Opinion ID: 700613
Heading Depth: 3
Heading Rank: 3

Heading: Market Power as a Proxy for Adverse Effect

Text: 16 KMB argues that, even if it cannot show an actual adverse effect on competition, it can meet its initial burden under Sec. 1 simply by showing that defendants possess sufficient market power to cause an adverse effect on competition. It then challenges the district court's conclusion that KMB's showing of Walker's market power was insufficient to survive summary judgment. We conclude that the showing of Walker's market power was insufficient in this case to satisfy KMB's burden of establishing an adverse effect on the market as a whole. 17 The proper role of market power in the Sec. 1 rule of reason analysis has been characterized differently by the various circuits. Some courts require that a plaintiff always show the defendant's market power in order to state a Sec. 1 claim. See, e.g., Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 221 (D.C.Cir.1986) (suggesting that a showing of market power is a strict prerequisite to recovery in all Sec. 1 cases), cert. denied, 479 U.S. 1033, 107 S.Ct. 880, 93 L.Ed.2d 834 (1987); General Leaseways, Inc. v. National Truck Leasing Ass'n, 744 F.2d 588, 596 (7th Cir.1984) (making such a showing a prerequisite to recovery); Graphic Products, 717 F.2d at 1568. The reasoning underlying this requirement is that unless a firm has the ability to raise unilaterally prices and profitably maintain those prices above competitive levels and/or restrict output in the market, State of New York by Abrams v. Anheuser-Busch, Inc., 811 F.Supp. 848, 871 (E.D.N.Y.1993), anticompetitive behavior will merely put the firm at a competitive disadvantage in the market as a whole and will not harm consumer welfare. Capital Imaging, 996 F.2d at 546. 18 This court has not made a showing of market power a prerequisite for recovery in all Sec. 1 cases. If a plaintiff can show an actual adverse effect on competition, such as reduced output, FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 460-61, 106 S.Ct. 2009, 2018-19, 90 L.Ed.2d 445 (1986), we do not require a further showing of market power. Capital Imaging, 996 F.2d at 546. However, where the plaintiff is unable to demonstrate such actual effects--as KMB is unable to do here--it must at least establish that defendants possess the requisite market power and thus the capacity to inhibit competition market-wide. Capital Imaging, 996 F.2d at 546. 19 Market power has been defined as the ability to raise price significantly above the competitive level without losing all of one's business. Graphic Prods., 717 F.2d at 1570; see also Broadway Delivery Corp. v. United Parcel Serv., 651 F.2d 122, 126-27 (2d Cir.) (defining the market power as the power to control prices or exclude competition in the context of a monopolization claim under Sec. 2 of the Sherman Act), cert. denied, 454 U.S. 968, 102 S.Ct. 512, 70 L.Ed.2d 384 (1981). Market power may be shown by evidence of specific conduct indicating the defendant's power to control prices or exclude competition. Id. at 130. In addition, market share may be used as a proxy for market power. See id.; Graphic Prods., 717 F.2d at 1570. 20 The district court held that KMB failed to establish Walker's market power. KMB did not introduce any direct evidence of Walker's ability to affect prices in the aftermarket for automotive exhaust products. As to market share, KMB submitted evidence that Walker's national market share is approximately sixty percent. Its only evidence of area market share, however, consisted of answers from two deposed Walker employees agreeing that Walker's share of the area market is probably in line with its share of the national market. 21 We need not decide whether such assertions as to a defendant's share of the relevant market create a genuine issue of material fact sufficient to survive summary judgment. Even if market power were shown, it would not satisfy the adverse-effect requirement under these circumstances. When we said in Capital Imaging that a plaintiff wishing to show adverse effect through indirect means must at least establish that defendants possess the requisite market power, Capital Imaging, 996 F.2d at 546 (emphasis added), we meant that a showing of market power, while necessary to show adverse effect indirectly, is not sufficient. There must be other grounds to believe that the defendant's behavior will harm competition market-wide, such as the inherent anticompetitive nature of defendant's behavior or the structure of the interbrand market. See Graphic Prods., 717 F.2d at 1573 (In order to show adverse impact indirectly, a plaintiff must show defendant's market power, that intrabrand competition was impeded, and that the interbrand market structure was such that intrabrand competition was a critical source of competitive pressure on price, and hence of consumer welfare.); cf. 8 Philip Areeda, Antitrust Law p 1600d, at 10 (1986) (The large market share of a dominant manufacturer does not itself make his restraint on intrabrand competition unreasonable.). This position is consistent with the approach of courts that require a showing of market power, but only as one of several steps necessary to establish adverse effect. See, e.g., Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190, 1202 (6th Cir.1982), cert. denied, 466 U.S. 931, 104 S.Ct. 1718, 80 L.Ed.2d 190 (1984). 22 Here, KMB has not offered adequate reasons why we should infer an adverse effect on competition simply from Walker's alleged market power. KMB has not shown that defendants' actions have had a detrimental effect even on intrabrand competition. To the contrary, the evidence suggests that intrabrand competition is healthy and that interbrand competition is even healthier. We therefore conclude that, despite its efforts to prove Walker's market power, KMB has failed to show an adverse effect on competition as a whole.