Do you Have an Antitrust Claim?

By Craig LaChance

Monopoly man and Mr. BurnsMost people have, at best, only a vague understanding of antitrust law. They know it has something to do with monopolies and competition.[1] Perhaps they recall something about antitrust from an American history course—e.g., Standard Oil, 19th century railroad conglomerations, trust-busting politicians. Occasionally, one hears of antitrust in the news when the Justice Department nixes a merger of say, airlines or cable companies. The general perception is that antitrust seeks to keep companies from getting too big and driving smaller firms out of business. This was, in fact, the intent when Congress enacted the first antitrust laws in 1890. But things have changed in the intervening century. Size, market share — indeed, even predatory business practices — are no longer determinative in an antitrust case. Just because a large company has tried to drive a smaller competitor out of business — i.e., to exclude the competitor from the market — may not mean the company has violated the antitrust laws. Exclusionary conduct is a necessary but not a sufficient condition of an antitrust claim. In addition to exclusionary behavior, an antitrust claimant must prove, above all else, that the behavior harmed consumers.

Consumer welfare has always had some role in antitrust policy. Initially, however, it was a bit player. As historian Richard Hofstadter has noted, when Congress first enacted antitrust legislation it had three goals in mind.[2] The first was economic. Classical economic theory held that competition produces the maximum amount of economic efficiency, so antitrust policy sought to ensure a competitive — that is, lots of players — market. The second goal was political. Huge concentrations of wealth and power were viewed as a threat to democratic government.[3] Corporations had grown so big so fast many feared business could become more powerful than civil government. Antitrust’s third goal was social and moral. Competition was believed to engender discipline. The American character had been “forged by competitive individualism.”[4] To foster this discipline, Congress needed to ensure the game was not rigged.
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But as time went on, two of those goals — political and moral — fell by the wayside. Corporations, of course, continued to grow and continued to exert political influence. Yet by the middle of the 20 Century, the public was less concerned about size. The initial shock over the power and size of big business wore off. What’s more, what “really made bigness palatable more than anything else is the remarkable performance of the economy since the beginning of the Second World War.”[5] Likewise, the notion that American character required the discipline of entrepreneurial individualism lost salience. Acquiring specialized skills and advancement through a bureaucratic career, often in a big corporation, became the ideal.[6]

This left only antitrust’s economic goal, but even the nature of that goal changed. The initial meaning of this economic goal was confused, but the general notion was that competition meant a market with a lot of players. The more rivals, the more competitive the market. Thus, in a sense, antitrust policy sought to ensure that the market had a certain number of competitors. But as economists studied antitrust policy, they came to believe that the number of competitors did not necessarily mean more efficiency. As two preeminent antitrust scholars put it: “A market with three sellers but an output of 100 units per day is more competitive than one with ten sellers but an output of 80 units per day.”[7] Thus, economists and judges reconceptualized competition in terms of consumer welfare. A market is competitive when it maximizes consumer welfare, that is, the market is characterized by low prices and high quality. Accordingly, the real goal of antitrust policy is to maximize consumer welfare.[8]

So what does this mean for the antitrust claimant? How does one bring an effective antitrust suit? A competitor’s size or market share alone will not cut it. Additionally, improper, even predatory, actions by themselves may not be enough. Just because you have been harmed by the acts of a competitor — i.e., lost market share — does not necessarily mean you have an antitrust claim (although you may have common law claims for unfair competition). The market is rough; firms lose business to more successful firms all the time. To assert an antitrust claim, a company must prove that a large competitor’s acts have actually harmed consumers. This means there must be proof that prices for a product have gone up, that quality has declined, that consumer preference has been thwarted. Absent this kind of evidence, an antitrust claim will likely falter.


Footnotes

[1] That the U.S. refers to this area of law as antitrust and not—like the rest of the world—as monopoly or competition law is an accident of history. Monopolies were particularly flagrant in late 19th century America. Richard Hofstadter, “What Happened to the Antitrust Movement,” in The Paranoid Style in American Politics and Other Essays, 195 (Harvard 1964). American business first colluded and combined by means of a simple common law trust. Instead of mergers, corporations in a particular industry would place shares of their businesses in a trust with a trustee managing the conglomeration. See Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, vol. I,  (Aspen 3d ed. 2006). Thus, to oppose this type of collusion was to be “anti-trust.”

[2]  Hofstadter, supra n.1 at 199.

[3]  See Louis D. Brandeis, Other People’s Money: and How the Bankers Use It (Martino 2009), which has a chapter entitled “The Curse of Bigness.” Brandeis’s views were common at the time. As his biographer writes, “ Brandeis opposed large businesses because he believe that great size, either in government or the private sector, posed dangers to democratic society and to individual opportunity.” Melvin I. Urofsky, Louis D. Brandeis A Life, 300 (Pantheon 2009).

[4]  Hofstadter, supra n.1 at 209.

[5] Id. at 215. Also, any worries about big business threatening government were likely offset by the simultaneous growth of government.

[6] Id. at 219.

[7] Areeda & Hovenkamp, supra n. 1, vol. I, ¶ 100, 3.

[8] Robert H. Bork, The Antitrust Paradox: A Policy at War With Itself, 427 (Free Press 1993).

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