ABOLISHING THE PRICE SQUEEZE AS A THEORY OF ANTITRUST LIABILITY
JEL: K21, L12
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. 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.
Founder, Criterion Economics, L.L.C.; President, International Institute for Competition Law and Economics (IICLE). E-mail: jgsidak{at}aol.com. This article expands upon Brief of Amici Curiae Professors and Scholars in Law and Economics in Support of the Petitioners, Pacific Bell Telephone Co. v. linkLine Communications, Inc., Supreme Court of the United States, No. 07-512 (filed November 16, 2007) (brief on behalf of William J. Baumol, Robert H. Bork, Robert W. Crandall, George Daly, Harold Demsetz, Jeffrey A. Eisenach, Kenneth G. Elzinga, Gerald Faulhaber, Franklin M. Fisher, Charles J. Goetz, Robert Hahn, Jerry A. Hausman, Thomas M. Jorde, Robert E. Litan, Paul W. MacAvoy, J. Gregory Sidak, Pablo T. Spiller, and Daniel F. Spulber), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1030990. I acknowledge the amici for their contribution to this article (without imputing blame to them for any errors that remain), and I thank Robert H. Bork for helpful comments and Katie Jones, Jesse Weiss, and Nolan Bolduc for helpful research assistance. Copyright 2008 by J. Gregory Sidak. All rights reserved.