. 

Panelists voiced a number of interrelated 

concerns, which are discussed below. 

9 George N. Addy, Speaking Notes 1–2 (Sept. 12, 

2006) (hearing submission); see also Sherman Act Section 

2 Joint Hearing: International Issues Hr’g Tr. 119, Sept. 

12, 2006 [hereinafter Sept. 12 Hr’g Tr.] (Lugard) (stating 

that “the need for convergence in this specific area 

[unilateral conduct] is most pressing, because different 

and inaccurate standards for exclusionary conduct 

involving firms with significant market power . . . are 

most likely to defeat procompetitive conduct . . . that 

ultimately benefits consumers”). 

10 See Sherman Act Section 2 Joint Hearing: Conduct 

as Related to Competition Hr’g Tr. 138, May 8, 2007 

[hereinafter May 8 Hr’g Tr.] (Rill); R. Hewitt Pate, 

Assistant Attorney Gen., U.S. Dep’t of Justice, Antitrust 

in a Transatlantic Context—From the Cicada’s 

Perspective (June 7, 2004), available at http://www. 

usdoj.gov/atr/public/speeches/203973.pdf. 
 

AN INTERNATIONAL PERSPECTIVE 167 

A. Concerns About Uncertainty, 

Chilling Procompetitive Conduct, 

and Forum Shopping 

As discussed in chapter 1, single-firm conduct 

presents especially challenging analytical issues 

because it is often difficult to distinguish 

between aggressive competition that should be 

encouraged and competitively harmful conduct 

that should be condemned. Thus, even within 

any given jurisdiction, it may be difficult for 

firms to determine what conduct is forbidden, 

and to fashion their conduct accordingly. At 

the same time, in light of the potentially 

significant remedies, when a firm “gets it 

wrong,” the consequences may be severe. 

This uncertainty is multiplied when a firm 

does business throughout the world and must 

take into account the laws and enforcement 

policies of numerous jurisdictions. As one 

panelist observed, “[T]he different approaches 

of the different antitrust agencies across the 

world provide a daunting task to the ability of 

multinational firms, firms practicing and doing 

business, operating in more than one 

jurisdiction, to plan business strategies with 

any confidence that they will avoid antitrust 

challenge.”11 He further observed that “[t]here 

has not been nearly the progress towards 

certainty, transparency, much less convergence, 

in the area of single-firm conduct as in, for 

example . . . the case of horizontal mergers.”12 

In his view, there is a “crying need . . . for 

transparency, at a minimum certainty, and at 

least some mechanisms for the ability of 

agencies to achieve, in time, convergence in 

11 Sept. 12 Hr’g Tr., supra note 9, at 126–27 (Rill); see 

also Jan. 30 Hr’g Tr., supra note 2, at 25–27 (Heiner) 

(describing difficulties in making product-design 

decisions, taking into account views of different 

enforcers applying different legal standards); id. at 95 

(Hartogs) (noting, in particular, uncertainties in 

connection with bundled and loyalty discounts, where 

“you lack clarity here, you lack clarity in Europe”); 

Sept. 12 Hr’g Tr., supra note 9, at 10 (Lowe) (“The 

application of Article 82 was . . . widely criticized as 

being fragmented without guiding principles and for 

applying in some instances general form-based criteria 

whose meaning was not always clear . . . .”). 

12 Sept. 12 Hr’g Tr., supra note 9, at 128 (Rill). 

single-firm . . . conduct across borders.”13 

Another panelist similarly emphasized the 

high costs of attempting to comply with rules 

that are often unclear and vary significantly 

from jurisdiction to jurisdiction.14 

A number of panelists emphasized that the 

problem of uncertainty is far more serious in 

many other jurisdictions than it is in the United 

States.15 It is critical that enforcement agencies 

from all jurisdictions ensure that their own 

laws and enforcement policies with regard to 

single-firm conduct are as clear and 

transparent as possible.16 

13 Id. at 127–28 (Rill). 

14 See Feb. 13 Hr’g Tr., supra note 2, at 209–10 

(Sewell) (“Intel expends an enormous amount of 

resources, legal resources, trying to figure out where 

these lines are and trying to make sure that we . . . can 

defend everything that we do if challenged.”); id. at 215 

(“[T]he disharmony and the lack of convergence 

represent[] a substantial and significant cost for us, and 

that cost could be alleviated or at least substantially 

reduced if we had greater consistency among the 

various laws.”). 

15 See, e.g., Sherman Act Section 2 Joint Hearing: 

Section 2 Policy Issues Hr’g Tr. 24–25, May 1, 2007 

[hereinafter May 1 Hr’g Tr.] (Calkins) (contrasting 

United States with “the very, very different standards 

in other parts of the world, where agencies care about 

firms that have market shares that are somewhere 

below 50 percent”); Feb. 13 Hr’g Tr., supra note 2, at 

52–53 (Stern) (counseling in United States is relatively 

easy compared to some other jurisdictions with lower 

dominance thresholds and the concept of collective 

dominance); id. at 57–60; id. at 83 (Sheller) (“[W]e don’t 

seem to have too much difficulty identifying the market 

monopoly power threshold, in the U.S. anyways. That 

becomes more of a challenge when we counsel clients 

outside the U.S.”); Jan. 30 Hr’g Tr., supra note 2, at 38 

(Heiner) (“[F]or everything I’ve said about 

predictability, U.S. law is more predictable than 

European law and the law of other countries with their 

emerging antitrust regimes.”). 

16 See, e.g., Feb. 13 Hr’g Tr., supra note 2, at 47 (Stern) 

(“Now increasingly, as the economy globalizes, it’s not 

sufficient that the U.S. rules are clear. The rules 

adopted by other jurisdictions will of course affect U.S. 

commerce.”); Sept. 12 Hr’g Tr., supra note 9, at 120 

(Lugard) (“[T]here is an urgent need for the two key 

jurisdictions, the EC and U.S., to align their approach 

towards unilateral firm behavior. But I believe that 

there is an even clearer and more urgent need to first 

develop a coherent and clear framework [for] analysis 

in both of the home jurisdictions.”). 
168 SECTION 2 REPORT 

It is critical that enforcement agencies 

from all jurisdictions ensure that their 

own laws and enforcement policies 

with regard to single-firm conduct are 

as clear and transparent as possible. 

Panelists expressed concern about how 

multiple layers of enforcement may chill 

procompetitive conduct. As one panelist from 

Canada observed, “The risk of chill is real and 

the economic costs associated with the 

inappropriate or inadvertent chilling of 

legitimately competitive conduct is, in my 

view, significant although I acknowledge it’s 

very, very difficult to measure.”17 He 

continued: 

The unwanted chill not only affects parties 

who may be the target of some 

proceedings, but extends far beyond those 

individual firms to other observers of 

market behaviour, including other market 

participants or participants in different 

markets. They not only see the outcome of 

the proceeding at issue but they also 

observe the costs, uncertainty and 

disruption associated with lengthy and 

protracted litigation dealing with those 

issues.18 

At the same time, concern about differing 

international antitrust standards chilling 

procompetitive behavior must be balanced by 

potential gains for consumers that would come 

from the interaction among different enforcers 

with different standards. One of the business 

panelists expressed the view that “in a world 

that is changing rapidly and globalizing, it’s 

very . . . appropriate to step back and take . . . a 

fresh look at the policy objectives that underlie 

antitrust law and policy and enforcement,” and 

“it is likewise appropriate that that be a global 

debate.”19 Thus, in his view, while “the issue of 

harmonization across . . . borders . . . [is] very 

17 Addy, supra note 9, at 5; see also Sept. 12 Hr’g Tr., 

supra note 9, at 111 (Bloom) (“[T]he U.S. is right to be 

duly nervous about false positives. I think in Europe 

we’re a bit too ready to intervene too often.”). 

18 Addy, supra note 9, at 6. 

19 Jan. 30 Hr’g Tr., supra note 2, at 179 (McCoy). 

important,”20 “intellectual competition” among 

competition agencies is healthy rather than 

cause for serious concern.21 

Nevertheless, an oft-repeated particular 

concern is that legal advisors to firms doing 

business globally may base their advice on the 

“lowest common denominator,” that is, the 

rules of the most restrictive jurisdiction. 

Several panelists suggested that this may be so. 

One panelist explained, “We find ourselves 

trying to determine what is the most restrictive 

set of rules under which we should do our 

analysis and guide our conduct.”22 Another 

panelist concurred: “It’s very much a global 

business. . . . And so we do find ourselves kind 

of looking to what’s the most restrictive set of 

rules. And that’s what we have to adhere to.”23 

Yet another observed, “[T]here’s a definite 

threat of a chill, the least common denominator 

approach in business counseling that can 

discourage procompetitive business activity 

and adversely affect consumer welfare.”24 

20 Id. at 193. 

21 Id. at 194. 

22 Id. at 93 (Hartogs). 

23 Id. at 94–95 (Heiner); see also Feb. 13 Hr’g Tr., supra 

note 2, at 85–86 (Sheller) (describing mix of 

decentralized and centralized advice at Kodak 

depending on the localized or global nature of the 

business); id. at 86–90 (Stern) (noting that at GE “[t]here 

are a number of businesses we’re in that are truly global 

businesses where you really need to counsel on a global 

basis rather than individualize”); id. at 90–91 (Sheller) 

(noting that “assuming that we can give the green light 

from a U.S. antitrust perspective, then the next step 

would . . . be to look at whether there are nuances 

under European law that might create a problem”); id. 

at 129 (Heather) (noting that “the impact of competition 

decisions by any given enforcement agency . . . [is] 

forcing firms to conform their behavior to the most 

restrictive enforcement policies”); id. at 213 (Sewell) 

(describing how Intel approaches antitrust compliance 

taking into account different laws of multiple 

jurisdictions); Sept. 12 Hr’g Tr., supra note 9, at 148–49 

(Lugard) (stating that decentralization, while possible 

in many cases, is likely to be costly and sub-optimal). 

24 Sept. 12 Hr’g Tr., supra note 9, at 127 (Rill). But cf. 

id. at 149 (Addy) (“[T]he notion that there’s a huge 

impediment to business there, I’m not convinced yet,” 

except for intellectual property.). 
 

 

 

 

AN INTERNATIONAL PERSPECTIVE 169 

One concern is that legal advisors to 

firms doing business globally may base 

their advice on the “lowest common 

denominator,” that is, the rules of the 

most restrictive jurisdiction. 

The problem may be most acute in hightechnology areas involving product design and 

intellectual property.25 Product-design decisions, 

for example, may be based not on optimal 

functionality, but rather on antitrust advice keyed 

to the requirements of the most restrictive 

antitrust regimes. This can impede innovation, 

lead to substantially higher research and 

development costs, and risk chilling 

procompetitive, pro-consumer conduct.26 

Panelists also expressed concern about 

forum shopping. One panelist observed, 

“[T]here’s a real tendency . . . for competitors 

who are hurt by efficiency and procompetitive 

conduct to engage in forum shopping”27—“trying 

to game the system, to do forum shopping, to 

take a number of whacks at the piñata, to try 

25 See, e.g., Feb. 13 Hr’g Tr., supra note 2, at 126 

(Heather) (“It is important to remember that new 

products and new business practices are developed 

well ahead of their actual introduction and ahead of 

any scrutiny by antitrust regulators. Firms do want to 

obey the rules of the road, but discerning and applying 

those rules is becoming increasingly difficult.”); Jan. 30 

Hr’g Tr., supra note 2, at 30–31 (Heiner) (“[I]t’s often 

quite difficult to undo a design decision.”); Sept. 12 

Hr’g Tr., supra note 9, at 139 (Lugard) (“There is a real 

chill factor in particular in high technology markets.”); 

id. at 150–51 (Bloom) (“[I]f you are talking about 

discounts, then it would be possible to have a different 

discount structure in different jurisdictions. . . . But for 

IP or the criteria of products, it may well not be possible 

to differentiate between jurisdictions.”); id. at 160 

(Addy) (noting problem of enforcement agencies 

second-guessing business decisionsmade years earlier). 

26 See, e.g., May 1 Hr’g Tr., supra note 15, at 152 

(Elhauge) (discussing why there is more reason to be 

worried about false positives in global markets); Feb. 13 

Hr’g Tr., supra note 2, at 90 (Stern) (“[T]he concern that 

I was trying to express about the need to address this 

globally is that U.S. legal clarity at least in a number of 

areas, could be overridden by a lack of clarity or by 

overly restrictive rules outside the U.S. and the harm 

could come to U.S. consumers as well as those in other 

areas.”); Jan. 30 Hr’g Tr., supra note 2, at 35–36 (Heiner). 

27 Sept. 12 Hr’g Tr., supra note 9, at 127 (Rill). 

and play on divergence to find an agency 

somewhere that will accept their complaint.”28 

Another panelist echoed this concern, 

observing that “[i]ncreasingly we see foreign 

agencies stepping up their antitrust 

enforcement . . . . [S]ome of these agencies have 

differing interests, differing views as to how the 

antitrust laws ought to be applied. . . . With the 

stepped up enforcement, we have the prospect 

of forum shopping. And that clearly is going 

on.”29 Another noted that “the proliferation of 

competition regimes around the world has also 

driven an increase not only in knowledge of the 

law but also an increased understanding of 

possible strategic use of those laws. Parties 

threaten to initiate antitrust complaint 

mechanisms to extract commercial concessions.”30 

“[T]here’s a real tendency . . . for 

competitors who are hurt by efficiency 

and procompetitive conduct to engage 

in forum shopping.” 

Another panelist observed that the problem 

is not so much one of forum shopping for the 

jurisdiction with the lowest enforcement 

standard but rather the potential for multiple 

reviews by different agencies: “Multiple 

reviews ensure that we are going to have a bias 

in the system in favor of false positives because 

the second review can cure a false negative but 

there is nothing that can cure a false positive.”31 

B. Concern About Conflicting 

Remedies and Spillover Effects 

Other panelists expressed concern about the 

prospect of inconsistent remedies being 

imposed upon firms doing business globally.32 

28 Id. at 145. 

29 Jan. 30 Hr’g Tr., supra note 2, at 26–27 (Heiner). 

30 Addy, supra note 9, at 5. 

31 May 8 Hr’g Tr., supra note 10, at 143 (Melamed). 

32 See, e.g., id. at 144 (Muris) (contrasting mergers, 

where “you can have multiple reviews and it is 

basically okay because you can sell off parts,” with “the 

dominance area, [where] the most aggressive remedy 

tends to dominate”); Feb. 13 Hr’g Tr., supra note 2, at 

130 (Heather) (noting “the growing potential for 

conflict and the costs and burdens associated with it” 
 

170 SECTION 2 REPORT 

Even when remedies are not actually in conflict, 

there can be spillover effects to consider. 

Although some remedies, such as most fines, 

may have less direct impact outside the 

jurisdiction in which they are imposed, other 

remedies, such as mandatory sharing or 

licensing of intellectual property, may have 

global repercussions.33 

Although some remedies, such as most 

fines, may have relatively little impact 

outside the jurisdiction in which they 

are imposed, other remedies, such as 

mandatory sharing or licensing of 

intellectual property, may have global 

repercussions. 

One panelist cautioned, “I think we need to 

pay close attention to the whole issue of 

compulsory access to intellectual property, 

because that is the area in which decisionmaking by one competition authority can have 

the greatest spillover effects on other 

economies.”34 Another observed, 

When you think about intellectual property, 

if you have as enforcement and remedy a 

disclosure of intellectual property, you 

can’t contain that [disclosure] within a 

geographical jurisdiction of France or the 

and observing that “Microsoft has been subject to three 

different sets of remedies in three different jurisdictions 

for what is essentially similar conduct”); Jan. 30 Hr’g 

Tr., supra note 2, at 35 (Heiner) (stating that European 

Union (EU) relief “will prevail” over U.S. relief in 

Microsoft because EU relief is “more restrictive”); Sept. 

12 Hr’g Tr., supra note 9, at 166 (Bloom) (noting that 

there may be situations where “one jurisdictionrequires 

something of a company which then conflicts with a 

remedy that’s required in another jurisdiction”). 

33 See, e.g., Feb. 13 Hr’g Tr., supra note 2, at 38 

(Sheller) (observing that “obstacles to [Kodak’s] ability 

to monetize our intellectual property investments exists 

in the form of cases . . . where the [European] 

Commission required compulsory licensing by 

intellectual property owners”); Jan. 30 Hr’g Tr., supra 

note 2, at 35 (Heiner) (compulsory licensing creates “a 

greater uncertainty as to whether the IP can be properly 

monetized”); Sept. 12 Hr’g Tr., supra note 9, at 136–37 

(Addy) (noting that intellectual property represents a 

“big, big problem”). 

34 May 1 Hr’g Tr., supra note 15, at 18 (Kolasky). 

EU. Once . . . the proverbial cat’s out of the 

bag, it spreads quickly across the rest of the 

known world.35 

III. The Way Forward: Efforts to Encourage

 Convergence and Cooperation

 in the Area of Single-Firm Conduct 

Multi-jurisdictional enforcement of antitrust 

laws poses considerable challenges. Today’s 

challenges are an outgrowth of several factors. 

First, many firms increasingly do business 

globally. Second, the world has largely 

adopted the long-held U.S. position basing 

jurisdiction on effects rather than on the situs of 

the conduct, which means that conduct with 

effects in multiple jurisdictions can be 

challenged in multiple jurisdictions. Third, 

there has been a proliferation of antitrust 

regimes throughout the world, which, as they 

become more established and more fully 

staffed, are better able to challenge conduct 

they find objectionable. 

These forces will endure, and the 

Department recognizes that there are no easy 

solutions for the challenges they present. Yet, 

steps can be taken to manage these challenges 

effectively. In recent years, there have been a 

variety of policy proposals to encourage more 

consistency in antitrust laws and enforcement 

across jurisdictions. 

Probably the most radical solution, 

recommended by a limited number of 

commentators, is an international competition 

regime with authority to enforce uniform 

competition rules.36 Some have suggested that 

an international organization, such as the 

World Trade Organization, could assume this 

role.37 However, others view any kind of 

35 Feb. 13 Hr’g Tr., supra note 2, at 194 (Heather). 

36 See, e.g., Andrew T. Guzman, Antitrust and 

International Regulatory Federalism, 76 N.Y.U. L. REV. 

1142, 1142–43 (2001). 

37 See generally Frederic Jenny, Globalization, 

Competition and Trade Policy: Convergence, Divergence 

and Cooperation, in INTERNATIONAL AND COMPARATIVE 

COMPETITION LAW AND POLICIES 31, 56–67 (Yang-Ching 

Chao et al. eds., 2001) (discussing the pros and cons of 

establishing a multilateral framework for competition 

consistent with WTO principles of transparency and 
 

 

AN INTERNATIONAL PERSPECTIVE 171 

international regime as unrealistic and 

undesirable and instead urge “soft 

harmonization” policies, seeking voluntary 

convergence in substantive laws and 

cooperation between enforcement agencies to 

reduce the costs and burdens of enforcement 

both to businesses and competition agencies.38 

In accordance with the recommendations 

contained in the 2000 International Competition 

Policy Advocacy Commission Report, the 

Department has supported the latter policy.39 

The Department’s primary initiatives are 

focused on (1) bilateral cooperation with 

competition agencies abroad, (2) active 

participation in multilateral fora, and (3) 

non-discrimination). 

38 See, e.g., Kerrin M. Vautier, International 

Approaches to Competition Laws: Government Cooperation 

for Business Competition, in INTERNATIONAL AND 

COMPARATIVE COMPETITIONLAWSAND POLICIES 187, 188 

(Yang-Ching Chao et al. eds., 2001) (concluding that 

“there is little, if any, prospect of a single workable 

approach to transnational competition issues, let alone 

prospect of multilateral competition rules and supranational enforcement”); Diane P. Wood, Cooperation and 

Convergence in International Antitrust: Why the Light Is 

Still Yellow, in COMPETITION LAWS IN CONFLICT 177, 179 

(Richard A. Epstein & Michael S. Greve eds., 2004) 

(suggesting a “need to exercise caution before we take 

the leap into a formal international antitrust regime” 

and asserting that “there’s a better way forward, which 

involves education, consensus building in a voluntary 

environment, and targeted cooperation with likeminded countries”); id. at 186. 

39 See INT’L COMPETITION POLICYADVISORY COMM’N, 

FINAL REPORT 26 (2000), available at http://www. 

usdoj.gov/atr/icpac/finalreport.htm (concluding that 

“efforts at developing a harmonized and 

comprehensive multilateral antitrust code administered 

by a new supranational competition authority or the 

WTO [are] both unrealistic and unwise” and 

recommending instead efforts to promote soft 

convergence); id. at 35 (recommending that the 

Department work toward increased transparency and 

accountability of government actions; expanded and 

deeper cooperation between U.S. and foreign 

competition enforcement agencies; and greater soft 

harmonization and convergence of systems); see also 

Vautier, supra note 38, at 199 (noting that “the U.S. . . . 

resists a multilateral approach to competition law” and 

instead “favors bilateral cooperation agreements, these 

being an integral feature of U.S. strategy for 

internationalizing antitrust”). 

provision of technical assistance to new 

competition regimes. 

A. Bilateral Cooperation 

The federal antitrust enforcement agencies 

and foreign competition agencies have 

developed an extensive network of cooperative 

relationships, some of which are based on 

bilateral cooperation agreements. The United 

States currently has formal bilateral 

cooperation agreements with eight 

jurisdictions: Germany (1976); Australia (1982); 

the European Communities (1991); Canada 

(1995); Brazil, Israel, and Japan (1999); and 

Mexico (2000).40 Although these agreements 

are not identical, they generally require the 

signatories to notify one another about antitrust 

enforcement activities that affect the other’s 

interests, to cooperate and coordinate with one 

another in investigations, and to consult with 

one another about matters that arise under the 

agreements. All the agreements contain 

traditional comity provisions, and most, 

including those with the EU, contain positivecomity provisions as well.41 The federal 

antitrust enforcement agencies also cooperate 

extensively with other competition agencies 

under the Organisation for Economic CoOperation and Development (OECD) 

recommendation on antitrust cooperation42 and 

40 See generally 2 SECTION OF ANTITRUST LAW, AM. 

BAR ASS’N,ANTITRUST LAW DEVELOPMENTS 1261–63 (6th 

ed. 2007) (discussing bilateral cooperation agreements); 

U.S. Dep’t of Justice, Antitrust Cooperation 

Agreements, http://www.usdoj.gov/atr/public/ 

international/int_arrangements.htm (compiling these 

agreements). 

41 Traditional (or negative) comity requires an 

enforcement agency in country A, when enforcing its 

law, also to take into account important interests of 

country B. Positive comity allows one country’s 

enforcement agency to request another country’s 

agency to initiate an enforcement action within its 

jurisdiction when the conduct at issue harms the 

requesting country and would be illegal in the 

requested jurisdiction. 

42 ORGANISATION FOR ECON. CO-OPERATION & DEV., 

REVISED RECOMMENDATION OF THE COUNCIL 

CONCERNING CO-OPERATION BETWEEN MEMBER 

COUNTRIES ON ANTICOMPETITIVE PRACTICES AFFECTING 

INTERNATIO NAL TRADE (1995), available at 
 

 

172 SECTION 2 REPORT 

with still other agencies through informal 

arrangements. 

Pursuant to these agreements, and even 

without an agreement, antitrust agencies 

cooperate both on individual cases and on 

general competition policy issues. This 

cooperation may include sharing appropriate 

information to facilitate investigations. In some 

enforcement areas, such as mergers, the parties 

also routinely waive restrictions on the sharing 

of their confidential information to facilitate 

cross-agency cooperation.43 Waivers have been 

valuable to the Department and also can benefit 

the parties by reducing document production 

burdens and helping to reduce inconsistent 

outcomes and incompatible remedies. Such 

waivers, however, are not as common in cases 

involving single-firm conduct.44 

Additionally, the Department works with its 

counterparts abroad to promote policy 

convergence on broader competition issues. 

For example, Department officials attended the 

European Commission’s hearings on the 

Directorate General for Competition (DGComp) Discussion Paper on the Application of 

Article 82 of the Treaty to Exclusionary 

Abuses,45 in addition to engaging in informal 

discussions with the EC about the Discussion 

Paper. Similarly, the Director-General of DGComp, Philip Lowe, testified at the hearing on 

international issues, along with Hideo 

Nakajima, then-Deputy Secretary General of 

the Japan Fair Trade Commission, Eduardo 

Pérez Motta, Chairman of Mexico’s Federal 

Commission on Competition, and Sheridan 

Scott, Commissioner of Competition from 

Canada’s Competition Bureau.46 Additionally, 

http:/www.oecd.org/dataoecd/60/42/21570317.pdf. 

The OECD’sCompetition Committee has long served as 

an important consultative body for countries with 

competition regimes as well as a source of technical 

assistance to jurisdictions enacting new antitrust laws. 

43 See INT’L COMPETITION NETWORK, WAIVERS OF 

CONFIDENTIALITY IN MERGER INVESTIGATIONS (n.d.), 

available at http://www.international competition 

network.org/media/archive0611/NPWaiversFinal.pdf. 

44 See infra Part IV. 

45 See June 20 Hr’g Tr., supra note 3, at 10–11 (Majoras). 

46 See Sept. 12 Hr’g Tr., supra note 9, at 8–23 (Lowe); 

the U.S., Mexican, and Canadian agencies have 

formed informal working groups to discuss 

issues involving intellectual property and 

single-firm conduct. Although such initiatives 

cannot guarantee that competition agencies in 

different jurisdictions will reach consistent 

decisions in individual cases,47 they have been 

important in fostering increased understanding 

of the issues and in facilitating constructive 

dialogue among regimes with somewhat 

different approaches. 

The Department and the FTC also have 

devoted substantial resources to working with 

China on its Antimonopoly Law, which became 

effective on August 1, 2008. Officials of both 

agencies frequently have shared their 

experience with officials in China involved in 

developing the law, with the objective of 

creating a legal framework consistent with 

sound competition principles, and have 

conducted training workshops. The Department 

expects to continue consulting with the Chinese 

authorities and to provide additional technical 

assistance as China implements its new law. 

B. Participation in

 International Organizations 

The Department and the FTC also actively 

participate in international organizations that 

have facilitated dialogue and sponsored 

programs on competition issues. Two 

international organizations—the ICN48 and the 

id. at 24–38 (Nakajima); id. at 39–49 (Pérez Motta); id. at 

50–66 (Scott). 

47 See Feb. 13 Hr’g Tr., supra note 2, at 139 (Heather) 

(“While existing bilateral agreements and the existing 

application of comity principles have certainly been 

useful, they have limitations, as illustrated by the 

inconsistent remedies imposed by the U.S., E.U., and 

enforcement authorities in the Microsoft matter.”). 

48 The ICN was launched in 2001 by the 

Department, the FTC, and fourteen other antitrust 

enforcement agencies. Its membership now includes 

virtually all competition enforcement agencies around 

the world. Open only to competition agencies, the ICN 

exists as a virtual network of enforcers; it has no 

permanent staff and operates through working groups 

comprising government enforcement officials as well as 

advisors from academia, the legal community, and 

business groups. The ICN seeks to promote greater 

substantive and procedural convergence among 
AN INTERNATIONAL PERSPECTIVE 173 

OECD49—have played an especially pivotal role 

in fostering cross-border understanding and 

cooperation among competition regimes 

throughout the world in the area of single-firm 

conduct. The Department and the FTC have 

actively supported, and taken lead roles in, 

both of these organizations.50 

The Department and the FTC have 

actively supported, and taken a leading 

role in, multilateral organizations, such 

as the ICN and the OECD. 

In 2006, the ICN established a Unilateral 

Conduct Working Group (UCWG) to promote 

convergence and sound enforcement of laws 

governing single-firm conduct. In its first two 

years, the working group has tackled difficult 

issues and made significant progress. The 

group’s work on a set of recommended 

practices for the assessment of substantial 

market power and dominance under unilateralconduct laws particularly stands out. These 

antitrust authorities around the world toward sound 

competition policies and to provide support for new 

antitrust agencies both in enforcing their laws and in 

building strong competition cultures. The ICN has had 

considerable success in fostering multi-jurisdictional 

cooperation and convergence on both substance and 

procedure. 

49 The OECD has promoted convergence both in 

substantive analysis and competition policy by issuing 

reports, sponsoring roundtable discussions, and 

providing a forum where enforcers can meet and 

discuss competition issues. It has also published nonbinding recommendations, including one thatprovided 

a basis for the bilateral cooperation agreements. See 

supra Part III(A). 

50 The Department co-chairs the ICN’s Merger 

Working Group and co-chairs a sub-group of the Cartel 

Working Group; the FTC co-chairs the ICN’s working 

group on unilateral conduct and chairs the Merger 

Working Group’s subgroup on notification and 

procedures. Over the years, Assistant Attorneys 

General have often been elected by OECD members to 

chair the OECD Competition Committee’s Working 

Party No. 3 on Enforcement and Cooperation; Assistant 

Attorney General Thomas O. Barnett currently chairs 

the Working Party. Senior officials of both agencies 

participate actively in these organizations and in their 

activities devoted to single-firm conduct issues. See, 

e.g., June 20 Hr’g Tr., supra note 3, at 11 (Majoras). 

recommended practices, which were adopted 

by all ICN members at the ICN’s annual 

conference in Kyoto, Japan, in April 2008, 

represent significant convergence on important 

points regarding the assessment of substantial 

market power and dominance and also will 

serve as a helpful guide to new competition 

agencies as they formulate their policies in this 

area. Specifically, the recommended practices 

are: 

1. Agencies should use a sound analytical 

framework firmly grounded in economic 

principles in determining whether 

dominance/substantial market power 

exists. 

2. A firm should not be found to possess 

dominance or substantial market power 

without a comprehensive consideration 

of factors affecting competitive conditions 

in the market under investigation. 

3. Market shares of the firm under 

investigation and its existing competitors, 

including their development during the 

past years, should be used as an 

indication or starting point for the 

dominance/substantial market power 

analysis. 

4. Agencies should give careful consideration 

to the calculation of market shares. 

5. It can be beneficial to use market-share 

based thresholds as a safe harbor. 

6. It can be beneficial to use market-share 

based thresholds as an indicator of 

dominance/substantial market power. 

7. The assessment of durability of market 

power, with a focus on barriers to entry 

or expansion, should be an integral part 

of the analysis of dominance/substantial 

market power. 

8. As appropriate in the specific 

circumstances of a particular case, agencies 

should use further criteria to analyze 

dominance/substantial market power. 

9. The analytical framework used to assess 

market power is the same in small 

and/or isolated economies, but market 

factors may result in more limited 
 

174 SECTION 2 REPORT 

competition. 

10. Agencies should seek to make their 

dominance/substantial market power 

assessments transparent, subject to the 

appropriate protection of confidential 

information.51 

In addition to the recommended practices on 

dominance or substantial market power, the 

UCWG issued recommended practices on the 

application of unilateral-conduct rules to statecreated monopolies52 and has released a series 

of reports on member agencies’ laws, policies, 

and enforcement practices in various areas of 

single-firm conduct.53 These reports, which are 

based on questionnaire responses submitted by 

members and non-governmental advisors, 

address the following topics: (1) the objectives 

of unilateral-conduct laws,54 (2) the assessment 

51 2007 ICN REPORT, supra note 6, at 2–7. 

52 UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, STATE-CREATED MONOPOLIES 

ANALYSIS PURSUANT TO UNILATERAL CONDUCT LAWS: 

RECOMMENDED PRACTICES (n.d.), available at 

http://www.internationalcompetitionnetwork.org/ 

media/library/ unilateral_conduct/ Unilateral_WG_2.pdf. 

53 UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, REPORT ON THE OBJECTIVES OF 

UNILATERAL CONDUCT LAWS, ASSESSMENT OF 

DOMINANCE/SUBSTANTIAL MARKET POWER, AND STATE 

CREATED MONOPOLIES (2007), available at 

http://www.internationalcompetitionnetwork.org/ 

media/library/unilateral_conduct/Objectives%20of 

%20Unilateral%20Conduct%20May%2007.pd f 

[hereinafter ICNREPORT ONMARKET POWER AND STATECREATED MONOPOLIES]; UNILATERAL CONDUCT 

WORKINGGROUP, INT’L COMPETITION NETWORK,REPORT 

ON PREDATORY PRICING(2008), available at http://www. 

internationalcompetitionnetwork.org/media/library/ 

unilateral_conduct/FINALPredatoryPricingPDF.pdf 

[hereinafter ICN REPORT ON PREDATORY PRICING]; 

UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, REPORT ON SINGLE 

BRANDING/EXCLUSIVE DEALING (2008), available at 

http://www.internationalcompetition network. 

org/media/library/unilateral_conduct/ Unilateral_ 

WG_4.pdf [hereinafter ICN REPORT ON SINGLE 

BRANDING/EXCLUSIVE DEALING]. 

54 An ICN report noted that the majority of 

respondents identified consumer welfare, efficiency, 

and ensuring an effective competitive process as 

objectives of unilateral-conduct rules. See ICN REPORT 

ON MARKET POWER AND STATE-CREATED MONOPOLIES, 

of dominance and substantial market power, (3) 

state-created monopolies, (4) predatory pricing, 

and (5) exclusive dealing.55 

The UCWG plans to study members’ 

approaches to tying, bundling, and singleproduct loyalty rebates during the upcoming 

year, and it will host a unilateral-conduct 

workshop in Washington, DC, on March 23–24, 

2009. 

The OECD Competition Committee also 

has focused on issues relating to single-firm 

conduct. It has sponsored a series of 

roundtables on abuse of dominance. Its efforts 

have culminated in reports on predatory 

foreclosure, competition on the merits, barriers 

to entry, remedies and sanctions, unilateral 

refusals to deal, and bundled and loyalty 

discounts.56 These reports have played an 

supra note 53, at 38. However, unlike the United States, 

where these are the only goals, certain respondents 

identified additional goals, including, for example, 

promoting fairness and equality within markets and 

ensuring a level playing field for small and mediumsized enterprises. See id. at 17–18. Interestingly, there 

appeared to be no support for the proposition that 

promoting industrial-policy goals is an appropriate 

objective. See id. at 31. 

55 The information on substantial market power and 

dominance assessment and state-created monopolies in 

an ICN report formed the basis for the 2008 

recommended practices. The report on predatory 

pricing confirmed that, when analyzing possible 

predatory-pricing conduct, virtually all agenciesrequire 

that prices be below cost for there to be a violation. The 

report also showed that agencies take into account some 

or all of the following factors: (1) recoupment of losses, 

(2) competitive effects such as foreclosure or consumer 

harm, (3) predatory intent, and (4) justifications or 

defenses that offer pro-competitive rationales for the 

conduct. See ICNREPORT ON PREDATORY PRICING, supra 

note 53, at 3. The exclusive-dealing report identified 

four factors that agencies generally consider in 

evaluating exclusive dealing under single-firm conduct 

rules: (1) the existence of an exclusive-dealing 

arrangement, (2) the existence of substantial market 

power or dominance, (3) competitive effects, and (4) 

procompetitive justifications or defenses. See ICN 

REPORT ON SINGLE BRANDING/EXCLUSIVE DEALING, 

supra note 53, at 3. 

56 See Organisation for Economic Co-Operation & 

Dev., Best Practice Roundtables on Competition Policy, 

http://www.oecd.org/document/38/0,3343,en_2649_ 

37463_2474918_1_1_1_37463,00.html (last visited Aug. 
AN INTERNATIONAL PERSPECTIVE 175 

important role in furthering cross-border 

understanding of policy issues in these areas. 

C. Provision of Technical Assistance 

The Department and the FTC provide 

technical assistance to countries establishing 

new competition regimes, largely through 

funding by the U.S. Agency for International 

Development. The programs, which began in 

the early 1990s in Central and Eastern Europe, 

are active in many areas of the world, including 

Southeast Asia, Russia, India, Egypt, South 

Africa, and Central America. Since 1991, the 

Department and the FTC have conducted 

approximately four hundred technicalassistance missions, some short-term and others 

longer-term, in scores of countries. In 

numerous countries, the agencies have also 

maintained resident advisors to assist in 

developing antitrust laws.57 

In its recent report, the Antitrust 

Modernization Commission (AMC) reported 

that technical-assistance programs have been 

effective and recommended that they receive 

direct funding in the future.58 Congress 

considered this recommendation, and, in fiscal 

year 2008, the FTC was granted supplemental 

funds to be distributed to a number of 

activities, including technical assistance for 

both competition and consumer protection.59 

6, 2008). 

57 See generally FED. TRADE COMM’N & U.S. DEP’T OF 

JUSTICE, U.S. FEDERAL TRADE COMMISSION’S AND 

DEPARTMENT OF JUSTICE’S EXPERIENCE WITH TECHNICAL 

ASSISTANCE FOR THE EFFECTIVE APPLICATION OF 

COMPETITION LAWS (2008), available at http://ftc.gov/ 

oia/wkshp/docs/exp.pdf; Federal Trade Commission, 

InternationalTechnical Assistance, http://ftc.gov/oia/ 

assistance.shtm. 

58 ANTITRUST MODERNIZATIONCOMM’N,REPORT AND 

RECOMMENDATIONS 219 (2007), available at http://gov 

info.library.unt.edu/amc/report_recommendation/ 

amc_final_report.pdf. 

59 See generally 153 CONG. REC. H15741, H16054 

(daily ed. Dec. 17, 2007) (explanatory statement 

regarding the Consolidated Appropriations Act, 2008, 

Pub. L. No. 110-161, 121 Stat. 1884) (“The 

Appropriations Committees recognize and support the 

FTC’s international programs. The FTC should 

continue competition policy and consumer protection 

efforts, including training and technical assistance, in 

IV. Additional Steps:

 What Should Be Done? 

Over the past decade, the U.S. antitrust 

enforcement agencies and other organizations 

have devoted significant resources to 

improving communication, cooperation, and 

coordination with other competition agencies 

throughout the world and in working towards 

greater convergence in standards and 

procedures based on sound economic 

principles. These efforts have been successful 

in part. As the AMC Report observed, both the 

Department and the FTC “‘enjoy [a] strong 

cooperative relationship[] with a large and 

increasing number of foreign enforcement 

agencies, enabling close cooperation on cases, 

coordination on international antitrust policy, 

and provision of technical assistance to new 

agencies throughout the world.’”60 

On the other hand, there has been less 

convergence on single-firm conduct issues than 

in other areas.61 This may be attributable to 

several factors. 

First, for all the reasons discussed above, it 

has proven particularly difficult to develop 

substantive consensus on the appropriate 

standards for evaluating single-firm conduct. 

As one panelist observed, “The complexity 

inherent in the analysis of single-firm conduct 

simultaneously endorses the need for caution 

and challenges the steady approach to 

convergence that has been in large measure 

achieved, for example, in the area of horizontal 

mergers.”62 

Second, opportunities for cooperation in the 

area of single-firm conduct historically have 

developing countries.”). 

60 ANTITRUST MODERNIZATION COMM’N, supra note 

58, at 216 (alteration in original) (quoting Randolph W. 

Tritell, Assistant Dir. for Int’l Antitrust, Fed. Trade 

Comm’n, International Antitrust Issues (Feb. 15, 2006), 

available at govinfo.library.unt.edu/amc/commission_ 

hearings/pdf/Statement_Tritell.pdf). 

61 See Feb. 13 Hr’g Tr., supra note 2, at 137 (Heather) 

(“[S]uccess has been realized largely in the cartel and 

merger enforcement areas. Greater priority must be 

given to the area of unilateral conduct.”). 

62 Rill, supra note 7, at 1. 
 

 

 

 

 

176 SECTION 2 REPORT 

been far fewer than, for example, in the area of 

horizontal mergers. Despite the attention 

devoted to single-firm conduct issues 

internationally, only a handful of single-firm 

conduct cases have had cross-border 

ramifications; in contrast, staffs now routinely 

work cooperatively on horizontal mergers and 

cartel investigations. 

Finally, in merger investigations, the 

incentives of both the parties and the reviewing 

agencies are often aligned, and firms routinely 

provide waivers that enable the agencies in 

different jurisdictions to cooperate effectively, 

thereby speeding the review process and 

enabling the transaction to move forward. 

This, however, may not always be the case in 

investigations involving single-firm conduct, 

where the firm under investigation does not 

have the same incentive to cooperate with 

competition agencies and, therefore, may not be 

willing to provide waivers that could facilitate 

better cross-border cooperation. 

These factors have posed obstacles to 

cooperation and convergence with regard to 

single-firm conduct. Hearing testimony stressed 

the need to continue striving for progress. 

Panelists supported efforts to encourage 

voluntary convergence on substantive 

standards.63 At the same time, however, several 

panelists cautioned that convergence was not a 

transcendent goal in and of itself,64 and that 

convergence must be forged around 

appropriate legal and economic principles.65 

63 See, e.g., May 8 Hr’g Tr., supra note 10, at 137–38 

(Rill) (“I think we should not be too pessimistic and 

certainly not too humble about the opportunities for 

convergence and the role the U.S. should play.”); Sept. 

12 Hr’g Tr., supra note 9, at 144 (Bloom) (“I think there 

should be as much convergence as will achieve 

maximum consumer welfare.”). 

64 See Sept. 12 Hr’g Tr., supra note 9, at 136–37 

(Addy) (expressing the view that there should be room 

for countries to reasonably disagree on what they 

consider the primary factors in challenging single-firm 

conduct; that firms can operate in conformity with local 

laws without any major impediment to doing business; 

and that the most critical need is for individual 

jurisdictions to make their rules clear and 

understandable). 

65 See May 8 Hr’g Tr., supra note 10, at 139 (Rule) 

Other panelists urged a focus on comity and 

ways of reducing overlapping enforcement by 

different agencies.66 

This part of the chapter discusses a number 

of proposals for future steps to address the 

policy concerns identified above. 

Participation in Multilateral Organizations. 

Organizations such as the ICN and the OECD 

have made major strides in promoting 

convergence, and the Department will continue 

to participate actively in both organizations. In 

particular, the Department will work toward 

greater convergence on issues of single-firm 

conduct in the UCWG. Several panelists 

stressed the importance of this undertaking,67 

and the Department agrees. The UCWG 

affords an important forum for dialogue and 

presents an opportunity for the various 

jurisdictions to learn from one another, 

benchmark their approaches, and generally 

foster convergence. 

Organizations such as the ICN and the 

OECD have made major strides in 

promoting convergence, and the 

Department will continue to participate 

actively in both organizations. 

Evaluation and Expansion of TechnicalAssistance Programs. Commentators have 

found that the technical-assistance programs 

that the Department and the FTC have 

sponsored to help nascent competition 

regimes “will foster greater cooperation and 

(“The only thing I would say is if given the choice 

between convergence and advocating what you believe 

is the right principle, I would frankly urge you always 

to adopt the second.”); May 1 Hr’g Tr., supra note 15, at 

151 (Calkins); Feb. 13 Hr’g Tr., supra note 2, at 182 

(Wark); id. at 183–84 (Sewell); id. at 184 (Heather). 

66 See May 8 Hr’g Tr., supra note 10, at 144–45 

(Pitofsky) (“My view . . . is that convergence is a long 

way off. . . . But I think there is something that is in the 

cards, and that is comity.”). But cf. id. at 142 (Melamed) 

(“I think there will be increasing convergence.”). 

67 See, e.g., Sept. 12 Hr’g Tr., supra note 9, at 142 (Rill) 

(“[T]hrough the ICN and the OECD . . . the agencies 

can, are and should do more work in the area of 

bringing about cross-border transparency, and . . . 

ultimately convergence.”). 
 

AN INTERNATIONAL PERSPECTIVE 177 

convergence on sound antitrust law 

principles.”68 A panelist representing the U.S. 

Chamber of Commerce recommended review 

of the adequacy of these programs and 

“implement[ing] any changes that may be 

necessary to make them more effective.”69 The 

Department is continually in the process of 

such an evaluation. As one part of that effort, 

the Department and the FTC conducted a 

Technical Assistance Workshop in February 

2008, at which they obtained the perspectives of 

other aid providers, academics, and private 

practitioners on possible improvements to the 

assistance programs and ways to maximize 

their effectiveness. The Department plans to 

continue providing training on single-firm 

conduct as part of its technical-assistance 

efforts. 

Enhanced Bilateral Cooperation. Bilateral 

cooperation among competition agencies has 

multiplied over the years, and the Department 

and the FTC have established strong working 

relationships with many competition agencies 

throughout the world. In this regard, the 

Department continues to explore additional 

measures to improve cooperation and 

coordination with regard to single-firm conduct. 

One avenue the Department intends to 

explore is whether more can be done to 

facilitate the sharing of confidential business 

information between the Department and 

counterpart foreign competition agencies. The 

International Antitrust Enforcement Assistance 

Act (IAEAA) authorizes the United States to 

enter into antitrust mutual assistance 

agreements with other countries that allow the 

exchange of confidential business information.70 

Although such agreements enable closer 

working relationships among agencies in 

68 ANTITRUST MODERNIZATION COMM’N, supra note 

58, at 219. 

69 Feb. 13 Hr’g Tr., supra note 2, at 140–41 (Heather) 

(recommending that the technical-assistance review be 

approached “holistically and in cooperation with other 

developed countries to ensure that available resources 

are allocated efficiently and effectively and to ensure 

that other important initiatives such as the protection of 

intellectual property are pursued”). 

70 See 15 U.S.C. §§ 6201–12 (2000). 

different jurisdictions on cases of common 

interest, the United States to date has entered 

into only one antitrust mutual assistance 

agreement, with Australia.71 Accordingly, in 

most jurisdictions, in-depth cooperation and 

coordination is feasible only with the parties’ 

consent to the sharing of confidential 

information. When such consent is given, 

extensive cooperation and coordination may be 

beneficial to both the parties and the 

enforcement agencies involved.72 

While confidentiality waivers are entirely 

within the discretion of parties, this is one area 

in which businesses concerned with the 

challengesposed by multi-jurisdictional review 

may be able to help themselves. As discussed 

previously, in merger contexts, waivers are 

relatively routine; in the area of single-firm 

conduct, they are not. As one panelist 

observed, progress in cooperation in specific 

cases and investigations “can be expanded and 

assisted by cooperation from parties through 

waivers of confidentiality and similar 

undertakings.”73 This may be an important 

way in which firms concerned about the costs 

of multiple investigations and the prospect of 

inconsistent remedies could assist the 

Department in making the process more 

efficient and effective. 

Increased Focus on Comity. A number of 

panelists also recommended that principles of 

comity play a greater role in preventing 

potential conflicts among jurisdictions and 

creating a more predictable environment. As 

one commentator defines it, 

Comity is a concept of reciprocal deference 

[that] holds that one nation should defer to 

the law and rules (or dispute disposition) of 

71 ANTITRUST MODERNIZATION COMM’N, supra note 

58, at 218. 

72 See Vautier, supra note 38, at 202 (“[C]harges in 

the 1994 Microsoft investigation . . . were noteworthy in 

that they were initiated through close coordination 

between two enforcement bodies who also joined to 

settle the case in negotiation with Microsoft. An 

important feature of this case was that Microsoft 

consented to both the U.S. and EU authorities 

exchanging confidential information.”). 

73 Rill, supra note 7, at 14. 
 

 

178 SECTION 2 REPORT 

another because, and where, the other has 

a greater interest; a greater claim of right. 

It is a concept founded on process, not 

outcome. It is irrelevant that the outcome 

may not be the preferred one of the 

deferring country. Indeed, that is the 

point.74 

One panelist observed, “I think we need to 

restore a greater role for the notion of 

international comity, the idea that one 

jurisdiction will defer to another jurisdiction 

which has more substantial and significant 

contacts with the conduct at issue.”75 Similarly, 

the panelist from the U.S. Chamber of 

Commerce testified, “The Chamber believes 

that the U.S. should explore the concept of 

enhanced comity, including such elements as 

an agreement amongst jurisdictions to defer to 

one another in relation to remedies.”76 Another 

panelist echoed these views, stating that 

“[g]iven globalization, I think it is increasingly 

important to find some way to allocate 

responsibility among multiple agencies” and 

further suggesting that “a kind of common 

sense approach would . . . [give] a greater 

deference to the rules of the defendant’s 

home country.”77 Others have made similar 

recommendations.78 

On the other hand, one panelist took issue 

with the proposal that jurisdictions defer to the 

defendant’s home country: 

74 Eleanor M. Fox, Walter J. Derenberg Professor of 

Trade Regulation, N.Y. Univ. Sch. of Law, Testimony 

Before the Antitrust Modernization Commission 

Hearing on International Issues 6 (Feb. 15, 2006), 

available at http://govinfo.library.unt.edu/amc/ 

commission_hearings/pdf/statement_Fox_final.pdf. 

75 May 1 Hr’g Tr., supra note 15, at 18 (Kolasky). 

76 Feb. 13 Hr’g Tr., supra note 2, at 139 (Heather); see 

also May 8 Hr’g Tr., supra note 10, at 145 (Pitofsky) 

(advocating a program of enhanced comity and noting 

that “Canada does it on a regular basis”). 

77 Jan. 30 Hr’g Tr., supra note 2, at 38 (Heiner). 

78 See, e.g., ANTITRUST MODERNIZATION COMM’N, 

supra note 58, at 221 (recommending that “the United 

States . . . pursue bilateral and multilateral antitrust 

cooperation agreements that incorporate comity 

principles with more of its trading partners and make 

greater use of the comity provisions in existing 

cooperation agreements”). 

[F]or AM D and Intel . . . our revenues are 

probably seventy-five percent coming from 

outside the U.S. . . . We have productive 

capacity all over the world. . . . The 

innovation process is one that is built on 

human resources located around the world, 

in no particular jurisdiction. And the 

marketplaces are global. 

So, to look at where a company is chartered 

or where the CEO sits is not a relevant variable 

to determine competition policy.79 

Indeed, he questioned the basic concept of 

deference: 

[B]e careful when you talk about who 

ought to take the lead. I don’t think it’s 

ever going to, in the practical world, occur, 

because in a globalized world, what a 

dominant company does in any particular 

jurisdiction affects all other jurisdictions . . . . 

To think that any jurisdiction is going to 

advocate or forebear the protection of its 

own consumers in favor of another 

jurisdiction, that would be a remarkable 

thing. And I just don’t think it’s healthy.80 

The Department is continuing to explore 

whether more can be done to employ comity 

principles in the area of single-firm conduct. 

Comity is a doctrine that has long been 

recognized and applied by the courts81 and the 

antitrust enforcement agencies,82 but with 

difficulty in some cases. It is incorporated in all 

79 Jan. 30 Hr’g Tr., supra note 2, at 193–94 (McCoy); 

see also Phred Dvorak, Why Multiple Headquarters 

Multiply, WALL ST. J., Nov. 19, 2007, at B1 (suggesting 

that the concept of “home country” may be outdated for 

multinational firms). 

80 Jan. 30 Hr’g Tr., supra note 2, at 194–95 (McCoy); 

accord id. at 195 (Haglund). 

81 See, e.g., Hilton v. Guyot, 159 U.S. 113, 163–64 

(1895); Laker Airways Ltd. v. Sabena, Belgian World 

Airlines, 731 F.2d 909, 937–38 (D.C. Cir. 1984); see also F. 

Hoffmann-LaRoche Ltd. v. Empagran S.A., 542 U.S. 

155, 164–68 (2004) (using principles of prescriptive 

comity in construing the Foreign Trade Antitrust 

Improvements Act). See generally SECTION OF ANTITRUST 

LAW, supra note 40, at 1179–85. 

82 See U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, 

ANTITRUST E NFOR CEME NT GUIDELINES FO R 

INTERNATIONAL OPERATIONS § 3.2 (1995), available at 

http://www.usdoj.gov/atr/public/guidelines/ 

internat.htm. 
 

 

 

 

 

AN INTERNATIONAL PERSPECTIVE 179 

the formal cooperation agreements to which the 

United States is a party. 

Although some have urged greater focus on 

comity to address concerns such as forum 

shopping and multiple-agency reviews, others are 

more skeptical. For example, one commentator 

has noted, “Comity is an ambiguous concept. 

Invoking the word does not reveal its practical 

meaning. Whether one nation has a greater 

claim of right than another is usually not 

obvious in cases in which duties of deference 

are likely to be asserted.”83 

Some ofthe difficulties are operational. Some 

enhanced comity proposals are predicated 

largely on encouraging competition agencies to 

defer to the enforcement decisions of the 

jurisdiction with the greatest interest in the 

matter. But how is that to be determined? 

Should it depend on “the defendant’s home 

country,” as one panelist proposed?84 Should 

it, instead, depend on the size or significance of 

sales, or capital investments, or the number of 

customers in the particular jurisdiction? How 

is greatest interest in the matter determined in 

cases involving intellectual property? And 

what about the severity of anticompetitive 

effects and the size of the jurisdiction—should 

smaller jurisdictions always defer to larger 

ones? 

Even more fundamentally, it is questionable 

how realistic it is to expect one competition 

agency to defer to another when, as sometimes 

happens, conduct has substantial effects in 

multiple jurisdictions. Such deference may 

require restraining basic impulses of national 

sovereignty: “Virtually every jurisdiction 

insists upon recognition of its sovereignty. 

While comity principles may lead a jurisdiction 

to refrain from asserting powers in a particular 

case, those principles are clearly viewed as 

subordinate.”85 

83 Fox, supra note 74, at 6. 

84 Jan. 30 Hr’g Tr., supra note 2, at 38 (Heiner). 

85 William Blumenthal, The Challenge of Sovereignty 

and the Mechanisms of Convergence, 72 ANTITRUST L. J. 

267, 272 (2004); see also Antitrust Modernization 

Commission: Public Hearing Hr’g Tr. 15, Feb. 15, 2006, 

availableatgovinfo.library.unt.edu/amc/commission_hearings/ 

No competition agency should launch an 

investigation when conduct clearly lacks 

significant effects within that agency’s 

jurisdiction. However, when such effects are 

present in multiple jurisdictions, it may be 

unrealistic to expect deference from a 

jurisdiction where important consumer interests 

are at stake. One jurisdiction—Canada—has 

indicated that it will abstain from bringing its 

own case when it has concluded that its 

interests are protected by another jurisdiction’s 

actions,86 and other jurisdictions may do the 

same in specific cases. These jurisdictions, 

however, explicitly reserve the right to act 

themselves if they believe that their consumers 

have not been protected adequately. 

It is also important to guard against comity 

being used to promote national champions. As 

has been observed, “Comity is a horizontal, 

nation-to-nation concept, seeking—by 

reciprocal deference—to maximize the joint 

interests of the affected nations or to split their 

differences through repeated interactions. It 

may play into the hand of nationalism and the 

nurturing of national champions.”87 

The Department will continue to explore 

how to strengthen cooperative bilateral 

relationships in the area of single-firm conduct. 

In appropriate cases, the Department may 

invoke comity principles in attempting to 

persuade an agency abroad to defer to the 

United States, and likewise will consider such 

principles in deciding whether it should defer 

consistent with its responsibility to protect U.S. 

consumers. However, at this point, the 

Department does not underestimate the 

challenges of doing so and is focusing its 

international convergence efforts on increased 

dialogue and cooperation. 

Greater Cooperation and Coordination on 

Remedies. As discussed above, one of the basic 

pdf/060215_International_Transcript_reform.pdf [hereinafter 

AMC Hr’g Tr.] (Tritell) (“How should jurisdictions, 

including the United States, reconcile enhanced comity 

principles with domestic statutoryobligationstoprotect 

their consumers?”). 

86 See AMC Hr’g Tr., supra note 85, at 14. 

87 Fox, supra note 74, at 6. 
 

180 SECTION 2 REPORT 

concerns raised by the current environment of 

overlapping enforcement is that one 

jurisdiction’s remedy may have serious 

spillover effects on consumers in other 

jurisdictions. The severity of this concern 

depends on the nature of the remedy. For 

example, remedies requiring the sharing of 

intellectual property with competitors may well 

have major spillover effects in other parts of the 

world. Similarly, remedies addressing product 

design may have substantial spillover effects as 

firms, responding to the requirements of one 

regime, may be forced to design sub-optimal 

products from the perspective of consumers in 

other jurisdictions. On the other hand, some 

remedies, such as those involving distribution 

or marketing practices, may involve conduct 

that can be more easily tailored to particular 

jurisdictions and thus are less likely to have 

significant spillover effects. In short, a remedy 

imposed by one jurisdiction may have effects 

elsewhere, but the extent of any effect will vary 

depending on the remedy at issue. The 

Department believes that more should be done 

to address spillover concerns through 

regularized and early consultations among 

involved agencies and parties, and, in suitable 

cases where confidentiality obligations and 

simultaneous timing permit, the joint 

fashioning of appropriate remedies. 

The Department believes that more 

should be done to address the spillover 

effects that remedies imposed by one 

jurisdiction may have on consumers in 

other jurisdictions. 

V. Conclusion 

There is considerable diversity among 

jurisdictions in the laws governing single-firm 

conduct, the types of regimes for enforcing 

those laws, and the remedies that are imposed 

for violations. That is understandable. 

Different countries have different economic 

histories, legal systems, and policy objectives, 

and are at different stages of development. 

While this divergence has raised legitimate 

concerns, it is important not to overstate the 

issue. Not all single-firm conduct cases have 

cross-border ramifications and not all such 

cases have divergent results. The problem, 

however, is that even a small number of 

high–profile cross–border cases with divergent 

results are likely substantially to impact (and 

potentially inefficiently chill) how global 

companies conduct their business, and even 

how they design the products they bring to 

market. 

There has been increasing convergence 

around some basic principles: that the primary 

purpose of laws governing single-firm conduct 

is to serve consumers and competition in 

general rather than to protect individual 

competitors; that economics should play a key 

role in the analysis; and that competitive 

effects, rather than formalistic line-drawing, 

should be the focus of liability. Yet there 

remain important differences in certain areas 

between the enforcement policies of even 

mature antitrust jurisdictions such as the 

United States and the EU. And the emergence 

of competition regimes in major trading 

partners such as Brazil, China, and India adds 

to the sense of urgency that antitrust agencies 

need to improve the way they work together in 

this area. 

There are no quick fixes to the concerns 

identified in the hearings, and impediments to 

full convergence are likely to remain for some 

time. What each jurisdiction can do is strive to 

make its own enforcement policy and laws on 

single-firm conduct as clear and transparent as 

possible, so that businesses can determine what 

the law is and how they can best comply with 

their obligations. Additionally, the Department 

will continue to seek opportunities to improve 

cooperation and coordination with other 

competition regimes in individual cases, and 

will actively support multilateral organizations 

such as the ICN and the OECD in their efforts 

to foster convergence in the area of single-firm 

conduct based on sound economic principles. 

As one authority has observed, “Convergence 

is an organic process that grows out of learning 

from each other’s experience, allowing all of us to 

retain the best elements. In a globalising world 
AN INTERNATIONAL PERSPECTIVE 181 

it is important to take an open-minded 

approach and constantly consider whether 

one’s own rules and practices can be 

improved.”88 The Department agrees and will 

continue to strive to do so at home and abroad. 

88 Alexander Schaub, Dir. Gen., DG Competition, 

European Comm’n, Continued Focus on Reform: 

Recent Developments in EC Competition Policy (Oct. 

25, 2001), available at http://ec.europa.eu/comm/ 

competition/speeches/text/sp2001_031_en.pdf(quoted 

in Thomas O. Barnett, Section 2 Remedies: A Necessary 

Challenge, in 2007 ANNUAL PROCEEDINGS OF THE 

FORDHAM COMPETITION LAW INSTITUTE 549, 549 (Barry 

E. Hawk ed., 2008)). 

APPENDIX 

HEARINGS AND PARTICIPANTS 

Welcome and Overview of Hearings 

June 20, 2006 

Moderator: William Blumenthal, General 

Counsel, Federal Trade Commission 

Thomas O. Barnett 

Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 

Dennis W. Carlton 

Professor of Business Economics, University 

of Chicago Graduate School of Business 

Herbert Hovenkamp 

Ben V. & Dorothy Willie Distinguished 

Professor of Law, University of Iowa College 

of Law 

Deborah Platt Majoras 

Chairman, Federal Trade Commission 

Predatory Pricing 

June 22, 2006 

Moderators: Robert A. Potter, Chief, Legal 

Policy Section, Antitrust Division, U.S. 

Department of Justice 

Patricia Schultheiss, Attorney, Bureau of 

Competition, Federal Trade Commission 

Selling 

Patrick Bolton 

Barbara and David Zalaznick Professor of 

Business, Columbia University Business 

School 

Kenneth G. Elzinga 

Robert C. Taylor Professor of Economics, 

University of Virginia 

A. Douglas Melamed 

Partner, Wilmer Cutler Pickering Hale and 

Dorr LLP; former Acting Assistant Attorney 

General, Antitrust Division, U.S. Department 

of Justice 

Janusz A. Ordover 

Professor of Economics, New York 

University; former Deputy Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Buying 

Timothy J. Brennan 

Professor of Economics and Public Policy, 

University of Maryland, Baltimore County; 

2006 T.D. MacDonald Chair in Industrial 

Economics, Canadian Competition Bureau 

John B. Kirkwood 

Professor of Law, Seattle University School of 

Law; former Assistant Director, Bureau of 

Competition, Federal Trade Commission 

Janet L. McDavid 

Partner, Hogan & Hartson LLP 

Steven C. Salop 

Professor of Economics and Law, 

Georgetown University Law Center 

Frederick R. Warren-Boulton 

Principal, Microeconomic Consulting & 

Research Associates, Inc.; former Deputy 

Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 

Refusals to Deal 

July 18, 2006 

Moderators: Alden F. Abbott, Associate 

Director, Bureau of Competition, Federal Trade 

Comm ission 

J. Bruce McDonald, Deputy Assistant Attorney 

General, Antitrust Division, U.S. Department of 

Justice 

William J. Kolasky 

Partner, Wilmer Cutler Pickering Hale and 

Dorr LLP; former Deputy Assistant Attorney 

General, Antitrust Division, U.S. Department 

of Justice 

R. Hewitt Pate 

Partner, Hunton & Williams LLP; former 

Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 
184 SECTION 2 REPORT 

Robert F. Pitofsky 

Joseph and Madeline Sheehy Professor in 

Antitrust and Trade Regulation Law, 

Georgetown University Law Center; Of 

Counsel, Arnold & Porter LLP; former 

Chairman, Federal Trade Commission 

Steven C. Salop 

Professor of Economics and Law, 

Georgetown University Law Center 

Thomas F. Walton 

Director, Economic Policy Analysis, General 

Motors Corporation 

Mark D. Whitener 

Senior Counsel, Competition Law & Policy, 

General Electric Company; former Deputy 

Director, Bureau of Competition, Federal 

Trade Commission 

International Issues 

September 12, 2006 

Moderators: Gerald F. Masoudi, Deputy 

Assistant Attorney General, Antitrust Division, 

U.S. Department of Justice 

Randolph W. Tritell, Assistant Director for 

International Antitrust, Federal Trade 

Comm ission 

International Enforcement Perspectives 

Philip Lowe 

Director General for Competition, European 

Comm ission 

Hideo Nakajima 

Deputy Secretary General, General 

Secretariat, Japan Fair Trade Commission 

Eduardo Pérez Motta 

President, Mexican Federal Competition 

Comm ission 

Sheridan E. Scott 

Comm issioner of Competition, Canadian 

Competition Bureau 

Practitioner and Academic Perspectives 

George N. Addy 

Partner, Davies Ward Phillips & V ineberg 

LLP; former Commissioner of Competition, 

Canadian Competition Bureau 

Margaret Bloom 

Visiting Professor, School of Law, King’s 

College London; Senior Consultant, 

Freshfields Bruckhaus Deringer LLP 

Paul Lugard 

Head of Antitrust, Royal Philips Electronics 

N.V. 

James F. Rill 

Partner, Howrey LLP; former Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Empirical Perspectives 

September 26, 2006 

Moderators: Kenneth Heyer, Acting Deputy 

Assistant Attorney General, U.S. Department of 

Justice 

William A. Kovacic, Commissioner, Federal 

Trade Commission 

Jonathan B. Baker 

Professor of Law, Washington College of 

Law, American University; former Director, 

Bureau of Economics, Federal Trade 

Comm ission 

Luke M. Froeb 

William C. and Margaret W. Oehmig 

Associate Professor in Entrepreneurship and 

Free Enterprise, Owen Graduate School of 

Managem ent, Vanderbilt University; former 

Director, Bureau of Economics, Federal Trade 

Comm ission 

Robert C. Marshall 

Head of the Department of Economics, 

Co-Director of the Center for the Study of 

Auctions, Procurements, and Competition 

Policy, Pennsylvania State University 

Wallace P. Mullin 

Associate Professor of Economics, The 

George Washington University 

David S. Reitman 

Principal, CRA International Inc. 

F. Michael Scherer 

Professor Emeritus of Public Policy and 

Corporate Management in the Aetna Chair, 

John F. Kennedy School of Government, 

Harvard University; former Director, Bureau 

of Economics, Federal Trade Commission 

Clifford M. Winston 

Senior Fellow in Economic Studies, The 

Brookings Institution 

Business History and Business Strategy 

October 26, 2006 

Moderators: Edward D. Eliasberg, Attorney, 

Antitrust Division, U.S. Department of Justice 

Kenneth L. Glazer, Deputy Director, Bureau of 

Competition, Federal Trade Commission 
HEARINGS AND PARTICIPANTS 185 

Business History 

Tony Allan Freyer 

University Research Professor of History and 

Law, University of Alabama School of Law 

Louis Galambos 

Professor of History, Johns Hopkins 

University; President of the Business History 

Group; Co-Director, Institute for Applied 

Economics and the Study of Business 

Enterprise 

James P. May 

Professor of Law, Washington College of 

Law, American University 

George David Smith 

Clinical Professor of Economics, 

Entrepreneurship and Innovation, Leonard 

N. Stern School of Business, New York 

University 

Business Strategy 

Jeffrey P. McCrea 

Vice President, Sales and Marketing Group, 

Intel Corporation 

David J. Reibstein 

William S. Woodside Professor and Professor 

of Marketing, The Wharton School, 

University of Pennsylvania 

David T. Scheffman 

Adjunct Professor of Business Strategy and 

Marketing, Owen Graduate School of 

Managem ent, Vanderbilt University; former 

Director, Bureau of Economics, Federal Trade 

Comm ission 

George David Smith 

Clinical Professor of Economics, 

Entrepreneurship and Innovation, Leonard 

N. Stern School of Business, New York 

University 

Tying 

November 1, 2006 

Moderators: June K. Lee, Economist, Antitrust 

Division, U.S. Department of Justice 

Michael A. Salinger, Director, Bureau of 

Economics, Federal Trade Commission 

David S. Evans 

Visiting Professor, Faculty of Laws, 

University College London; Vice Chairman, 

LECG Europe 

Robin Cooper Feldman 

Associate Professor of Law, Hastings College 

of the Law, University of California 

Mark S. Popofsky 

Adjunct Professor, Georgetown University 

Law Center; Partner, Kaye Scholer LLP 

Donald J. Russell 

Partner, Robbins, Russell, Englert, Orseck & 

Untereiner LLP 

Michael Waldman 

Charles H. Dyson Professor of Management 

and Professor of Economics, Cornell 

University 

Robert D. Willig 

Professor of Economics and Public Affairs, 

Woodrow W ilson School, Princeton 

University; former Deputy Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Exclusive Dealing 

November 15, 2006 

Moderators: Daniel P. O’Brien, Chief, Economic 

Regulatory Section, Antitrust Division, U.S. 

Department of Justice 

Michael G. Vita, Assistant Director, Bureau of 

Economics, Federal Trade Commission 

Stephen Calkins 

Professor of Law and Director of Graduate 

Studies, Wayne State University Law School; 

Of Counsel, Covington & Burling LLP; 

former General Counsel, Federal Trade 

Comm ission 

Joseph Farrell 

Professor of Economics, University of 

California, Berkeley; former Deputy 

Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 

Jonathan M. Jacobson 

Partner, Wilson Sonsini Goodrich & Rosati 

PC 

Benjamin Klein 

Professor Emeritus, Department of 

Economics, University of California, Los 

Angeles 

Abbott (Tad) B. Lipsky 

Partner, Latham & Watkins LLP; former 

Deputy Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 
186 SECTION 2 REPORT 

Howard P. Marvel 

Professor of Economics, Department of 

Economics, The Ohio State University; 

Professor of Law, Michael E. Moritz College 

of Law, The Ohio State University 

Richard M. Steuer 

Partner, Mayer, Brown, Rowe & Maw LLP 

Mary W . Sullivan 

Assistant Professor of Accountancy, The 

George Washington University 

Joshua D. Wright 

Assistant Professor of Law, George Mason 

University School of Law 

Loyalty Discounts 

November 29, 2006 

Moderators: Patrick J. DeGraba, Economist, 

Federal Trade Comm ission 

David L. Meyer, Deputy Assistant Attorney 

General, Antitrust Division, U.S. Department of 

Justice 

Daniel A. Crane 

Associate Professor of Law, Benjamin N. 

Cardozo School of Law, Yeshiva University 

Joseph Kattan 

Partner, Gibson, Dunn & Crutcher LLP 

Thomas A. Lambert 

Associate Professor of Law, University of 

Missouri School of Law 

Timothy J. Muris 

George Mason University Foundation 

Professor of Law, George Mason University 

School of Law; Of Counsel, O’Melveny & 

Myers LLP; former Chairman, Federal Trade 

Comm ission 

Barry J. Nalebuff 

Milton Steinbach Professor of Management, 

Yale University School of Management 

Janusz A. Ordover 

Professor of Economics, New York 

University; former Deputy Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

David S. Sibley 

John T. Stuart III Centennial Professor in 

Economics, University of Texas at Austin; 

former Deputy Assistant Attorney General, 

Antitrust Division, U.S. Department of 

Justice 

Willard K. Tom 

Partner, Morgan, Lewis & Bockius LLP; 

former Deputy Director, Bureau of 

Competition, Federal Trade Commission 

Misleading and Deceptive Conduct 

December 6, 2006 

Moderators: Richard B. Dagen, Special Counsel 

to the Director, Bureau of Competition, Federal 

Trade Commission 

Hill B. Wellford, Counsel to the Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Michael F. Brockmeyer 

Adjunct Professor of Law, University of 

Maryland School of Law; Partner, Frommer 

Lawrence & Haug LLP 

George S. Cary 

Partner, Cleary Gottlieb Steen & Ham ilton 

LLP; former Deputy Director, Bureau of 

Competition, Federal Trade Commission 

Susan A. Creighton 

Partner, Wilson Sonsini Goodrich & Rosati 

PC; former Director, Bureau of Competition, 

Federal Trade Comm ission 

R. Preston McAfee 

J. Stanley Johnson Professor of Business 

Economics and Management, California 

Institute of Technology 

Gil Ohana 

Director of Antitrust and Competition at 

Cisco Systems, Inc. 

Richard P. Rozek 

Senior Vice President, NERA Economic 

Consulting 

Business Testimony 

January 30, 2007 

Moderators: William E. Cohen, Deputy General 

Counsel for Policy Studies, Federal Trade 

Comm ission 

Karen L. Grimm, Assistant General Counsel for 

Policy Studies, Federal Trade Comm ission 

Joseph J. Matelis, Attorney, Antitrust Division, 

U.S. Department of Justice 

David A. Dull 

Senior Vice President of Business Affairs, 

General Counsel, and Secretary, Broadcom 

Corporation 

Michael E. Haglund 

Partner, Haglund Kelley Horngren Jones & 

Wilder LLP 
HEARINGS AND PARTICIPANTS 187 

Michael D. Hartogs 

Senior Vice President and Division Counsel 

for the Technology Licensing Division, 

Qualcomm Inc. 

David A. Heiner 

Vice President and Deputy General Counsel 

for Antitrust, Microsoft Corporation 

Thomas M. McCoy 

Executive Vice President of Legal Affairs and 

Chief Administrative Officer, Advanced 

Micro Devices, Inc. 

Scott K. Peterson 

Senior Counsel, Hewlett-Packard Company 

Robert A. Skitol 

Partner, Drinker Biddle & Reath LLP 

Academic Testimony 

January 31, 2007 

Moderators: William E. Cohen, Deputy General 

Counsel for Policy Studies, Federal Trade 

Comm ission 

Karen L. Grimm, Assistant General Counsel for 

Policy Studies, Federal Trade Comm ission 

June K. Lee, Economist, Antitrust Division, U.S. 

Department of Justice 

Joseph J. Matelis, Attorney, Antitrust Division, 

U.S. Department of Justice 

Timothy F. Bresnahan 

Landau Professor in Technology and the 

Economy, Department of Economics, 

Stanford University; former Deputy Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Aaron S. Edlin 

Richard Jennings Professor of Law, 

University of California, Berkeley 

Joseph Farrell 

Professor of Economics, University of 

California, Berkeley; former Deputy 

Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 

Richard J. Gilbert 

Professor of Economics, University of 

California, Berkeley; Chair, Competition 

Policy Center, University of California, 

Berkeley; former Deputy Assistant Attorney 

General, Antitrust Division, U.S. Department 

of Justice 

Daniel L. Rubinfeld 

Robert L. Bridges Professor of Law and 

Professor of Economics, University of 

California, Berkeley; former Deputy 

Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 

Carl Shapiro 

TransAmerica Professor of Business Strategy, 

Professor of Economics, Director of the 

Institute of Business and Economic Research, 

University of California, Berkeley; former 

Deputy Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 

Howard A . Shelanski 

Associate Dean and Professor of Law, 

University of California, Berkeley; Director of 

the Berkeley Center for Law & Technology, 

University of California, Berkeley 

Business Testimony 

February 13, 2007 

Moderators: William E. Cohen, Deputy General 

Counsel for Policy Studies, Federal Trade 

Comm ission 

Karen L. Grimm, Assistant General Counsel for 

Policy Studies, Federal Trade Comm ission 

Joseph J. Matelis, Attorney, Antitrust Division, 

U.S. Department of Justice 

Jaime Taronji, Jr., Attorney, Office of the General 

Counsel, Federal Trade Commission 

David A. Balto 

Attorney on behalf of the Generic 

Pharmaceutical Association 

Sean Heather 

Executive Director for Global Regulatory 

Cooperation, U.S. Chamber of Commerce 

D. Bruce Sewell 

Senior Vice President and General Counsel, 

Intel Corporation 

Patrick M. Sheller 

Chief Compliance Officer, Eastman Kodak 

Company 

Ronald A. Stern 

Vice President and Senior Competition 

Counsel, General Electric Company 

R. Bruce Wark 

Associate General Counsel, American 

Airlines, Inc. 
188 SECTION 2 REPORT 

Monopoly Power 

March 7, 2007 

Moderators: Dennis W. Carlton, Deputy 

Assistant Attorney General, Antitrust Division, 

U.S. Department of Justice 

Joel L. Schrag, Economist, Bureau of Economics, 

Federal Trade Comm ission 

David P. Wales, Deputy Director, Bureau of 

Competition, Federal Trade Commission 

Gregory W. Werden, Senior Economic Counsel, 

Antitrust Division, U.S. Department of Justice 

Simon Bishop 

Partner and Co-Founder, RBB Economics 

Andrew I. Gavil 

Professor of Law, Howard U niversity School 

of Law 

Richard J. Gilbert 

Professor of Economics, University of 

California, Berkeley; Chair, Competition 

Policy Center, University of California, 

Berkeley; former Deputy Assistant Attorney 

General, Antitrust Division, U.S. Department 

of Justice 

Michael L. Katz 

Sarin Chair in Strategy and Leadership, Haas 

School of Business, University of California, 

Berkeley; Professor of Economics, University 

of California, Berkeley; former Deputy 

Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 

Thomas G. Krattenmaker 

Of Counsel, Wilson Sonsini Goodrich & 

Rosati PC 

Miguel de la Mano 

Member, Chief Economist Team, Directorate 

General for Competition, European 

Comm ission 

Philip B. Nelson 

Principal, Economists Inc.; former Assistant 

Director for Competition Analysis, Federal 

Trade Commission 

Joseph J. Simons 

Partner, Paul, Weiss, Rifkind, Wharton & 

Garrison LLP; former Director, Bureau of 

Competition, Federal Trade Commission 

Joe Sims 

Partner, Jones Day; former Deputy Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Irwin M. Stelzer 

Director of Economic Policy Studies and 

Senior Fellow, Hudson Institute 

Lawrence J. White 

Arthur E. Imperatore Professor of Economics, 

Leonard N. Stern School of Business, New 

York University; former Deputy Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Monopoly Power 

March 8, 2007 

Moderators: Thomas J. Klotz, Attorney, Office 

of the General Counsel, Federal Trade 

Comm ission 

Gregory J. Werden, Senior Economic Counsel, 

Antitrust Division, U.S. Department of Justice 

Andrew Chin 

Associate Professor, University of North 

Carolina School of Law 

Robert H. Lande 

Venable Professor of Law, University of 

Baltimore School of Law 

Richard L. Schmalensee 

John C. Head III Dean and Professor of 

Economics and Management, Sloan School of 

Managem ent, Massachusetts Institute of 

Technology 

Alan H. Silberman 

Partner, Sonnenschein Nath & Rosenthal LLP 

Michael A. Williams 

Director, ERS Group 

Remedies 

March 28, 2007 

The Objectives and Goals of Remedies in 

Section 2 Cases 

Moderators: Daniel P. Ducore, Assistant 

Director, Compliance Division, Bureau of 

Competition, Federal Trade Commission 

Gail Kursh, Deputy Chief, Legal Policy Section, 

Antitrust Division, U.S. Department of Justice 

Robert W. Crandall 

Senior Fellow in Economic Studies, The 

Brookings Institution 

David A. Heiner 

Vice President and Deputy General Counsel 

for Antitrust, Microsoft Corporation 

Per Hellström 

Chief of Unit C-3, Directorate General for 

Competition, European Commission 

Abbott (Tad) B. Lipsky 

Partner, Latham & Watkins LLP; former 

Deputy Assistant Attorney General, Antitrust 

Division, U.S. Department of Justice 
HEARINGS AND PARTICIPANTS 189 

Structural Versus Conduct Remedies 

Moderators: Daniel P. Ducore, Assistant 

Director, Compliance Division, Bureau of 

Competition, Federal Trade Commission 

Edward D. Eliasberg, Attorney, Antitrust 

Division, U.S. Department of Justice 

Richard A. Epstein 

James Parker Hall Distinguished Service 

Professor of Law, Faculty Director for 

Curriculum and Director, Law and 

Economics Program, University of Chicago 

Law School 

Franklin M. Fisher 

Jane Berkowitz Carlton and Dennis W. 

Carlton Professor of Microeconomics, 

Emeritus, Massachusetts Institute of 

Technology 

Andrew S. Joskow 

Senior Vice President, NERA Economic 

Consulting; former Deputy Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Dietrich Kleemann 

Head of the Task Force on Ex Post 

Assessment of Merger Decisions, Directorate 

General for Competition, European 

Comm ission 

John Thorne 

Senior Vice President and Deputy General 

Counsel, Verizon Comm unications Inc. 

Remedies 

March 29, 2007 

Moderators: Edward D. Eliasberg, Attorney, 

Antitrust Division, U.S. Department of Justice 

Douglas L. Hilleboe, Attorney, Office of the 

General Counsel, Federal Trade Commission 

Michael R. Cunningham 

General Counsel, Red Hat Inc. 

Renata B. Hesse 

Partner, Wilson Sonsini Goodrich & Rosati 

PC 

Marina Lao 

Professor of Law, Seton Hall Law School 

William H. Page 

Marshall M. Criser Eminent Scholar, Levin 

College of Law, University of Florida 

Howard A . Shelanski 

Associate Dean and Professor of Law, 

University of California, Berkeley; Director of 

the Berkeley Center for Law & Technology, 

University of California, Berkeley 

Policy Issues 

May 1, 2007 

Moderators: William Blumenthal, General 

Counsel, Federal Trade Commission 

Dennis W. Carlton, Deputy Assistant Attorney 

General, Antitrust Division, U.S. Department of 

Justice 

William J. Baer 

Partner, Arnold & Porter LLP; former 

Director, Bureau of Competition, Federal 

Trade Commission 

Jonathan B. Baker 

Professor of Law, Washington College of 

Law, American University; former Director, 

Bureau of Economics, Federal Trade 

Comm ission 

Stephen Calkins 

Professor of Law and Director of Graduate 

Studies, Wayne State University Law School; 

Of Counsel, Covington & Burling LLP; 

former General Counsel, Federal Trade 

Comm ission 

Einer R. Elhauge 

Carroll and Milton Petrie Professor of Law 

and Director of the Petrie-Flom Center for 

Health Law Policy, Biotechnology and 

Bioethics, Harvard Law School 

Jonathan M. Jacobson 

Partner, Wilson Sonsini Goodrich & Rosati 

PC 

William J. Kolasky 

Partner, Wilmer Cutler Pickering Hale and 

Dorr LLP; former Deputy Assistant Attorney 

General, Antitrust Division, U.S. Department 

of Justice 

Thomas G. Krattenmaker 

Of Counsel, Wilson Sonsini Goodrich & 

Rosati PC 

Janet L. McDavid 

Partner, Hogan & Hartson LLP 

Robert D. Willig 

Professor of Economics and Public Affairs, 

Woodrow W ilson School, Princeton 

University; former Deputy Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 
190 SECTION 2 REPORT 

Final Hearing 

May 8, 2007 

Moderators: Thomas O. Barnett, Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Deborah Platt Majoras, Chairman, Federal Trade 

Comm ission 

Susan A. Creighton 

Partner, Wilson Sonsini Goodrich & Rosati 

PC; former Director, Bureau of Competition, 

Federal Trade Comm ission 

Jeffrey A. Eisenach 

Chairman, Criterion Economics, L.L.C.; 

former Special Advisor for Economic Policy 

and Operations, Office of the Chairman, 

Federal Trade Comm ission 

A. Douglas Melamed 

Partner, Wilmer Cutler Pickering Hale and 

Dorr LLP; former Acting Assistant Attorney 

General, Antitrust Division, U.S. Department 

of Justice 

Timothy J. Muris 

George Mason University Foundation 

Professor of Law, George Mason University 

School of Law; Of Counsel, O’Melveny & 

Myers LLP; former Chairman, Federal Trade 

Comm ission 

Robert F. Pitofsky 

Joseph and Madeline Sheehy Professor in 

Antitrust and Trade Regulation Law, 

Georgetown University Law Center; Of 

Counsel, Arnold & Porter LLP; former 

Chairman, Federal Trade Commission 

James F. Rill 

Partner, Howrey LLP; former Assistant 

Attorney General, Antitrust Division, U.S. 

Department of Justice 

Charles F. (Rick) Rule 

Partner, Cadwalader, Wickersham & Taft 

LLP; former Assistant Attorney General, 

Antitrust Division, U.S. Department of 

Justice 

J. Gregory Sidak 

Visiting Professor of Law, Georgetown 

University Law Center; Founder, Criterion 

Economics, L.L.C. 

Hearing transcripts, information about the 

panelists, submissions, and public comments are 

available on the Department’s website: 

http://www.usdoj.gov/atr/public/hearings/ 

single_firm/sfchearing.htm 
TABLE OF AUTHORITIES 

Cases 

A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 

F.2d 1396 (7th Cir. 1989) 

AD/SAT v. Associated Press, 181 F.3d 216 (2d Cir. 1999) 

Advo, Inc. v. Philadelphia Newspapers, Inc., 51 F.3d 1191 

(3d Cir. 1995) 

American Council of Certified Podiatric Physicians & 

Surgeons v. American Board of Podiatric Surgery, Inc., 

185 F.3d 606 (6th Cir. 1999) 

American Tobacco Co. v. United States, 328 U.S. 781 

(1946) 

Appalachian Coals, Inc. v. United States, 288 U.S. 344 

(1933) 

Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d 

1050 (6th Cir. 1984) 

Aspen Highlands Skiing Corp. v. Aspen Skiing Co., 738 

F.2d 1509 (10th Cir. 1984), aff’d, 472 U.S. 585 (1985) 

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 

U.S. 585 (1985) 

Associated General Contractors v. California State Council 

of Carpenters, 459 U.S. 519 (1983) 

Associated Press v. United States, 326 U.S. 1 (1945) 

Bacchus Industries, Inc. v. Arvin Industries, Inc., 939 

F.2d 887 (10th Cir. 1991) 

Bailey v. Allgas, Inc., 284 F.3d 1237 (11th Cir. 2002) 

Ball Memorial Hospital, Inc. v. Mutual Hospital 

Insurance, Inc., 784 F.2d 1325 (7th Cir. 1986) 

Barry Wright Corp. v. ITT Grinnell Corp., 

724 F.2d 227 (1st Cir. 1983) 

Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007) 

In re Biovail Corp., 134 F.T.C. 407 (2002) 

Blue Cross & Blue Shield United of Wisconsin v. 

Marshfield Clinic, 65 F.3d 1406 (7th Cir. 1995) 

Borough of Lansdale v. Philadelphia Electric Co., 692 F.2d 

307 (3d Cir. 1982) 

In re Bristol-Myers Squibb Co., 135 F.T.C. 444 (2003) 

Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979) 

Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 

2007) 

Broadway Delivery Corp. v. UPS, 651 F.2d 122 (2d Cir. 

1981) 

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 

509 U.S. 209 (1993) 

In re Brown Shoe Co., 62 F.T.C. 679 (1963) 

Brown Shoe Co. v. United States, 370 U.S. 294 (1962) 

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 

477 (1977) 

Business Electronics v. Sharp Electronics Corp., 485 U.S. 

717 (1988) 

Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104 

(1986) 

Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 

(9th Cir. 2008) 

Colorado Interstate Gas Co. v. Natural Gas Pipeline Co. of 

America, 885 F.2d 683 (10th Cir. 1989) 

Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039 

(8th Cir. 2000) 

Confederated Tribes of Siletz Indians v. Weyerhaeuser Co., 

411 F.3d 1030 (9th Cir. 2005), vacated and remanded 

sub nom. Weyerhaeuser Co. v. Ross-Simmons Hardwood 

Lumber Co., 127 S. Ct. 1069 (2007) 

Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 

(1977) 

Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768 (6th Cir. 

2002) 

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 

752 (1984) 

Covad Communications Co. v. Bell Atlantic Corp., 398 

F.3d 666 (D.C. Cir. 2005) 

Data General Corp. v. Grumman Systems Support Corp., 

36 F.3d 1147 (1st Cir. 1994) 

Deauville Corp. v. Federated Department Stores, Inc., 756 

F.2d 1183 (5th Cir. 1985) 

Digital Equipment Corp. v. Uniq Digital Technologies, 

Inc., 73 F.3d 756 (7th Cir. 1996) 

Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 

480 (5th Cir. 1984) 

Eastman Kodak Co. v. Image Technical Services, Inc., 504 

U.S. 451 (1992) 

Eastman Kodak Co. v. Southern Photo Materials Co., 273 

U.S. 359 (1927) 

Exxon Corp. v. Berwick Bay Real Estate Partners, 748 

F.2d 937 (5th Cir. 1984) (per curiam) 

F. Hoffmann-La Roche Ltd. v. Empagran S. A., 542 U.S. 

155 (2004) 

Fishman v. Estate of Wirtz, 807 F.2d 520 (7th Cir. 1986) 

Ford Motor Co. v. United States, 405 U.S. 562 (1972) 

Fortner Enterprises, Inc. v. U.S. Steel Corp., 394 U.S. 495 

(1969) 

FTC v. Brown Shoe Co., 384 U.S. 316 (1966) 

FTC v. Indiana Federation of Dentists, 476 U.S. 447 

(1986) 

FTC v. Mylan Laboratories, Inc., 

62 F. Supp. 2d 25 (D.D.C.), modified, 99 F. Supp. 2d 1 

(D.D.C. 1999) 

General Industries Corp. v. Hartz Mountain Corp., 810 
192 SECTION 2 REPORT 

F.2d 795 (8th Cir. 1987) 

Georgia v. Evans, 316 U.S. 159 (1942) 

Goldwasser v. Ameritech Corp., 222 F.3d 390 (7th Cir. 

2000) 

Harrison Aire, Inc. v. Aerostar International, Inc., 423 

F.3d 374 (3d Cir. 2005) 

Hartford-Empire Co. v. United States, 323 U.S. 386 

(1945) 

Hayden Publishing Co. v. Cox Broadcasting Corp., 730 

F.2d 64 (2d Cir. 1984) 

Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir. 1977) 

Hilton v. Guyot, 159 U.S. 113 (1895) 

IBM v. United States, 298 U.S. 131 (1936) 

Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 

28 (2006) 

Image Technical Services, Inc. v. Eastman Kodak Co., 125 

F.3d 1195 (9th Cir. 1997) 

In re Independent Service Organizations Antitrust 

Litigation, 203 F.3d 1322 (Fed. Cir. 2000) 

Information Resources, Inc. v. Dun & Bradstreet Corp., 

359 F. Supp. 2d 307 (S.D.N.Y. 2004) 

Interface Group, Inc. v. Massachusetts Port Authority, 816 

F.2d 9 (1st Cir. 1987) 

International Salt Co. v. United States, 

332 U.S. 392 (1947) 

Invacare Corp. v. Respironics, Inc., No. 1:04 CV 1580, 

2006 WL 3022968 (N.D. Ohio Oct. 23, 2006) 

Jack Walters & Sons Corp. v. Morton Building, Inc., 737 

F.2d 698 (7th Cir. 1984) 

J.B.D.L. Corp. v. Wyeth-Ayerst Laboratories, Nos. 

1:01–CV–704, 1:03–CV–781, 2005 WL 1396940 (S.D. 

Ohio June 13, 2005), aff’d, 485 F.3d 880 (6th Cir. 

2007) 

Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 

2 (1984) 

Jerrold Electronics Corp. v. United States, 365 U.S. 567 

(1961) (mem.) (per curiam) 

Kelco Disposal, Inc. v. Browning-Ferris Industries of 

Vermont, Inc., 845 F.2d 404 (2d Cir. 1988), aff’d, 492 

U.S. 257 (1989) 

Klamath-Lake Pharmaceutical Association v. Klamath 

Medical Service Bureau, 701 F.2d 1276 (9th Cir. 1983) 

Laker Airways Ltd. v. Sabena, Belgian World Airlines, 

731 F.2d 909 (D.C. Cir. 1984) 

Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 

S. Ct. 2705 (2007) 

LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) (en 

banc) 

Lorain Journal Co. v. United States, 342 U.S. 143 (1951) 

Mandeville Island Farms, Inc. v. American Crystal Sugar 

Co., 334 U.S. 219 (1948) 

Maryland & Virginia Milk Producers Association v. 

United States, 362 U.S. 458 (1960) 

Masimo Corp. v. Tyco Health Care Group, L.P., No. CV 

02–4770 MRP, 2006 WL 1236666 (C.D. Cal. Mar. 22, 

2006) 

Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. 

Cir. 2004) (en banc) 

Matsushita Electric Industrial Co. v. Zenith Radio Corp., 

475 U.S. 574 (1986) 

McGahee v. Northern Propane Gas Co., 858 F.2d 1487 

(11th Cir. 1988) 

MCI Communications Corp. v. AT&T, 708 F.2d 1081 

(7th Cir. 1983) 

MetroNet Services Corp. v. Qwest Corp., 383 F.3d 1124 

(9th Cir. 2004) 

Minnesota Mining & Manufacturing Co. v. Appleton 

Papers Inc., 35 F. Supp. 2d 1138 (D. Minn. 1999) 

Morris Communications Corp. v. PGA Tour, Inc, 364 

F.3d 1288 (11th Cir. 2004) 

Movie 1 & 2 v. United Artists Communications, Inc., 909 

F.2d 1245 (9th Cir. 1990) 

Multistate Legal Studies, Inc. v. Harcourt Brace 

Jovanovich Legal & Professional Publications, Inc., 63 

F.3d 1540 (10th Cir. 1995) 

National Society of Professional Engineers v. United 

States, 435 U.S. 679 (1978) 

NCAA v. Board of Regents of the University of Oklahoma, 

468 U.S. 85 (1984) 

Neumann v. Reinforced Earth Co., 786 F.2d 424 (D.C. 

Cir. 1986) 

New York v. Microsoft Corp., 224 F. Supp. 2d 76 (D.D.C. 

2002), aff’d sub nom. Massachusetts v. Microsoft Corp., 

373 F.3d 1199 (D.C. Cir. 2004) (en banc) 

NLRB v. Express Publishing Co., 312 U.S. 426 (1941) 

Northeastern Telephone Co. v. AT&T, 651 F.2d 76 (2d 

Cir. 1981) 

Northern Pacific Railway Co. v. United States, 356 U.S. 1 

(1958) 

NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998) 

Olympia Equipment Leasing Co. v. Western Union 

Telegraph Co., 797 F.2d 370 (7th Cir. 1986) 

Omega Environmental, Inc. v. Gilbarco, Inc., 

127 F.3d 1157 (9th Cir. 1997) 

Ortho Diagnostic Systems, Inc. v. Abbott Laboratories, 

Inc., 920 F. Supp. 455 (S.D.N.Y. 1996) 

Otter Tail Power Co. v. United States, 

410 U.S. 366 (1973) 

Pacific Engineering & Production Co. of Nevada v. 

Kerr-McGee Corp., 551 F.2d 790 (10th Cir. 1977) 

PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101 (2d Cir. 

2002) (per curiam) 

Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421 (9th 

Cir. 1995) 

Re/Max International, Inc. v. Realty One, Inc., 173 F.3d 

995 (6th Cir. 1999) 

Response of Carolina, Inc. v. Leasco Response, Inc., 537 

F.2d 1307 (5th Cir. 1976) 

Roland Machinery Co. v. Dresser Industries, Inc., 749 

F.2d 380 (7th Cir. 1984) 
TABLE OF AUTHORITIES 193 

Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 

792 F.2d 210 (D.C. Cir. 1986) 

Schor v. Abbott Laboratories, 457 F.3d 608 (7th Cir. 

2006) 

SmithKline Corp. v. Eli Lilly & Co., 427 F. Supp. 1089 

(E.D. Pa. 1976), aff’d, 575 F.2d 1056 (3d Cir. 1978) 

Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993) 

Spirit Airlines, Inc. v. Northwest Airlines, Inc., 431 F.3d 

917 (6th Cir. 2005) 

Spirit Airlines, Inc. v. Northwest Airlines, Inc., No. 00-

71535, 2003 WL 24197742 (E.D. Mich. Mar. 31, 

2003), rev’d, 431 F.3d 917 (6th Cir. 2005) 

Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 

346 (1922) 

Standard Oil Co. of California v. United States (Standard 

Stations), 337 U.S. 293 (1949) 

Standard Oil Co. of New Jersey v. United States, 221 U.S. 

1 (1911) 

State of Illinois ex rel. Burris v. Panhandle Eastern Pipe 

Line Co., 935 F.2d 1469 (7th Cir. 1991) 

State Oil Co. v. Kahn, 522 U.S. 3 (1997) 

Stearns Airport Equipment Co. v. FMC Corp., 170 F.3d 

518 (5th Cir. 1999) 

Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield 

of Rhode Island, 373 F.3d 57 (1st Cir. 2004) 

Sunshine Books, Ltd. v. Temple Univ., 697 F.2d 90 (3rd 

Cir. 1982) 

Swift & Co. v. United States, 196 U.S. 375 (1905) 

Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 

(1961) 

Times-Picayune Publishing Co. v. United States, 345 U.S. 

594 (1953) 

Tops Markets, Inc. v. Quality Markets, Inc., 142 F.3d 90 

(2d Cir. 1998) 

Town of Concord v. Boston Edison Co., 

915 F.2d 17 (1st Cir. 1990) 

Transamerica Computer Co. v. IBM, 698 F.2d 1377 (9th 

Cir. 1983) 

United Shoe Machinery Corp. v. United States, 258 U.S. 

451 (1922) 

United States v. Aluminum Co. of America, 148 F.2d 416 

(2d Cir. 1945) 

United States v. Aluminum Co. of America, 91 F. Supp. 

333 (S.D.N.Y. 1950) 

United States v. American Tobacco Co. 221 U.S. 106 

(1911) 

United States v. AMR Corp., 335 F.3d 1109 (10th Cir. 

2003) 

United States v. AMR Corp., 140 F. Supp. 2d 1141 (D. 

Kan. 2001), aff’d, 335 F.3d 1109 (10th Cir. 2003) 

United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), 

aff’d mem. sub nom. Maryland v. United States, 460 

U.S. 1001 (1983) 

United States v. AT&T, 524 F. Supp. 1336 (D.D.C. 1981) 

United States v. Colgate & Co., 250 U.S. 300 (1919) 

United States v. Dentsply International, Inc., 399 F.3d 

181 (3d Cir. 2005) 

United States v. Eastman Kodak Co., 1954 Trade Cas. 

(CCH) ¶ 67,920 (W.D.N.Y. 1954) 

United States v. E. I. du Pont de Nemours & Co., 366 U.S. 

316 (1961) 

United States v. E. I. du Pont de Nemours & Co., 351 U.S. 

377 (1956) 

United States v. General Motors Corp., 1965 Trade Cas. 

(CCH) ¶ 71,624 (E.D. Mich. 1965) 

United States v. Grinnell Corp., 384 U.S. 563 (1966) 

United States v. IBM, 1956 Trade Cas. (CCH) ¶ 68,245 

(S.D.N.Y. 1956) 

United States v. Jerrold Electronics Corp., 187 F. Supp. 

554 (E.D. Pa. 1960) 

United States v. Loew’s Inc., 371 U.S. 38 (1962) 

United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 

2001) (en banc) (per curiam) 

United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 

1998) 

United States v. Microsoft Corp., 231 F. Supp. 2d 144 

(D.D.C. 2002), aff’d sub nom. Massachusetts v. 

Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004) (en 

banc) 

United States v. Paramount Pictures, Inc., 334 U.S. 131 

(1948) 

United States v. Syufy Enterprises, 903 F.2d 659 (9th Cir. 

1990) 

United States v. Terminal Railroad Association of St. 

Louis, 224 U.S. 383 (1912) 

United States v. United Shoe Machinery Corp., 391 U.S. 

244 (1968) 

United States v. United Shoe Machinery Corp., 110 F. 

Supp. 295 (D. Mass. 1953), aff’d, 347 U.S. 521 (1954) 

(per curiam) 

United States v. United Shoe Machinery Co., 264 F. 138 

(E.D. Mo. 1920), aff’d, 258 U.S. 451 (1922) 

United States v. United Shoe Machinery Co. of New 

Jersey, 247 U.S. 32 (1918) 

United States v. U.S. Gypsum Co., 340 U.S. 76 (1950) 

United States v. Waste Management, Inc., 743 F.2d 976 

(2d Cir. 1984) 

United States v. Western Electric Co., 1956 Trade Cas. 

(CCH) ¶ 68,246 (D.N.J. 1956) 

U.S. Anchor Mfg., Inc. v. Rule Industries, Inc., 7 F.3d 986 

(11th Cir. 1993) 

U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589 

(1st Cir. 1993) 

U.S. Philips Corp. v. Windmere Corp., 861 F.2d 695 (Fed. 

Cir. 1988) 

U.S. Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610 

(1977) 

Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 

(1967) 

Verizon Communications Inc. v. Law Offices of Curtis V. 

Trinko,, 540 U.S. 398 (2004) 
194 SECTION 2 REPORT 

Virgin Atlantic Airways Ltd. v. British Airways PLC, 257 

F.3d 256 (2d Cir. 2001) 

Virgin Atlantic Airways Ltd. v. British Airways PLC, 69 

F. Supp. 2d 571 (S.D.N.Y. 1999), aff’d, 257 F.3d 256 

(2d Cir. 2001) 

Walker Process Equipment, Inc. v. Food Machinery & 

Chemical Corp., 382 U.S. 172 (1965) 

Wallace v. IBM, 467 F.3d 1104 (7th Cir. 2006) 

Weiss v. York Hospital, 745 F.2d 786 (3d Cir. 1984) 

Western Parcel Express v. United Parcel Service of 

America, Inc., 190 F.3d 974 (9th Cir. 1999) 

Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber 

Co., 127 S. Ct. 1069 (2007) 

William Inglis & Sons Baking Co. v. ITT Continental 

Baking Co., 668 F.2d 1014 (9th Cir. 1981) 

Williamsburg Wax Museum, Inc. v. Historic Figures, Inc, 

810 F.2d 243 (D.C. Cir. 1987) 

Yoder Bros., Inc. v. California-Florida Plant Corp., 537 

F.2d 1347 (5th Cir. 1976) 

Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 

100 (1969) 

Statutes 

Sherman Act § 1, 15 U.S.C. § 1 (2000) 

Sherman Act § 2, 15 U.S.C. § 2 (2000) 

Robinson-Patman Act § 1, 15 U.S.C. § 13 (2000) 

Clayton Act § 3, 15 U.S.C. § 14 (2000) 

Clayton Act § 4, 15 U.S.C. § 15 (2000) 

Clayton Act § 4A, 15 U.S.C. § 15a (2000) 

Clayton Act § 4C, 15 U.S.C. § 15c (2000) 

FTC Act § 5, 15 U.S.C. § 45 (2000) 

Export Trading Company Act § 306, 15 U.S.C. § 4016 

(2000) 

International Antitrust Enforcement Assistance Act of 

1994 §§ 2–13, 15 U.S.C. §§ 6201–12 (2000) 

18 U.S.C. § 3571 (2000) 

Consolidated Appropriations Act, 2008, Pub. L. No. 

110-161, 121 Stat. 1884 

Telecommunications Act of 1996, Pub. L. No. 104-104, 

110 Stat. 56 (codified as amended in scattered 

sections of 47 U.S.C.) 

Briefs 

Brief for the United States as Amicus Curiae 

Supporting Petitioner, Weyerhaeuser Co. v. RossSimmons Hardwood Lumber Co., 127 S. Ct. 1069 

(2007) (No. 05-381), available at http:// www. usdoj. 

gov/atr/ cases/ f217900/217988.pdf 

Brief for the United States as Amicus Curiae, 3M v. 

LePage’s Inc., 542 U.S. 953 (2004) (No. 02-1865), 

available at http:// www. usdoj. gov/ atr/ cases/ 

f203900/203900.pdf 

Brief for the United States & the Federal Trade 

Commission as Amici Curiae Supporting Petitioner, 

Verizon Commc’ns Inc. v. Law Offices of Curtis V. 

Trinko, LLP, 540 U.S. 398 (2004) (No. 02-682), 

available at http://www.usdoj.gov/atr/ cases/ 

f201000/201048.pdf 

Brief of Amici Curiae American Antitrust Institute, 

Consumer Federation of America and Consumers 

Union Supporting McKenzie-Williamette and 

Affirmance, Cascade Health Solutions v. 

PeaceHealth, 515 F.3d 883 (9th Cir. 2008) (Nos. 05-

36153, 05-36202) 

Brief of Amici Curiae Genentech, Inc., Honeywell 

International Inc., Kimberly-Clark Corp., Kraft 

Foods, Inc., The Coca-Cola Company, and United 

Technologies Corp. in Support of Appellant/CrossAppellee PeaceHealth, Cascade Health Solutions v. 

PeaceHealth, 515 F.3d 883 (9th Cir. 2008) (Nos. 05-

035627, 05-35640) 

Brief of Amici Curiae Law Professors in Support of 

Defendant-Appellant and Cross-Appellee 

PeaceHealth Supporting Reversal of the Verdict 

Concerning Bundled Discounts, Cascade Health 

Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 

2008) (Nos. 05-35627, 05-35640, 05-36153, 05-36202) 

Brief of Pacific Bell Telephone Company (D/B/A 

AT&T California) and Visa U.S.A. Inc. as Amici 

Curiae Supporting Reversal, Cascade Health 

Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 

2008) (Nos. 05-35627, 05-35640, 05-36153, 05-36202) 

Brief for Appellant United States of America, United 

States v. AMR Corp., 335 F.3d 1109 (10th Cir. 2003) 

(No. 01-3202), available at http://www.usdoj.gov/ 

atr/cases/f9800/9814.pdf 

Governmental Materials 

153 CONG. REC. H15741 (daily ed. Dec. 17, 2007) 

ANTITRUST MODERNIZATION COMM’N, REPORT AND 

RECOMMENDATIONS (2007), available at http:// 

govinfo.library.unt.edu/amc/report_ 

recommendation/amc_final_report.pdf 

CANADIAN COMPETITION BUREAU, ENFORCEMENT 

GUIDELINES: PREDATORY PRICING (2008), available at 

http://www.competitionbureau.gc.ca/epic/site/ 

cb-bc.nsf/vwapj/Predatory_Pricing_ Guidelines-e. 

pdf/$file/Predatory_Pricing_Guidelines-e.pdf 

Competitive Impact Statement, United States v. 

Microsoft Corp., 56 F.3d 1448 (D.C. Cir. 1995) (Nos. 

95-5037, 95-5039), available at http://www.usdoj. 

gov/atr/cases/f0000/0045.pdf 

DIRECTORATE FOR FIN. AND ENTER. AFFAIRS 

COMPETITION COMM., ORG. FOR ECON. COOPERATION AND DEV., REMEDIES AND SANCTIONS IN 

ABUSE OF DOMINANCE CASES (2007), available at 

http://www.oecd.org/dataoecd/20/17/ 

38623413.pdf 

DIRECTORATE-GEN. FOR COMPETITION, EUROPEAN 

COMM’N, DISCUSSION PAPER ON THE APPLICATION OF 

ARTICLE 82 OF THE TREATY TO EXCLUSIONARY ABUSES 

(2005), available at ec.europa.eu/comm/ 

competition/antitrust/art82/discpaper2005.pdf 
TABLE OF AUTHORITIES 195 

FED. TRADE COMM’N & U.S. DEP’T OF JUSTICE, U.S. 

FEDERAL TRADE COMMISSION’S AND DEPARTMENT OF 

JUSTICE’S EXPERIENCE WITH TECHNICAL ASSISTANCE 

FOR THE EFFECTIVE APPLICATION OF COMPETITION 

LAWS (2008), available at http://ftc.gov/oia/wkshp/ 

docs/exp.pdf 

FTC Policy Statement on Monetary Equitable 

Remedies in Competition Cases, 68 Fed. Reg. 45,820 

(Aug. 4, 2003) 

H.R. Rep. No. 63-627 (1914) 

INT’L COMPETITION NETWORK, WAIVERS OF 

CONFIDENTIALITY IN MERGER INVESTIGATIONS (n.d.), 

available at http://www.international 

competitionnetwork.org/media/archive0611/ 

NPWaiversFinal.pdf 

INT’L COMPETITION POLICY ADVISORY COMM., FINAL 

REPORT (2000), available at http://www.usdoj.gov/ 

atr/icpac/finalreport.htm 

Organisation for Economic Co-operation and Dev., 

Best Practice Roundtables on Competition Policy, 

http://www.oecd.org/document/38/0,3343,en_26 

49_34715_2474918 _1_1_1_37463,00.html (last 

visited Aug. 28, 2008) 

ORGANISATION FOR ECON. CO-OPERATION & DEV., 

REVISED RECOMMENDATION OF THE COUNCIL 

CONCERNING CO-OPERATION BETWEEN MEMBER 

COUNTRIES ON ANTICOMPETITIVE PRACTICES 

AFFECTING INTERNATIONAL TRADE (1995), available at 

http://www.oecd.org/ dataoecd/60/42/21570317. 

pdf 

UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, DOMINANCE/SUBSTANTIAL 

MARKET POWER ANALYSIS PURSUANT TO UNILATERAL 

CONDUCT LAWS: RECOMMENDED PRACTICES (2007), 

available at http://www.international 

competitionnetwork.org/media/ library/ 

unilateral_conduct/Unilateral_ WG_1.pdf 

UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, REPORT ON PREDATORY 

PRICING (2008), available at http://www. 

international competitionnetwork.org/ media/ 

library/unilateral_conduct/ FINALPredatory 

Pricing PDF.pdf 

UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, REPORT ON SINGLE 

BRANDING/EXCLUSIVE DEALING (2008), available at 

http://www.internationalcompetitionnetwork.org/ 

media/library/unilateral_conduct/Unilateral_ 

WG_4.pdf 

UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, REPORT ON THE OBJECTIVES 

OF UNILATERAL CONDUCT LAWS, ASSESSMENT OF 

DOMINANCE/SUBSTANTIAL MARKET POWER, AND 

STATE CREATED MONOPOLIES (May 2007), available at 

http://www.internationalcompetitionnetwork.org/ 

media/library/unilateral_conduct/Objectives%20o 

f%20Unilateral%20Conduct%20May%2007.pdf 

UNILATERAL CONDUCT WORKING GROUP, INT’L 

COMPETITION NETWORK, STATE-CREATED 

MONOPOLIES ANALYSIS PURSUANT TO UNILATERAL 

CONDUCT LAWS: RECOMMENDED PRACTICES (n.d.), 

available at http://www.internationalcompetition 

network.org/media/library/unilateral_conduct/ 

Unilateral_WG_2.pdf 

U.S. Dep’t of Justice, Antitrust Cooperation 

Agreements, http://www.usdoj.gov/atr/public/ 

international/int_arrangements.htm (last visited 

Aug. 27, 2008) 

U.S. DEP’T OF JUSTICE, ANTITRUST DIVISION POLICY 

GUIDE TO MERGER REMEDIES (2004), available at 

http://www.usdoj.gov/atr/public/ guidelines/ 

205108.pdf 

U.S. Dep’t of Justice, Sherman Act Violations Yielding 

a Corporate Fine of $10 Million or More (2008), 

available at http://www.usdoj.gov/atr/public/ 

criminal/225540.pdf 

U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, 

ANTITRUST ENFORCEMENT GUIDELINES FOR 

INTERNATIONAL OPERATIONS (1995), available at 

http://www.usdoj.gov/atr/public/guidelines/ 

internat.htm 

U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, 

ANTITRUST ENFORCEMENT AND INTELLECTUAL 

PROPERTY RIGHTS: PROMOTING INNOVATION AND 

COMPETITION (2007), available at http://www. 

usdoj.gov/atr/public/ hearings/ip/222655.pdf 

U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, 

HORIZONTAL MERGER GUIDELINES (rev. ed. 1997), 

available at http://www.usdoj.gov/atr/public/ 

guidelines/hmg.pdf 

Articles and Books 

Alden F. Abbott & Michael A. Salinger, Learning from 

the Past: The Lessons of Vietnam, IBM, and Tying, 

COMPETITION POL’Y INT’L, Spring 2006, at 3 

Walter Adams, Dissolution, Divorcement, Divestiture: 

The Pyrrhic Victories of Antitrust, 27 IND. L.J. 1 (1951) 

Phillip Areeda, Essential Facilities: An Epithet in Need of 

Limiting Principles, 58 ANTITRUST L.J. 841 (1990) 

Phillip Areeda, Monopolization, Mergers, and Markets: 

A Century Past and the Future, 75 CAL. L. REV. 959 

(1987) 

PHILLIP E. AREEDA ET AL., ANTITRUST LAW (2d ed. 

2000, 2d ed. 2004 & 3d ed. 2007) 

PHILLIP E. AREEDA & HERBERT HOVENKAMP, 

ANTITRUST LAW (1996, 2d ed. 2002, 2d ed. 2004 & 

Supp. 2007) 

PHILLIP AREEDA & DONALD F. TURNER, ANTITRUST 

LAW (1978) 

Phillip Areeda & Donald F. Turner, Predatory Pricing 

and Related Practices Under Section 2 of the Sherman 

Act, 88 HARV. L. REV. 697 (1975) 
 

 

 

 

 

 

196 SECTION 2 REPORT 

Thomas C. Arthur, The Costly Quest for Perfect 

Competition: Kodak and Nonstructural Market Power, 

69 N.Y.U. L. REV. 1 (1994) 

Donald I. Baker, Compulsory Access to Network Joint 

Ventures Under the Sherman Act: Rules or Roulette?, 

1993 UTAH L. REV. 999 

Jonathan B. Baker, Market Definition: An Analytical 

Overview, 74 ANTITRUST L.J. 129 (2007) 

Jonathan B. Baker, Predatory Pricing After Brooke 

Group: An Economic Perspective, 62 ANTITRUST L.J. 

585 (1994) 

Jonathan B. Baker, Promoting Innovation Competition 

Through the Aspen/Kodak Rule, 7 GEO. MASON L. 

REV. 495 (1999) 

Jonathan B. Baker & Timothy F. Bresnahan, Empirical 

Methods of Identifying and Measuring Market Power, 

61 ANTITRUST L.J. 3 (1992) 

Thomas O. Barnett, Section 2 Remedies: A Necessary 

Challenge, in 2007 ANNUAL PROCEEDINGS OF THE 

FORDHAM COMPETITION LAW INSTITUTE (Barry E. 

Hawk ed., 2008) 

WILLIAM J. BAUMOL, THE FREE-MARKET INNOVATION 

MACHINE (2002) 

William J. Baumol, Predation and the Logic of the 

Average Variable Cost Test, 39 J.L. & ECON. 49 (1996) 

William J. Baumol, Principles Relevant to Predatory 

Pricing, in SWEDISH COMPETITION AUTHORITY, THE 

PROS AND CONS OF LOW PRICES 15 (2003) 

C. Frederick Beckner III & Steven C. Salop, Decision 

Theory and Antitrust Rules, 67 ANTITRUST L.J. 41 

(1999) 

George J. Benston, Accounting Numbers and Economic 

Values, 27 ANTITRUST BULL. 161 (1982) 

William Blumenthal, The Challenge of Sovereignty and 

the Mechanisms of Convergence, 72 ANTITRUST L.J. 267 

(2004) 

Patrick Bolton et al., Predatory Pricing: Strategic Theory 

and Legal Policy, 88 GEO. L.J. 2239 (2000) 

ROBERT H. BORK, THE ANTITRUST PARADOX (1978) 

Michael Boudin, Antitrust Doctrine and the Sway of 

Metaphor, 75 GEO. L.J. 395 (1986) 

Ward S. Bowman, Restraint of Trade by the Supreme 

Court: The Utah Pie Case, 77 YALE L.J. 70 (1967) 

Malcolm R. Burns, New Evidence of Price Cutting, 10 

MANAGERIAL & DECISION ECON. 327 (1989) 

Malcolm R. Burns, Predatory Pricing and the Acquisition 

Cost of Competitors, 94 J. POL. ECON. 266 (1986) 

Dennis W. Carlton, Does Antitrust Need to Be 

Modernized?, J. ECON. PERSP., Summer 2007, at 155 

Dennis W. Carlton, A General Analysis of Exclusionary 

Conduct and Refusal to Deal—Why Aspen and Kodak 

Are Misguided, 68 ANTITRUST L.J. 659 (2001) 

Dennis W. Carlton, Market Definition: Use and Abuse, 

COMPETITION POL’Y INT’L, Spring 2007, at 3 

Dennis W. Carlton, The Relevance for Antitrust Policy of 

Theoretical and Empirical Advances in Industrial 

Organization, 12 GEO. MASON L. REV. 47 (2003) 

Dennis W. Carlton & Ken Heyer, Appropriate Antitrust 

Policy Towards Single-Firm Conduct (Econ. Analysis 

Group, Discussion Paper No. EAG 08–2, 2008), 

available at http://www.usdoj.gov/atr/public/eag/ 

231610.pdf 

DENNIS W. CARLTON & JEFFREY M. PERLOFF, MODERN 

INDUSTRIAL ORGANIZATION (4th ed. 2005) 

Dennis W. Carlton & Michael Waldman, How 

Economics Can Improve Antitrust Doctrine Towards 

Tie-In Sales: Comment on Jean Tirole’s “The Analysis 

of Tying Cases: A Primer,” COMPETITION POL’Y 

INT’L, Spring 2005, at 27 

Dennis W. Carlton & Michael Waldman, The Strategic 

Use of Tying to Preserve and Create Market Power in 

Evolving Industries, 33 RAND J. ECON. 194 (2002) 

Dennis W. Carlton & Michael Waldman, Tying, 

Upgrades, and Switching Costs in Durable-Goods 

Markets (Nat’l Bureau of Econ. Research, Working 

Paper No. 11407, 2005), available at http://www. 

nber.org/papers/w11407 

Peter C. Carstensen, False Positives in Identifying 

Liability for Exclusionary Conduct: Conceptual Error, 

Business Reality, and Aspen, 2008 WIS. L. REV. 295 

Ronald A. Cass & Keith N. Hylton, Preserving 

Competition: Economic Analysis, Legal Standards and 

Microsoft, 8 GEO. MASON L. REV. 1 (1999) 

Edward Cavanagh, Antitrust Remedies Revisited, 84 

OR. L. REV. 147 (2005) 

Edward D. Cavanagh, Detrebling Antitrust Damages: 

An Idea Whose Time Has Come?, 61 TUL. L. REV. 777 

(1987) 

Jay Pil Choi & Christodoulos Stefanadis, Tying, 

Investment, and the Dynamic Leverage Theory, 32 

RAND J. ECON. 52 (2001) 

William S. Comanor & F. M. Scherer, Rewriting 

History: The Early Sherman Act Monopolization Cases, 

2 INT’L J. ECON. BUS. 263 (1995) 

James C. Cooper et al., Does Price Discrimination 

Intensify Competition? Implications for Antitrust, 72 

ANTITRUST L.J. 327 (2005) 

James Cooper et al., Vertical Restrictions and Antitrust 

Policy: What About the Evidence?, COMPETITION POL’Y 

INT’L, Autumn 2005, at 45 

Robert W. Crandall, Costly Exercises in Futility: 

Breaking Up Firms to Increase Competition (Dec. 

2003) (unpublished manuscript), available at 

http://www.brookings.edu/~/media/Files/rc/ 

papers/2003/12_competition_crandall/ 

12_competition_crandall.pdf 

Robert W. Crandall & Kenneth G. Elzinga, Injunctive 

Relief in Sherman Act Monopolization Cases, 21 RES. 

LAW & ECON. 277 (2004) 

Daniel A. Crane, Mixed Bundling, Profit Sacrifice, and 

Consumer Welfare, 55 Emory L.J. 423 (2006) 

Daniel A. Crane, Multiproduct Discounting: A Myth of 

Nonprice Predation, 72 U. CHI. L. REV. 27 (2005) 
 

 

 

 

TABLE OF AUTHORITIES 197 

Daniel A. Crane, The Paradox of Predatory Pricing, 91 

CORNELL L. REV. 1 (2005) 

Richard Craswell, Regulating Deceptive Advertising: 

The Role of Cost Benefit Analysis, 64 S. CAL. L. REV. 

549 (1991) 

Susan A. Creighton et al., Cheap Exclusion, 72 

ANTITRUST L.J. 975 (2005) 

The Current State of Economics Underlying Section 2: 

Comments of Michael Katz and Michael Salinger, 

ANTITRUST SOURCE, Dec. 2006, at 1, http://www. 

abanet.org/antitrust/at-source/06/12/ Dec06-

BrownBag.pdf 

Aaron Director & Edward H. Levi, Law and the Future: 

Trade Regulation, 51 NW. U. L. REV. 281 (1956) 

Phred Dvorak, Why Multiple Headquarters Multiply, 

WALL ST. J., Nov. 19, 2007, at B1 

Frank H. Easterbrook, Detrebling Antitrust Damages, 

28 J.L. & ECON. 445 (1985) 

Frank H. Easterbrook, The Limits of Antitrust, 63 TEX. 

L. REV. 1 (1984) 

Frank H. Easterbrook, On Identifying Exclusionary 

Conduct, 61 NOTRE DAME L. REV. 972 (1986) 

Frank H. Easterbrook, Predatory Strategies and 

Counterstrategies, 48 U. CHI. L. REV. 263 (1981) 

Frank H. Easterbrook, Vertical Arrangements and the 

Rule of Reason, 53 ANTITRUST L.J. 135 (1984) 

Frank H. Easterbrook, When Is It Worthwhile to Use 

Courts to Search for Exclusionary Conduct?, 2003 

COLUM. BUS. L. REV. 345 

Aaron S. Edlin, Stopping Above-Cost Predatory Pricing, 

111 YALE L.J. 941 (2002) 

Aaron S. Edlin & Joseph Farrell, The American 

Airlines Case: A Chance to Clarify Predation Policy 

(2001), in THE ANTITRUST REVOLUTION 502 (John E. 

Kwoka, Jr. & Lawrence J. White eds., 2004) 

Isaac Ehrlich & Richard A. Posner, An Economic 

Analysis of Legal Rulemaking, 3 J. LEGAL STUD. 257 

(1974) 

Einer Elhauge, Defining Better Monopolization 

Standards, 56 STAN. L. REV. 253 (2003) 

Einer Elhauge, Why Above-Cost Price Cuts to Drive Out 

Entrants Are Not Predatory—and the Implications for 

Defining Costs and Market Power, 112 YALE L.J. 681 

(2003) 

EINER ELHAUGE & DAMIEN GERADIN, GLOBAL 

COMPETITION LAW AND ECONOMICS (2007) 

Kenneth G. Elzinga & Thomas F. Hogarty, Utah Pie 

and the Consequences of Robinson-Patman, 21 J.L. & 

ECON. 427 (1978) 

Kenneth G. Elzinga & David E. Mills, Predatory 

Pricing in the Airlines Industry: Spirit Airlines v. 

Northwest Airlines, in THE ANTITRUST REVOLUTION 

(John E. Kwoka & Lawrence J. White eds., 5th ed. 

2008) 

Kenneth G. Elzinga & David E. Mills, Predatory 

Pricing and Strategic Theory, 89 GEO. L.J. 2475 (2001) 

Kenneth G. Elzinga & David E. Mills, Testing for 

Predation: Is Recoupment Feasible?, 34 ANTITRUST 

BULL. 869 (1989) 

Roy T. Englert, Jr., Defending the Result in Lepage’s v. 

3M: A Response to Other Commentators, 50 ANTITRUST 

BULL. 481 (2005) 

RICHARD A. EPSTEIN, ANTITRUST CONSENT DECREES IN 

THEORY AND PRACTICE (2007) 

David S. Evans & Michael Salinger, Why Do Firms 

Bundle and Tie? Evidence from Competitive Markets 

and Implications for Tying Law, 22 YALE J. ON REG. 37 

(2005) 

Brian A. Facey & Dany H. Assaf, Monopolization and 

Abuse of Dominance in Canada, the United States, and 

the European Union: A Survey, 70 ANTITRUST L.J. 513 

(2002) 

Joseph Farrell, Deconstructing Chicago on Exclusive 

Dealing, 50 ANTITRUST BULL. 465 (2005) 

Robin Cooper Feldman, Defensive Leveraging in 

Antitrust, 87 GEO. L.J. 2079 (1999) 

Franklin M. Fisher, Diagnosing Monopoly, Q. REV. 

ECON. & BUS., Summer 1979, at 7 

Franklin M. Fisher & John J. McGowan, On the Misuse 

of Accounting Rates of Return to Infer Monopoly Profits, 

73 AM. ECON. REV. 82 (1983) 

Andrew I. Gavil, Exclusionary Distribution Strategies by 

Dominant Firms: Striking a Better Balance, 72 

ANTITRUST L.J. 3 (2004) 

General Approaches to Defining Abusive/Monopolistic 

Practices—Roundtable, in 2006 ANNUAL PROCEEDINGS 

OF THE FORDHAM COMPETITION LAW INSTITUTE 577 

(Barry E. Hawk ed., 2007) 

David Genesove & Wallace P. Mullin, Predation and 

Its Rate of Return: The Sugar Industry, 1887–1914, 37 

RAND J. ECON. 47 (2006) 

Douglas H. Ginsburg & Leah Brannon, Determinants 

of Private Antitrust Enforcement in the United States, 

COMPETITION POL’Y INT’L, Autumn 2005, at 29 

Kenneth L. Glazer & Brian R. Henry, Coercive vs. 

Incentivizing Conduct: A Way Out of the Section 2 

Impasse?, ANTITRUST, Fall 2003, at 45 

Kenneth L. Glazer & Abbott B. Lipsky, Jr., Unilateral 

Refusals to Deal Under Section 2 of the Sherman Act, 63 

ANTITRUST L.J. 749 (1995) 

Mark A. Glick et al., Importing the Merger Guidelines 

Market Test in Section 2 Cases: Potential Benefits and 

Limitations, 42 ANTITRUST BULL. 121 (1997) 

Elizabeth Granitz & Benjamin Klein, Monopolization by 

“Raising Rivals’ Costs”: The Standard Oil Case, 39 J.L. 

& ECON. 1 (1996) 

Patrick Greenlee et al., An Antitrust Analysis of 

Bundled Loyalty Discounts, 26 INT’L J. INDUS. ORG. 

1132 (2008) 
 

 

 

198 SECTION 2 REPORT 

Patrick Greenlee & David S. Reitman, Competing 

with Loyalty Discounts (Jan. 7, 2006) (unpublished 

working paper), available at http://www.wcas. 

northwestern.edu/csio/Conferences/Papers2006/ 

GreenleeandReitmanpaper.pdf 

Andrew T. Guzman, Antitrust and International 

Regulatory Federalism, 76 N.Y.U. L. REV. 1142 (2001) 

Scott C. Hall, Ross-Simmons v. Weyerhaeuser: 

Antitrust Liability in Predatory Bidding Cases, 

ANTITRUST, Spring 2006, at 55 

George A. Hay, A Monopolist’s “Duty to Deal”: The 

Briar Patch Revisited, 3 SEDONA CONF. J. 1 (2002) 

George A. Hay, Trinko: Going All the Way, 50 

ANTITRUST BULL. 527 (2005) 

Ken Heyer, A World of Uncertainty: Economics and the 

Globalization of Antitrust, 72 ANTITRUST L.J. 375 

(2005) 

HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE 

(2005) 

HERBERT HOVENKAMP, ANTITRUST LAW (2d ed. 2005) 

Herbert Hovenkamp, Exclusion and the Sherman Act, 

72 U. CHI. L. REV. 147 (2005) 

HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY (3d 

ed. 2005) 

Herbert Hovenkamp, The Law of Exclusionary Pricing, 

COMPETITION POL’Y INT’L, Spring 2006, at 21 

Herbert Hovenkamp, The Monopolization Offense, 61 

OHIO ST. L.J. 1035 (2000) 

Herbert Hovenkamp, Signposts of Anticompetitive 

Exclusion: Restraints on Innovation and Economies of 

Scale, in 2006 ANNUAL PROCEEDINGS OF THE 

FORDHAM COMPETITION LAW INSTITUTE 409 (Barry 

E. Hawk ed., 2007) 

HERBERT HOVENKAMP ET AL., IP AND ANTITRUST 

(Supp. 2006) 

Keith N. Hylton & Michael Salinger, Tying Law and 

Policy: A Decision-Theoretic Approach, 69 ANTITRUST 

L.J. 469 (2001) 

Michael Jacobs, Introduction: Hail or Farewell? The 

Aspen Case 20 Years Later, 73 ANTITRUST L.J. 59 

(2005) 

Jonathan M. Jacobson, Exclusive Dealing, “Foreclosure,” 

and Consumer Harm, 70 ANTITRUST L.J. 311 (2002) 

Jonathan M. Jacobson & Scott A. Sher, “No Economic 

Sense”Makes No Sense for Exclusive Dealing, 73 

ANTITRUST L.J. 779 (2006) 

Charles A. James, The Real Microsoft Case and 

Settlement, ANTITRUST, Fall 2001, at 58 

Frédéric Jenny, Globalization, Competition and Trade 

Policy: Convergence, Divergence and Cooperation, in 

INTERNATIONAL AND COMPARATIVE COMPETITION 

LAW AND POLICIES 31 (Yang-Ching Chao et al. eds., 

2001) 

Thomas E. Kauper, Section Two of the Sherman Act: The 

Search for Standards, 93 GEO. L.J. 1623 (2005) 

Roy W. Kenney & Benjamin Klein, The Economics of 

Block Booking, 26 J.L. & ECON. 497 (1983) 

John B. Kirkwood, Buyer Power and Exclusionary 

Conduct: Should Brooke Group Set the Standards for 

Buyer-Induced Price Discrimination and Predatory 

Bidding?, 72 ANTITRUST L.J. 625 (2005) 

Benjamin Klein, Exclusive Dealing as Competition for 

Distribution “On the Merits,” 12 GEO. MASON L. REV. 

119 (2003) 

Benjamin Klein & Kevin M. Murphy, Vertical 

Restraints as Contract Enforcement Mechanisms, 31 J.L. 

& ECON. 265 (1988) 

William Kolasky, Reinvigorating Antitrust Enforcement 

in the United States: A Proposal, ANTITRUST, Spring 

2008, at 85 

Sreya Kolay et al., All-Units Discounts in Retail 

Contracts, 13 J. ECON. & MGMT. STRATEGY 429 (2004) 

Roland H. Koller II, The Myth of Predatory Pricing: An 

Empirical Study, ANTITRUST L. & ECON. REV., 

Summer 1971, at 105 

William E. Kovacic, The Antitrust Paradox Revisited: 

Robert Bork and the Transformation of Modern 

Antitrust Policy, 36 WAYNE L. REV. 1413 (1990) 

William E. Kovacic, Designing Antitrust Remedies for 

Dominant Firm Misconduct, 31 CONN. L. REV. 1285 

(1999) 

William E. Kovacic, The Intellectual DNA of Modern 

U.S. Competition Law for Dominant Firm Conduct: The 

Chicago/Harvard Double Helix, 2007 COLUM. BUS. L. 

REV. 1 

Thomas G. Krattenmaker & Steven C. Salop, 

Anticompetitive Exclusion: Raising Rivals’ Costs to 

Achieve Power over Price, 96 YALE L.J. 209 (1986) 

David M. Kreps & Robert Wilson, Reputation and 

Imperfect Information, 27 J. ECON. THEORY 253 (1982) 

Francine Lafontaine & Margaret E. Slade, Retail 

Contracting: Theory and Practice, 45 J. INDUS. ECON. 1 

(1997) 

Thomas A. Lambert, Evaluating Bundled Discounts, 89 

MINN. L. REV. 1688 (2005) 

Robert H. Lande, Are Antitrust “Treble” Damages 

Really Single Damages?, 54 OHIO ST. L.J. 115 (1993) 

Robert H. Lande, Should Predatory Pricing Rules 

Immunize Exclusionary Discounts?, 2006 UTAH L. 

REV. 863 

William M. Landes & Richard A. Posner, Market 

Power in Antitrust Cases, 94 HARV. L. REV. 937 (1981) 

Thomas B. Leary, The Dialogue Between Students of 

Business and Students of Antitrust: A Keynote Address, 

47 N.Y.L. SCH. L. REV. 1 (2003) 

Ari Lehman, Note, Eliminating the Below-Cost Pricing 

Requirement from Predatory Pricing Claims, 27 

CARDOZO L. REV. 343 (2005) 

A. P. Lerner, The Concept of Monopoly and the 

Measurement of Monopoly Power, 1 REV. ECON. STUD. 

157 (1934) 
 

TABLE OF AUTHORITIES 199 

Francois Leveque, The Controversial Choice of Remedies 

to Cope with the Anti-Competitive Behavior of Microsoft 

(Berkeley Program in Law & Econ. Working Paper 

Series, Paper No. 34, 2000), available at http:// 

repositories.cdlib.org/cgi/viewcontent.cgi?article= 

1055&context= blewp 

WILLIAM W. LEWIS, THE POWER OF PRODUCTIVITY: 

WEALTH, POVERTY, AND THE THREAT TO GLOBAL 

STABILITY (2004) 

Abbott B. Lipsky, Jr. & J. Gregory Sidak, Essential 

Facilities, 51 STAN. L. REV. 1187 (1999) 

Robert E. Litan & William D. Nordhaus, Effective 

Structural Relief in U.S. v. Microsoft (May 2000) 

(unpublished manuscript), available at http:// 

aei-brookings.org/admin/authorpdfs/redirectsafely.php?fname=../pdffiles/Structural_Relief.pdf 

John E. Lopatka & Andrew N. Kleit, The Mystery of 

Lorain Journal and the Quest for Foreclosure in 

Antitrust, 73 TEX. L. REV. 1255 (1995) 

John E. Lopatka & William H. Page, A (Cautionary) 

Note on Remedies in the Microsoft Case, ANTITRUST, 

Summer 1999, at 25 

John E. Lopatka & William H. Page, Devising a 

Microsoft Remedy that Serves Consumers, 9 GEO. 

MASON L. REV. 691 (2001) 

JOHN R. LOTT, JR., ARE PREDATORY COMMITMENTS 

CREDIBLE? (1999) 

Paul D. Marquardt & Mark Leddy, The Essential 

Facilities Doctrine and Intellectual Property Rights: A 

Response to Pitofsky, Patterson, and Hooks, 70 

ANTITRUST L.J. 847 (2003) 

R. Preston McAfee et al., Multiproduct Monopoly, 

Commodity Bundling, and Correlation of Values, 104 

Q.J. ECON. 371 (1989) 

John S. McGee, Predatory Price Cutting: The Standard 

Oil (N.J.) Case, 1 J.L. & ECON. 137 (1958) 

A. Douglas Melamed, Exclusionary Conduct Under the 

Antitrust Laws: Balancing, Sacrifice, and Refusals to 

Deal, 20 BERKELEY TECH. L.J. 1247 (2005) 

A. Douglas Melamed, Exclusive Dealing Agreements 

and Other Exclusionary Conduct—Are There Unifying 

Principles?, 73 ANTITRUST L.J. 375 (2006) 

Michael J. Meurer, Vertical Restraints and Intellectual 

Property Law: Beyond Antitrust, 87 MINN. L. REV. 

1871 (2003) 

Paul Milgrom, Predatory Pricing, in THE NEW 

PALGRAVE: A DICTIONARY OF ECONOMICS 937 (John 

Eatwell et al. eds., 1987) 

Paul Milgrom & John Roberts, Predation, Reputation, 

and Entry Deterrence, 27 J. ECON. THEORY 280 (1982) 

David E. Mills, Market Share Discounts (Aug. 8, 2006) 

(unpublished working paper), available at 

http://www.virginia.edu/economics/papers/mills 

/Market%20Share%20Discounts.pdf 

Timothy J. Muris, The FTC and the Law of 

Monopolization, 67 ANTITRUST L.J. 693 (2000) 

Barry Nalebuff, Bundling as an Entry Barrier, 119 Q.J. 

ECON. 159 (2004) 

Barry Nalebuff, Bundling As a Way to Leverage 

Monopoly (Yale Sch. of Mgmt., Working Paper No. 

ES-36, 2004) 

Janusz A. Ordover & Robert D. Willig, An Economic 

Definition of Predation: Pricing and Product Innovation, 

91 YALE L.J. 8 (1981) 

Aaron M. Panner, Bundled Discounts and the Antitrust 

Modernization Commission, ESAPIENCE CENTER FOR 

COMPETITION POLICY, July 2007, at 6 

Mark R. Patterson, The Sacrifice of Profits in Non-Price 

Predation, ANTITRUST, Fall 2003, at 37 

Mark S. Popofsky, Defining Exclusionary Conduct: 

Section 2, the Rule of Reason, and the Unifying Principle 

Underlying Antitrust Rules, 73 ANTITRUST L.J. 435 

(2006) 

RICHARD A. POSNER, ANTITRUST LAW (2d ed. 2001) 

Richard A. Posner, Vertical Restraints and Antitrust 

Policy, 72 U. CHI. L. REV. 229 (2005) 

Eric B. Rasmusen et al., Naked Exclusion, 81 AM. ECON. 

REV. 1137 (1991) 

Eric B. Rasmusen et al., Naked Exclusion: Reply, 90 AM. 

ECON. REV. 310 (2000) 

R. Craig Romaine & Steven C. Salop, Alternative 

Remedies for Monopolization in the Microsoft Case, 

ANTITRUST, Summer 1999, at 15 

Roundtable Discussion: Antitrust and the Roberts Court, 

ANTITRUST, Fall 2007, at 8 

Daniel L. Rubinfeld, 3M’s Bundled Rebates: An 

Economic Perspective, 72 U. CHI. L. REV. 243 (2005) 

Steven C. Salop, Exclusionary Conduct, Effect on 

Consumers, and the Flawed Profit-Sacrifice Standard, 73 

ANTITRUST L.J. 311 (2006) 

Margaret Sanderson & Ralph A. Winter, “Profits” 

Versus “Rents” in Antitrust Analysis: An Application 

to the Canadian Waste Services Merger, 70 ANTITRUST 

L.J. 485 (2002) 

Tim R. Sass, The Competitive Effects of Exclusive 

Dealing: Evidence from the U.S. Beer Industry, 23 INT’L 

J. INDUS. ORG. 203 (2005) 

Richard Schmalensee, Another Look at Market Power, 95 

HARV. L. REV. 1789 (1982) 

Marius Schwartz & Gregory J. Werden, A 

Quality-Signaling Rationale for Aftermarket Tying, 64 

ANTITRUST L.J. 387 (1996) 

Fiona Scott Morton, Entry and Predation: British 

Shipping Cartels 1879–1929, 6 J. ECON. & MGMT. 

STRATEGY 679 (1997) 

SECTION OF ANTITRUST LAW, AM. BAR ASS’N, 

ANTITRUST LAW DEVELOPMENTS (6th ed. 2007) 

SECTION OF ANTITRUST LAW, AM. BAR ASS’N, MARKET 

POWER HANDBOOK (2005) 

Ilya R. Segal & Michael D. Whinston, Naked Exclusion: 

Comment, 90 AM. ECON. REV. 296 (2000) 
 

 

 

200 SECTION 2 REPORT 

Howard A. Shelanski & J. Gregory Sidak, Antitrust 

Divestiture in Network Industries, 68 U. CHI. L. REV. 1 

(2001) 

Joseph Gregory Sidak, Debunking Predatory Innovation, 

83 COLUM. L. REV. 1121 (1983) 

Robert M. Solow, Technical Change and the Aggregate 

Production Function, 39 REV. ECON. & STAT. 312 

(1957) 

James B. Speta, Antitrust and Local Competition Under 

the Telecommunications Act, 71 ANTITRUST L.J. 99 

(2003) 

Richard M. Steuer, Customer-Instigated Exclusive 

Dealing, 68 ANTITRUST L.J. 239 (2000) 

Richard M. Steuer, Exclusive Dealing in Distribution, 69 

CORNELL L. REV. 101 (1983) 

George J. Stigler, A Note on Block Booking, in THE 

ORGANIZATION OF INDUSTRY 165 (1968) 

George W. Stocking & Willard F. Mueller, The 

Cellophane Case and the New Competition, 45 AM. 

ECON. REV. 29 (1955) 

E. Thomas Sullivan, The Jurisprudence of Antitrust 

Divestiture: The Path Less Traveled, 86 MINN. L. REV. 

565 (2002) 

LAWRENCE SULLIVAN, HANDBOOK OF THE LAW OF 

ANTITRUST (1977) 

Willard K. Tom et al., Anticompetitive Aspects of 

Market-Share Discounts and Other Incentives to 

Exclusive Dealing, 67 ANTITRUST L.J. 615 (2000) 

Willard K. Tom & Gregory F. Wells, Raising Rivals’ 

Costs: The Problem of Remedies, 12 GEO. MASON L. 

REV. 389 (2003) 

Kerrin M. Vautier, International Approaches to 

Competition Laws: Government Cooperation for 

Business Competition, in INTERNATIONAL AND 

COMPARATIVE COMPETITION LAW AND POLICIES 187 

(Yang-Ching Chao et al. eds., 2001) 

John Vickers, Market Power in Competition Cases, 2 

EUR. COMPETITION J. 3 (2006) 

Balder Von Hohenbalken & Douglas S. West, 

Empirical Tests for Predatory Reputation, 19 CAN. J. 

ECON. 160 (1986) 

David F. Weiman & Richard C. Levin, Preying for 

Monopoly? The Case of Southern Bell Telephone 

Company, 1894–1912, 102 J. POL. ECON. 103 (1994) 

Philip J. Weiser, Goldwasser, The Telecom Act, and 

Reflections on Antitrust Remedies, 55 ADMIN. L. REV. 1 

(2003) 

Gregory J. Werden, The American Airlines Decision: 

Not with a Bang but a Whimper, ANTITRUST, Fall 2003, 

at 32 

Gregory J. Werden, Identifying Exclusionary Conduct 

Under Section 2: The “No Economic Sense” Test, 73 

ANTITRUST L.J. 413 (2006) 

Gregory J. Werden, Identifying Single-Firm 

Exclusionary Conduct: From Vague Concepts to 

Administrable Rules, in 2006 ANNUAL PROCEEDINGS 

OF THE FORDHAM COMPETITION LAW INSTITUTE 509 

(Barry E. Hawk ed., 2007) 

Gregory J. Werden, The Law and Economics of the 

Essential Facility Doctrine, 32 ST. LOUIS U. L.J. 433 

(1987) 

Gregory J. Werden, Market Delineation Under the 

Merger Guidelines: Monopoly Cases and Alternative 

Approaches, 16 REV. INDUS. ORG. 211 (2000) 

Gregory J. Werden, Remedies for Exclusionary Conduct 

Should Protect and Preserve the Competitive Process, 76 

ANTITRUST L.J. (forthcoming 2009) 

Michael D. Whinston, Exclusivity and Tying in U.S. v. 

Microsoft: What We Know, and Don’t Know, J. ECON. 

PERSP., Spring 2001, at 63 

MICHAEL D. WHINSTON, LECTURES ON ANTITRUST 

ECONOMICS (2006) 

Michael D. Whinston, Tying, Foreclosure, and 

Exclusion, 80 AM. ECON. REV. 837 (1990) 

SIMON N. WHITNEY, ANTITRUST POLICIES (1958) 

Diane P. Wood, Cooperation and Convergence in 

International Antitrust: Why the Light Is Still Yellow, in 

COMPETITION LAWS IN CONFLICT 177 (Richard A. 

Epstein & Michael S. Greve eds., 2004) 

Diane P. Wood, “Unfair” Trade Injury: A CompetitionBased Approach, 41 STAN. L. REV. 1153 (1989) 

B. S. Yamey, Predatory Price Cutting: Notes and 

Comments, 15 J.L. & ECON. 129 (1972) 

Richard O. Zerbe, Jr., Monopsony and the RossSimmons Case: A Comment on Salop and Kirkwood, 72 

ANTITRUST L.J. 717 (2005) 

Richard O. Zerbe, Jr. & Michael T. Mumford, Does 

Predatory Pricing Exist? Economic Theory and the 

Courts After Brooke Group, 41 ANTITRUST BULL. 949 

(1996) 

Speeches and Testimony 

Antitrust Modernization Commission: Public Hearing 

Hr’g Tr., Feb. 15, 2006, available at http://govinfo. 

library.unt.edu/amc/commission_hearings/pdf/ 

060215_ International_Transcript_ reform.pdf 

Thomas O. Barnett, Assistant Attorney Gen., U.S. 

Dept. of Justice, Section 2 Remedies: A Necessary 

Challenge (Sept. 28, 2007), available at http://www. 

usdoj.gov/atr/public/speeches/226537.pdf 

Thomas O. Barnett, Assistant Attorney Gen., U.S. 

Dept. of Justice, Section 2 Remedies: What to Do 

After Catching the Tiger by the Tail (June 4, 2008), 

available at http://www.usdoj.gov/atr/ public/ 

speeches/233884.pdf 

Eleanor M. Fox, Walter J. Derenberg Professor of 

Trade Regulation, N.Y. Univ. Sch. of Law, 

Testimony Before the Antitrust Modernization 

Commission Hearing on International Issues (Feb. 

15, 2006), available at http://govinfo.library.unt. 

edu/amc/commission_hearings/pdf/ 

statement_Fox_final.pdf 
TABLE OF 

AUTHORITIES 201 

William E. Kovacic, Gen. Counsel, Fed. Trade 

Comm’n, Private Participation in the Enforcement 

of Public Competition Laws (May 15, 2003), available 

at http://www.ftc.gov/speeches/other/ 

030514biicl.shtm 

R. Hewitt Pate, Assistant Attorney Gen., U.S. Dep’t of 

Justice, Antitrust in a Transatlantic Context—from 

the Cicada’s Perspective (June 7, 2004), available at 

http://www.usdoj.gov/atr/public/speeches/ 

203973.pdf 

Steven C. Salop, Avoiding Error in the Antitrust 

Analysis of Unilateral Refusals to Deal (Sept. 21, 

2005), available at http://govinfo.library.unt.edu/ 

amc/commission_hearings/pdf/Salop_Statement_ 

Revised%209-21.pdf 

Alexander Schaub, Dir. Gen., DG Competition, 

European Comm’n, Continued Focus on Reform: 

Recent Developments in EC Competition Policy 

(Oct. 25, 2001), available at http://ec.europa.eu/ 

.comm/competition/speeches/text/sp2001_031_en. 

pdf 

Carl Shapiro, Exclusionary Conduct: Testimony 

Before the Antitrust Modernization Commission 

(Sept. 29, 2005), available at http://govinfo.library. 

unt.edu/amc/ 

commission_hearings/pdf/Shapiro_Statement.pdf 

Randolph W. Tritell, Assistant Dir. for Int’l Antitrust, 

International Antitrust Issues (Feb. 15, 2006), 

available at http://govinfo.library.unt.edu/amc/ 

commission_hearings/pdf/Statement_Tritell.pdf