Opinion ID: 2994508
Heading Depth: 2
Heading Rank: 2

Heading: Degree of TRU’s Market Power

Text: TRU’s efforts to deflate the Commission’s finding of market power are pertinent only if we had agreed with its argument that the Commission’s finding of a horizontal agreement was without support. Horizontal agreements among competitors, including group boycotts, remain illegal per se in the sense the Court used the term in Northwest Stationers. We have found that this case satisfies the criteria the Court used in Northwest Stationers for condemnation without an extensive inquiry into market power and economic pros and cons: (1) the boycotting firm has cut off access to a supply, facility or market necessary for the boycotted firm (i.e. the clubs) to compete; (2) the boycotting firm possesses a dominant position in the market (where dominant is an undefined term, but plainly chosen to stand for something different from antitrust’s term of art monopoly); and (3) the boycott, as we explain further below, cannot be justified by plausible arguments that it was designed to enhance overall efficiency. 472 U.S. at 294. We address the market power point here, therefore, only in the alternative. TRU seems to think that anticompetitive effects in a market cannot be shown unless the plaintiff, or here the Commission, first proves that it has a large market share. This, however, has things backwards. As we have explained elsewhere, the share a firm has in a properly defined relevant market is only a way of estimating market power, which is the ultimate consideration. Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, 784 F.2d 1325, 1336 (7th Cir. 1986). The Supreme Court has made it clear that there are two ways of proving market power. One is through direct evidence of anticompetitive effects. See FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 460-61 (1986) (the finding of actual, sustained adverse effects on competition in those areas where IFD dentists predominated, viewed in light of the reality that markets for dental services tend to be relatively localized, is legally sufficient to support a finding that the challenged restraint was unreasonable even in the absence of elaborate market analysis.). The other, more conventional way, is by proving relevant product and geographic markets and by showing that the defendant’s share exceeds whatever threshold is important for the practice in the case. See, e.g., United States v. E.I. duPont de Nemours & Co., 351 U.S. 377 (1956); United States v. Grinnell Corp., 384 U.S. 563 (1966); United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945) (suggesting that more than 90% is enough to constitute a monopoly for purposes of Sherman Act sec. 2 and 33% is not); Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2 (1984) (indicating that something more than 30% would be needed to show the kind of power over a tying product necessary for a violation of Sherman Act sec. 1). The Commission found here that, however TRU’s market power as a toy retailer was measured, it was clear that its boycott was having an effect in the market. It was remarkably successful in causing the 10 major toy manufacturers to reduce output of toys to the warehouse clubs, and that reduction in output protected TRU from having to lower its prices to meet the clubs’ price levels. Price competition from conventional discounters like Wal-Mart and K-Mart, in contrast, imposed no such constraint on it, or so the Commission found. In addition, the Commission showed that the affected manufacturers accounted for some 40% of the traditional toy market, and that TRU had 20% of the national wholesale market and up to 49% of some local wholesale markets. Taking steps to prevent a price collapse through coordination of action among competitors has been illegal at least since United States v. Socony- Vacuum Oil Co., 310 U.S. 150 (1940). Proof that this is what TRU was doing is sufficient proof of actual anticompetitive effects that no more elaborate market analysis was necessary.