The John M. Olin Center

Paper Abstract

434. Einer Elhauge, Defining Better Monopolization Standards, 08/2003; subsequently published in Stanford Law Review, Vol. 56, November 2003, 253-344.

Abstract: Monopolization doctrine is currently governed by vacuous standards and conclusory labels that provide no meaningful guidance about which conduct is condemned. Current proposals to focus on whether the defendant sacrificed short-term profits in order to reap long run monopoly returns by excluding rivals also turn out to have no logical connection to whether the conduct was undesirable. The proper monopolization standard should focus on whether the alleged exclusionary conduct's ability to further monopoly power depends on the defendant improving its own efficiency, or whether it would do so by impairing the efficiency of rivals whether or not defendant efficiency were enhanced, permitting the former and prohibiting the latter. Under this standard, a defendant that has increased its own efficiency by investing in its intellectual or physical property should not have a duty to share that property with rivals, but has no privilege to discriminate by offering worse terms to rivals - or those who deal with rivals - since such discrimination is not necessary to support optimal ex ante investment incentives, and its success may thus depend not on increasing the value of the property and the efficiency of the monopolist, but rather on selectively impairing the efficiency of rivals. While existing doctrine on monopoly power is not as problematic, it too suffers from great ambiguities, including difficulty dealing with the ubiquitous pricing discretion of firms in modern brand-differentiated markets, vague references to a "substantial" degree of a power that itself only exists when substantial, and an underlying split over whether pricing discretion or market share is the underlying variable whose substantiality matters. This Article shows that proper economic analysis of how to judge the exclusionary conduct that must be causally connected to that monopoly power explains why monopoly power requires showing both (a) a market share above 50% and (b) an ability to either influence marketwide prices or impose significant marketwide foreclosure that impairs rival efficiency. This Article further shows that these proposed standards would not only provide a more coherent and desirable standard for guiding lower courts and juries, but better explain the actual pattern of Supreme Court case results.

The published article can be found in Stanford Law Review, Volume 56 (Nov. 2003), beginning on page 253. Please contact Stanford Law Review for a copy by going to their website at