Price Squeeze Claims: Antitrust Or Anticompetition?

Some major changes could be afoot in how U.S. law governs monopolist pricing.  The Supreme Court’s February 25, 2009 decision in Pacific Bell Telephone Co. v. linkLine Communications Inc., 129 S.Ct. 1109, marks quite a departure from long-standing price claim precedent.  Let’s take a look how.

Price squeezing can occur when a dominant supplier in one market also competes with its buyers in their market.  The dominant firm (sometimes called the “upstream” firm because it supplies markets further up the stream of commerce) “squeezes” its “downstream” or retail competitors’ profit margins by:

– Charging its buyers/retail competitors high wholesale prices, and/or
– Cutting its own retail prices

Antitrust law has recognized price squeeze claims for over 60 years.  But when the Supreme Court issued its decision on the linkLine case, it gave short shrift to established precedent like seminal monopolization case, United States v. Aluminum Co. of America (ALCOA) , 377 U.S. 271 (1945), citing “developments in economic theory and anti-trust jurisprudence since ALCOA.”  The Court turned instead to more recent precedent like its 2004 Trinko and 1993 Brooke Group decisions, where it ruled that if the alleged monopolist had priced above cost, neither charging high wholesale prices nor cutting retail prices by itself could give rise to an antitrust claim.

Basically, the Court is saying that unless pricing is “predatory pricing” (below-cost pricing aimed at eliminating the competition, raised to much higher levels once a monopoly is established), it can’t be subject to price squeeze claims. So charging high or monopoly upstream/wholesale prices doesn’t violate antitrust law, and allowing price-squeeze claims for cutting downstream/retail prices could actually harm competition, because firms fearing antitrust liability might raise their retail prices or avoid aggressive price competition.

Since linkLine’s claim was for low pricing, but not predatory pricing, the court found no support for them “in our existing anti-trust doctrine.”