What is Monopoly Power Under the Sherman Act?
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Mary Martin
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Mary Martin has been a legal writer and editor for over 20 years, responsible for ensuring that content is straightforward, correct, and helpful for the consumer. In addition, she worked on writing monthly newsletter columns for media, lawyers, and consumers. Ms. Martin also has experience with internal staff and HR operations. Mary was employed for almost 30 years by the nationwide legal publi...
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UPDATED: Oct 21, 2024
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UPDATED: Oct 21, 2024
It’s all about you. We want to help you make the right legal decisions.
We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.
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Most legal terms or phrases have statutory definitions and interpretations by case law—the term monopoly power under the Sherman Antitrust Act is no different. What is formally monopoly power and what will eventually be considered monopoly power is defined by the definitions and regulations set out in the Sherman Antitrust, court interpretations, and administrative decisions through the Federal Trade Commission (FTC).
What’s the Sherman Antitrust Act?
The Sherman Antitrust makes monopoly power illegal. Under the Sherman Act monopoly power is considered the ability of a business to control a price within its relevant product market or its geographic market or to exclude a competitor from doing business within its relevant product market or geographic market. In order to meet this definition, it is only necessary to prove that the business had the power to fix prices or exclude competitors. The plaintiff does not need to prove that prices were actually raised or that competitors were actually excluded from the market.
Since the passage of the Sherman Act, however, court rulings have shaped the definition of monopoly power. Proving that a company violated the Sherman Antitrust Act requires more than just proving that the company exercised a monopoly. A plaintiff or the government must show that a monopoly existed, and that said power was accompanied by some anti-competitive act by the offending company in a relevant market.
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How to determine if a company has a monopoly
The first prong is deciding whether a company even has a monopoly. A general definition of a monopoly is where nearly all of one product type or service is owned by one person or group of people within a community or area. Thereby, the sole control of this product or service is given to one party to the elimination of all others within the marketplace. Courts will usually look at a company’s market share for a particular product or service to see if a monopoly exists. If a company has a market share of greater than 75 percent, they will probably be considered a monopoly. For market share purposes, courts will make an apples-to-apples comparison by looking at identical products or products that are so similar they could be substituted to determine market share.
Courts will also review other factors including the markets affected by the excessive market share, also called the relevant market. If a fruit grower only grows and sells fruit in California, the courts will not usually uphold a complaint of monopoly power by a seller who only operates in New York City, unless the grower can show some type of overlap in markets.
Once the courts find that a monopoly exists, it will move to the second prong of monopoly power. The second part of the test is whether the company engaged in some type of unfair or anti-competitive conduct. This second prong is not defined by a statute, but rather is evaluated on a case-by-case basis; and it usually requires some type of showing that the monopoly power was going to or used to abuse their monopoly.
What is the role of the FTC?
The FTC is one of the enforcement arms of the Sherman Antitrust Act. The FTC has administrative rule making and enforcement authority. Administrative law judges frequent issue opinions, similar to court opinions, regarding what is considered monopoly power under the Sherman Act. Even though the Sherman Act and the courts have provided fairly consistent guidelines as to what monopoly power is under the Sherman Antitrust Act, consulting with a corporate attorney is always recommended because of the overlap in statutes, court opinions, and administrative rules. Failure to review all of the overlapping sources could result in an incomplete opinion if you are concerned about a monopoly power violation under the Sherman Act.
How to get help
To determine whether purchasing a competitor’s business or creating an agreement with a competitor will result in a monopoly within your market place, consult with an experienced business law attorney.
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Case Studies: Insurance Strategies for Monopoly Power
Case Study 1: Commercial General Liability Insurance, Shield Insurance
Shield Insurance provided commercial general liability insurance to a manufacturing company that had been accused of monopolistic practices under the Sherman Antitrust Act. In this case study, several competitors alleged that the manufacturing company used its dominant market position to engage in anti-competitive behavior, stifling competition and limiting consumer choice.
The manufacturing company had commercial general liability insurance coverage from Shield Insurance, which included coverage for antitrust claims. Shield Insurance assigned an experienced claims adjuster who worked closely with the manufacturing company’s legal team to investigate the allegations and formulate a defense strategy.
Through effective negotiation and legal representation, Shield Insurance helped the manufacturing company reach a settlement that protected their interests while mitigating the financial impact of the claims.
Case Study 2: Directors and Officers Liability Insurance, Integrity Insure
Integrity Insure offered directors and officers liability insurance to a technology company whose executives were facing allegations of monopolistic practices. In this case study, the company’s competitors accused the executives of using their positions to manipulate the market and maintain a monopoly.
The technology company had directors and officers liability insurance coverage from Integrity Insure, which covered defense costs and potential settlement amounts related to antitrust claims. Integrity Insure provided a team of skilled claims specialists who collaborated with the technology company’s legal counsel to build a robust defense strategy.
Through diligent investigation and expert representation, Integrity Insure successfully defended the executives against the allegations, preserving their professional reputations and minimizing the financial consequences.
Case Study 3: Business Interruption Insurance, Resilient Coverage
Resilient Coverage provided business interruption insurance to a small business that faced legal action alleging monopolistic practices. In this case study, a competitor accused the small business of engaging in anti-competitive behavior that harmed their market position. The legal proceedings disrupted the small business’s operations and resulted in significant financial losses.
The small business had business interruption insurance coverage from Resilient Coverage, which covered the income loss and extra expenses incurred due to the legal proceedings. Resilient Coverage promptly initiated the claims process and worked closely with the small business to assess the financial impact and document the losses.
The insurance policy provided the necessary financial support to keep the small business afloat during the legal battle, allowing them to continue operating and ultimately reach a favorable resolution.
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Mary Martin
Published Legal Expert
Mary Martin has been a legal writer and editor for over 20 years, responsible for ensuring that content is straightforward, correct, and helpful for the consumer. In addition, she worked on writing monthly newsletter columns for media, lawyers, and consumers. Ms. Martin also has experience with internal staff and HR operations. Mary was employed for almost 30 years by the nationwide legal publi...
Published Legal Expert
Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.