Monday, January 26, 2009

General Standards for Exclusionary Conduct

Posted by D. Daniel Sokol

Karen L. Grimm of the FTC is the author of General Standards for Exclusionary Conduct.

ABSTRACT: This paper first examines the development of section 2 conduct standards in the courts, focusing primarily on Supreme Court precedent. It then describes and analyzes the leading tests that commentators have proposed or endorsed for evaluating conduct under section 2, namely: (1) the Microsoft rule-of-reason framework, which examines both anticompetitive effects and procompetitive justifications within a structured, burden-shifting framework, and a variant, the disproportionality test, under which conduct that creates or maintains monopoly power is condemned only if it produces harms disproportionate to the resulting benefits; (2) the noeconomic-sense and profit-sacrifice tests, which focus on whether the challenged conduct made economic sense for the monopolist but for its potential exclusionary effect; (3) the equallyefficient-competitor test, which focuses on whether the challenged conduct would exclude an equally efficient rival; and (4) the impairing-rivals’-efficiencies test, which focuses on whether the suspect conduct solely created efficiencies for the monopolist or whether it also impaired the efficiencies of rivals.

The paper concludes that, while the proposed unitary tests are all useful for certain purposes, none can be used as a single bright-line rule for all of the many types of conduct subject to scrutiny under section 2, and that the Microsoft rule-of-reason framework should be utilized as the basic approach for analyzing the legality of single-firm conduct under section 2 of the Sherman Act.

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