What is a Monopoly?

Section 2 of the Sherman Act regulates monopolies or conspiracies or attempts to monopolize any part of interstate or foreign commerce. It is directed at single firms and does not purport to cover shared monopolies or oligopolies.

Monopoly - In US v. Grinnel Corp, the federal court defined a monopoly as, "(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. Monopoly power is generally understood to mean the power to control prices or exclude competition. The relevant market is determined by the geographic area where the product or service is sold, either by the subject party or competitors. Section 2 focuses on acquiring the monopoly through improper means. There must be some anticompetitive conduct, such as exclusionary or predatory practices.

Note: There must be some monopolistic effect, such as limiting supply or raising prices. This means there must be long-lasting market power, rather than temporary or fleeting power. Any execution of legally acquired market power to acquire or maintain a monopoly may be prohibited.

Example: Buying up existing competitors in order to secure distribution rights for all products in a given industry would be the willful acquisition of monopoly power.

What is an Attempt to monopolize? 

In Spectrum Sports, Inc. v. McQuillan, the court held that an attempt to monopoly requires proof "(1) that the defendant has engaged in predatory or anticompetitive conduct, (2) with a specific intent to monopolize, and (3) a dangerous probability of achieving monopoly power. The attempt does not have be successful. It is sufficient that there was intent and a dangerous probability of success exists. For conduct to have a dangerous probability of resulting in a monopoly, a court will evaluate the market or industry and the relative power of the business. The same activity by different firms may be illegal based upon the probability of their conduct resulting in monopoly power.

Note: Competing hard in an industry does not demonstrate an intent to create a monopoly. Intent to monopolize means a specific intent to eliminate competition and to secure singular or monopoly power for a firm.

Example: Predatory pricing employed with the objective of pushing competitors out of the market may constitute an attempt to monopolize. If the firm has a dangerous probability of achieving its objective, the attempt may be illegal.

What is a Conspiracy to Monopolize?

Conspiracy to monopolize requires an agreement between two or more parties with the specific intent of acquiring monopoly power. Following the agreement, it requires at least one overt act to accomplish the objectives. Unlike a cause of action for attempt, an actual ability to achieve a monopoly or a show of power is not required.

Example: ABC Corp agrees to share intellectual property rights and jointly sell a product that will eliminate similar products from the market. The companies begin working together to come up with the common design. This level of cooperation with the specific intent to gain monopoly power for the joint venture would constitute a conspiracy to monopolize.

Often a business will develop monopoly power through a competitive advantage (such as a differentiation or cost strategy). It is important to emphasize that, without the intent to eliminate competition and secure monopoly power, this conduct is not illegal. A business that acquires monopoly power, however, must avoid suppressing competition from potential or existing competitors. Such conduct may constitute an attempt to maintain or extend monopoly power.

Related Topics

• Antitrust Law (Intro)
• What is Antitrust Law?
• What are the Major Antitrust Laws?
• What government agency enforces antitrust law?
• What Sanctions are available under antitrust law?
• What is the Sherman Act of 1890 (Sherman Act)?
• What is a Contract, Combination, of Conspiracy in restraint of trade?
• What is Per Se Illegality and the Rule of Reason?
• What is a Monopoly?
• Herfindahl Hirschman Index (HHI) Definition
• What businesses are exempt from the Sherman Act?
• Horizontal Restraint Sherman Act?
• Sharing Information?
• Refusal to Deal?
• Territorial Agreement?
• Price Fixing?
• Resale restraint?
• Exclusive dealing?
• Tying products?
• Territorial agreements?
• What is Monopolization under the Sherman Act?
• What is the Clayton Act of 1914 (Clayton Act)?
• What is price discrimination under the Clayton Act?
• What are special arrangements prohibited under the Clayton Act?
• When are tying contracts an illegal restraint under the Clayton Act?
• When are reciprocal dealing contracts an illegal restraint under the Clayton Act?
• How does the Clayton Act regulate mergers and acquisition?
• FTC Act Antitrust Law