Abolishing the Price Squeeze as a Theory of Antitrust Liability
J. Gregory Sidak
Criterion Economics, L.L.C.
Journal of Competition Law and Economics, Vol. 4, No. 2, pp. 279-309, 2008
A "price squeeze," or "margin squeeze," is a theory of antitrust liability under section 2 of the Sherman Act that concerns a vertically integrated monopolist that sells its upstream bottleneck input to firms that compete with the monopolist's production of a downstream product sold to end users. At issue is the size of the margin between the monopolist's input price and its retail price.
Recent antitrust price-squeeze cases have split the U.S. Courts of Appeals. The D.C. Circuit has concluded that, because a vertically integrated monopolist may refuse to provide its upstream inputs to its downstream competitors, it may raise the price of its upstream inputs without incurring antitrust liability. On the other hand, the Ninth Circuit's 2007 linkLine decision rejected such reasoning, notwithstanding Trinko. Predicated on Judge Learned Hand's opinion in Alcoa, linkLine subordinates the protection of consumers to the protection of competitors. It requires access-pricing analysis that more resembles the work of a public utilities commission than that of a federal judge in an antitrust case.
The price-squeeze theory of liability is incompatible with contemporary antitrust jurisprudence and economic analysis. A price squeeze by a firm lacking market power cannot possibly rise to the level of an antitrust violation because it has no chance of reducing consumer welfare. Further, the antitrust laws are concerned with the competitive process, not its end results. The inability of a single firm to stay in business is irrelevant as a matter of antitrust law unless the behavior inducing that firm to exit the market also harms the competitive process. The Supreme Court should reverse linkLine and resolve the circuit split. It should revisit Alcoa and explain why alleging a price squeeze neither states a claim in American antitrust law nor justifies deviation from the principles announced in Brooke Group and Trinko.
Number of Pages in PDF File: 31
Keywords: price squeeze, margin squeeze, linkLine, Trinko, Brooke Group, Alcoa, monopolization, section 2, bottleneck, access price, input price, antitrust
JEL Classification: K21, L42, L51
Date posted: April 13, 2008 ; Last revised: November 2, 2009