Grinnell test

  • United States v. Grinnell (1986) established the Grinnell test for antitrust cases, a 2-pronged test for illegal monopoly
    1. The defendant has monopoly power in the relevant market
    2. The development of the defendent’s monopoly power was a “willful acquisition of maintenance of that power”, instead of as a result of superior products, business acumen, or a historical accident
  • In other words, if the defendant is guilty, it’s because they tried to become a monopoly, rather than just stumbling into monopoly power
  • First prong
    • Define a relevant market
    • Show that the defendant has monopoly power in the relevant market
  • Second prong
    • Show that the monopoly misued their market power
      • Conduct with a legitimate business purpose is fine
      • Any conduct with a predatory or exclusionary purpose is not

Aspen Skiing Company v. Aspen Highlands Skiing Corporation (1985)

  • Refer to Aspen Skiing as Aspen and Aspen Highlands Skiing as Highlands
    • Aspen owned 3 mountains for skiing in Colorado, Highlands owned one mountain
    • Throughout the 1970’s, guests could buy a single pass to access all four mountains with revenue divided amongst the moutains based on usage
    • In 1978, Aspen required Highlands to accept a fixed 15% of revenue and made it much harder for customers to use the multi-site passes
    • Aspen decided to eliminate the multi-site passes
  • The court used the Grinnell test and found Aspen guilty of an antitrust violation
    • The market was defined as the four mountains owned by Aspen and Highlands
    • Aspen was deemed to have market power
    • By eliminating the multi-site passes, Aspen was exerting market power over Highlands
    • The court found that Aspen’s elimination of multi-site passes damaged its rival’s business but also reduced the demand of its own business in the short-run, in an anticipation to drive its competitor out of business and exploit monopoly profit in the long-run
  • The case hinged on the fact that the multi-site passes existed prior to the violation, and eliminating them was predatory

Eastman Kodak Co. v. Image Technical Services, Inc. (1992)

  • Kodak produced and provided maintenance for copiers and other equipment
    • Eventually, independent service organizations (ISOs) entered the repair market, receiving repair parts from Kodak or the original parts manufacturers
    • In 1985, Kodak restricted the sale of replacement parts to their customers, on the condition that repairs be done by Kodak
    • They also pressured parts manufacturers to exclude ISOs from the repair market
  • Image Technical and other ISOs claimed Kodak committed two antitrust violations
    1. Illegally tying their products(equipment) to the repair of their products
    2. Monopolizing the market for service of Kodak equipment
  • Market definition
    • ISOs claimed the markets were distinct: equipment market vs. parts service market
    • Kodak claimed the equipment was useless without service, thus it was only a single market
    • The courts believed the two markets were distinct in the eyes of the buyer (primary market for equipment and secondary aftermarket for repair parts)
  • Market power
    • Kodak claimed that it lacked market power in the repair market, since it didn’t have market power in the copier market
  • The Supreme Court ruled in favor of ISOs, noting that Kodak had nearly 100% control of the repair parts market
    • This case highlights the importance of market definition