Antitrust Law

One type of violation of the antitrust laws is the abuse of monopoly power. Monopoly power is the ability of a firm to raise its prices above the competitive level—that is, above the level that would exist naturally if several firms had to compete—without driving away so many customers as to make that power must have been used to exclude competition in the monopolized market or related markets.

The price a firm may charge for its product is constrained by the availability of close substitutes for the product. If a firm attempts to charge a higher price—a supracompetitive price—customers will turn to other firms able to supply substitute products at competitive prices. If a firm provides a large percentage of customers. For this reason courts often use market share as a rough indicator of monopoly power.

Supracompetitive prices are associated with a loss of consumers’ welfare because such prices force some consumers to buy a less attractive mix of products than they would ordinarily buy. Supracompetitive prices, however, do not themselves constitute an abuse of monopoly power. Antitrust laws do not attempt to counter the mere existence of prices in order to increase profits, it would not be in violation of the antitrust laws.

The antitrust prohibitions focus instead on abuses of monopoly power that exclude competition in the monopolized market or involve leverage—the use of power in one market to reduce competition in another. One such forbidden practice is a tying arrangement, in which a monopolist conditions the sale of a product in one market that customer also buys its computer systems, which are competing with other firms’ computer systems.

The focus on the abuse of monopoly power, rather than on monopoly itself, follows from the primary purpose of the antitrust laws: to promote consumers’ welfare through assurance of products available to consumers.