Some examples of legal monopolies in the United States are the USPS, which holds a legal monopoly on mail transportation, the National Football League and Major League Baseball are legal monopolies. One of the few legal monopolies in many countries are postmen. Postal companies are usually organized semi-independently of the government and are supposed to be self-sufficient. Competition in parcel and letter services is severely restricted or non-existent. It is also important to consider enforcement costs – the costs of investigating and litigating Section 2 claims (including potential claims) – when designing legal tests. With limited government resources, it is important to exercise enforcement discretion to best promote consumer welfare. Enforcement costs include the resources of courts or agencies devoted to antitrust litigation, costs incurred by parties in litigation (including management time and employees spent on litigation as opposed to manufacturing products or services), as well as attorneys` fees and other expenses incurred by businesses to comply with the law. (91) Even if peripheral companies cannot easily and substantially increase their production, an undertaking with a very high market share still does not have the guarantee of significant pricing power if the volume demanded decreases significantly in response to a slight increase in prices, i.e. if market demand is very elastic. (36) In other words, if demand is elastic, a company may not be able to increase the price without losing so many sales that this will prove to be an unprofitable strategy. (37) Not all monopolies are illegal, but the Sherman Antitrust Act of 1890 dismantled many monopolies in the United States, such as the American Tobacco Company and Standard Oil.
A legal monopoly is a situation where the government grants a company to be the exclusive supplier of a good and/or service in exchange for the right to be supervised and regulated. Microsoft was found to have a monopoly on operating system software for IBM-compatible PCs. Microsoft was able to use its dominant position in the operating systems market to exclude other software developers and prevent computer manufacturers from installing browser software competing with Microsoft to run on Microsoft`s operating system software. In particular, Microsoft unlawfully maintained the monopoly of its operating system by including Internet Explorer, Microsoft`s internet browser, with each copy of its Windows operating system software sold to computer manufacturers and by making it technically difficult not to use its browser or to use a browser not originating from Microsoft. Microsoft has also provided free licenses or discounts for the use of its software, which has discouraged other software developers from promoting a non-Microsoft browser or developing other software based on that browser. These measures have hampered computer manufacturers` efforts to use or promote competing browsers and have discouraged the development of add-on software compatible with non-Microsoft browsers. The General Court found that, although Microsoft had not guaranteed all the opportunities for competition, its measures had prevented competitors from using the least expensive means to take away market share. To settle the matter, Microsoft agreed to stop certain conduct that prevented the development of competing browser software. To determine whether a competitor has a monopoly position in a relevant market, courts generally begin by examining the company`s market share. (18) Although the courts “have not yet determined a precise level of monopoly power”(19), they have demanded a dominant market share.
Discussions about the market share required for monopoly power usually began when Justice Hand in United States v. Aluminum Co. of America states that a market share of ninety percent “is sufficient to establish a monopoly; It is doubtful whether sixty or sixty-four per cent is enough; And thirty-three percent certainly isn`t. (20) The Supreme Court quickly upheld Justice Hand`s approach in American Tobacco Co. v. United States. (21) 47. See, for example, W. Parcel Express v. UPS, 190 F.3d 974, 975 (9th Cir.
1999) (finding that an enterprise with a so-called “controlling interest” cannot have monopoly power because there are no significant “barriers to entry”); Colo. Interstate Gas, 885 F.2d to 69596 (“If the evidence shows that an undertaking`s ability to charge monopoly prices will necessarily be temporary, the undertaking will not have the degree of market power necessary for the monopoly offence.”); Williamsburg Wax Museum, Inc. v Historic Figures, Inc., 810 F.2d 243, 252 (D.C. Cir. 1987) (finding that a firm did not have monopoly power if a competitor was able to meet customer demand within one year); Borough of Lansdale v Phila. Elec. Co., 692 F.2d 307, 31214 (3d Cir. 1982) (confirmation of the conclusion that the electricity company did not have a monopoly if the customer had been able to build his own power line within sixteen months).
AT&T Corp. is a classic example of a legal monopoly that operated as such until 1982. Article 2 prohibits the acquisition or maintenance (and in some cases the attempt to do so) of monopoly power solely by improper means. (36) As long as an undertaking uses only lawful means, it is free to pursue competitive success and to take advantage of the market position (including monopoly) that that success brings, including the calculation of the price that the market will bear. The prohibition of mere possession of monopoly power is incompatible with the use of the competitive process to achieve economic growth. When structuring a legal system, it is important to consider the practical consequences of the regime, as well as the relative extent and frequency of different types of errors. If, for example, the harm resulting from the misperformance of anti-competitive conduct outweighs the harm resulting from the erroneous sanction of pro-competitive conduct, the legal system should endeavour to avoid false negatives. Some believe that, in the context of Section 2, the cost of false positives is higher than the cost of false negatives.
(92) In the common law system of antitrust law, stare decisis prevents courts from systematically correcting errors or updating the law to reflect recent economic developments. (93) Some consider that the persistence of errors in the event of false alarms may be particularly harmful to competition, since “if the judge errs in condemning an advantageous practice, the benefits may be permanently lost. Any other company that applies the condemned practice will be punished in the name of stare decisis, regardless of the benefits. (94) In contrast, monopoly is “self-destructive” over time. Monopoly prices eventually attract entry. [Therefore] legal errors that tolerate sinister practices are self-correcting, while erroneous convictions are not. (95) However, this tendency towards self-correction can take a long time. Accordingly, courts and enforcement authorities should be sensitive to the possibility that certain monopolies may prove to be quite permanent once established, in particular if they are allowed to create barriers to entry and engage in other exclusionary behaviours aimed at artificially prolonging their existence. (96) In other countries, sports undertakings enjoy de facto the same protection, in particular if they are considered international.
The Fédération Internationale de Football Association (FIFA) and the Olympic Games are examples of international sports monopolies. A legal monopoly is able to remedy some of the disadvantages described above. Legal monopolies arise when a government believes that allowing a single company as the sole provider of services (or products) would be in the best interest of citizens. Gambling regulation in many places implies a legal monopoly over national or state lotteries. While private operations with companies such as racetracks, off-track betting sites and casinos are allowed, authorities are only allowed to allow one operator. A legal monopoly occurs when a single firm or corporation has absolute control over a particular good or service in the market. Although there are legal monopolies in almost all countries, their number is decreasing. A strange aberration in the United States is the legal monopoly enjoyed by sports companies like the National Football League and Major League Baseball.
They are legally protected from antitrust lawsuits and have enjoyed this protection since the 1920s. Twenty years after Alcoa and more than fifty years after the Standard Oil judgment, the Supreme Court formulated in Grinnell (43) what remains the classic formulation of the § 2 prohibition. Following Alcoa, the tribunal condemned “the intentional acquisition or maintenance of [monopolistic] power distinct from growth or development resulting from a superior product, business acumen or historical accident.” (44) Antitrust and antitrust courts and commentators have often applied decision theory (86), which defines a decision-making process where information is costly and imperfect. (87) Decision theory teaches that optimal legal standards should minimise the unavoidable costs of error and enforcement, taking into account both the likelihood and extent of the damage involved. (88) Courts and commentators increasingly recognize that the rules in Section 2 cannot “encompass all economic complexities and reservations”(84) and have sought to produce legal criteria that take account of these limitations.