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What is Monopoly Power Under the Sherman Act?

UPDATED: February 7, 2020

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Most legal terms or phrases have statutory definitions and interpretations by case law—the term monopoly power under the Sherman Antitrust Act is no different. What is formally monopoly power and what will eventually be considered monopoly power is defined by the definitions and regulations set out in the Sherman Antitrust, court interpretations, and administrative decisions through the Federal Trade Commission (FTC).

Understanding the Sherman Antitrust Act

The Sherman Antitrust makes monopoly power illegal. Under the Sherman Act monopoly power is considered the ability of a business to control a price within its relevant product market or its geographic market or to exclude a competitor from doing business within its relevant product market or geographic market. In order to meet this definition, it is only necessary to prove that the business had the power to fix prices or exclude competitors. The plaintiff does not need to prove that prices were actually raised or that competitors were actually excluded from the market.

Since the passage of the Sherman Act, however, court rulings have shaped the definition of monopoly power. Proving that a company violated the Sherman Antitrust Act requires more than just proving that the company exercised a monopoly. A plaintiff or the government must show that a monopoly existed, and that said power was accompanied by some anti-competitive act by the offending company in a relevant market.

Determining if a Company Has a Monopoly

The first prong is deciding whether a company even has a monopoly. A general definition of a monopoly is where nearly all of one product type or service is owned by one person or group of people within a community or area. Thereby, the sole control of this product or service is given to one party to the elimination of all others within the marketplace. Courts will usually look at a company’s market share for a particular product or service to see if a monopoly exists. If a company has a market share of greater than 75 percent, they will probably be considered a monopoly. For market share purposes, courts will make an apples-to-apples comparison by looking at identical products or products that are so similar they could be substituted to determine market share.

Courts will also review other factors including the markets affected by the excessive market share, also called the relevant market. If a fruit grower only grows and sells fruit in California, the courts will not usually uphold a complaint of monopoly power by a seller who only operates in New York City, unless the grower can show some type of overlap in markets.

Once the courts find that a monopoly exists, it will move to the second prong of monopoly power. The second part of the test is whether the company engaged in some type of unfair or anti-competitive conduct. This second prong is not defined by a statute, but rather is evaluated on a case-by-case basis; and it usually requires some type of showing that the monopoly power was going to or used to abuse their monopoly. 

Role of the FTC

The FTC is one of the enforcement arms of the Sherman Antitrust Act. The FTC has administrative rule making and enforcement authority. Administrative law judges frequent issue opinions, similar to court opinions, regarding what is considered monopoly power under the Sherman Act. Even though the Sherman Act and the courts have provided fairly consistent guidelines as to what monopoly power is under the Sherman Antitrust Act, consulting with a corporate attorney is always recommended because of the overlap in statutes, court opinions, and administrative rules. Failure to review all of the overlapping sources could result in an incomplete opinion if you are concerned about a monopoly power violation under the Sherman Act.

Getting Help

To determine whether purchasing a competitor's business or creating an agreement with a competitor will result in a monopoly within your market place, consult with an experienced business law attorney.

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