Section 2 – Monopolization

The second section of the Sherman Antitrust Act legislation deals more generally with end results that are anticompetitive by nature. The text of the section reads:

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.

From this statutory text courts have derived two essential elements to a violation of the second section of the Sherman Act. The first element is possession of monopoly power in the relevant market. Monopoly power simply refers to the absence of any substantial competitors in a given market, which gives the monopolist an unchecked ability to control prices and terms of contracts with customers. This invites the sort of market manipulation that Congress intended to eliminate with the passage of the Sherman Act, and thus most monopolies are immediately subject to scrutiny. However, monopolies are not inherently illegal, and so neither is the mere possession of a monopoly. In order to be eligible for prosecution under the second section of the Act, a second element must be met.

In addition to possession of monopoly power, the prosecution also must prove the willful acquisition or maintenance of that power. This brings a sort of intent element to the crime. It creates a dichotomy between coercive monopolies and innocent monopolies. Coercive monopolies are those acquired or maintained willfully with the objective of manipulating prices to reap artificially high profits. Without legislation, such monopolies could erect impregnable barriers to entry to their relevant market, rendering competition, and therefore low prices, impossible to achieve.

Coercive monopolies are to be distinguished from innocent monopolies, which are the product of superior growth or development of a company that allows it to buy out its rivals and expand to the point that it is more difficult if not impossible for other similar companies to compete on the basis of price. However, they lack the coercive intent to artificially inflate prices and deprive the consumer of value; instead, they use their monopolistic position to further drive down costs and prices, ultimately benefitting the consumer as well as themselves. Innocent monopolies might be the result of a superior product (think Apple in the digital media world). Alternatively, they could result from superior business acumen (think Wal-Mart in the realm of distribution). Another example of how an innocent monopoly might come about is by historic accident. For instance, in the case of a patent, many people may come up with the same idea, but the first to register the patent will have an effective monopoly over their product for the duration of the accompanying period of exclusivity. Of course, such a product is almost invariably the result of much hard work – the “accident” terminology serves only to distinguish such a situation from an intentional monopolization of an existing product or service.