The Appropriate Legal Standard and Sufficient Economic Evidence for Exclusive Dealing Under Section 2: The FTC's McWane Case

54 Pages Posted: 9 Aug 2014

See all articles by Steven C. Salop

Steven C. Salop

Georgetown University Law Center

Sharis Pozen

Skadden, Arps, Slate, Meagher & Flom LLP

John Seward

Skadden, Arps, Slate, Meagher & Flom LLP

Date Written: August 7, 2014

Abstract

The FTC recently found McWane, Inc. liable for unlawful monopoly maintenance by a 3-1 majority. The dispute among the FTC Commissioners raises important and interesting issues regarding the law and economics of exclusive dealing and the proper evaluation of the competitive effects of exclusionary conduct. Commissioner Wright’s Dissent proposes and utilizes a new legal standard that requires the plaintiff to show “clear evidence” of harm to competition before shifting the burden to the defendant to show procompetitive efficiency benefits. This burden of proof and production on the plaintiff is much higher than showing “probable effect” based on a preponderance of the evidence standard. Application of this higher burden to interbrand exclusivity restraints by monopolists is not supported either by the case law, economic theory or empirical evidence. In evaluating harm to competition, this legal standard places no weight on certain important factors, including the fact that McWane was a monopolist with the explicit purpose of raising the costs and reducing the distribution of its only competitors. His proposed standard also does not consider whether McWane’s efficiency claims were valid, in the absence of other clear evidence of competitive harm. Commissioner Wright limits his economic analysis to only a single possible mechanism of exclusionary effect, whether the entrant was prevented from reaching minimum efficient scale of production, rather than a broader analysis of whether the entrant’s costs were raised or whether its ability to expand output was so limited by the exclusives that it was unable to prevent the maintenance of McWane’s monopoly pricing. Commissioner Wright also fails to credit the direct evidence of price effects found by the Commission. In our view, this proposed type of legal standard and economic approach is not an “enquiry meet for the case.” It creates a serious risk of leading to false negatives, under-enforcement and under-deterrence.

Keywords: antitrust law, competition, economic theory, monopoly

JEL Classification: K20, K21, K29, L12, L40

Suggested Citation

Salop, Steven C. and Pozen, Sharis and Seward, John, The Appropriate Legal Standard and Sufficient Economic Evidence for Exclusive Dealing Under Section 2: The FTC's McWane Case (August 7, 2014). Available at SSRN: https://ssrn.com/abstract=2477448 or http://dx.doi.org/10.2139/ssrn.2477448

Steven C. Salop (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
202-662-9095 (Phone)
202-662-9497 (Fax)

Sharis Pozen

Skadden, Arps, Slate, Meagher & Flom LLP ( email )

1440 New York Avenue, N.W.
Washington, DC 20005
United States

John Seward

Skadden, Arps, Slate, Meagher & Flom LLP ( email )

1440 New York Avenue, N.W.
Washington, DC 20005
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
238
rank
126,071
Abstract Views
2,355
PlumX Metrics