Question

Summarize the argument that was used by both Alcoa and DuPont in their defense as they were tried in court for violation of antitrust laws.

Answer 1

Anti-Trust law was formulated to ensure business operates fairly and honestly. The three main antitrust laws include Sherman’s act, the Claytons act, and the federal trade commission act. The Antitrust laws are designed to prevent activities like price fixing, price discrimination, business restraints, and monopolistic business practices.

The monopoly power can enhance the prices, impact the output and reduce innovation. The market power is defined by the seller’s power to exercise control over the prices. For example, a sole vegetable seller located near the residential complex can command a higher price because of his advantage and as he is the sole vegetable seller in the vicinity. So the vegetable seller has market power. But a small percentage of market power does not require antitrust interventions.

Mere possession of superior skills or technological strengths does not warrant anti-trust is not monopoly power. Monopoly power is when a company creates entry barriers and also tries to exercise its market power for a long duration of time by reducing prices or maintains the market power by conducting exclusionary conduct.

The two cases we discuss are as follows:

United States Vs. Aluminium Company of America: Market share as an indication of market power was explained as follows:

• Alcoa was charged for numerous violations under Sherman act 1 and 2. The case was dismissed by judge Caffey in 1942.
• Alcoa produced a large number of virgin aluminum ingots through 1938 with a market share on 90% (including fabricated aluminum but secondary aluminum was excluded). It would be 68% if fabricated aluminum and secondary aluminum was included), 33% if aluminum fabricated by Alcoa is excluded and the secondary production of aluminum was included).
• The Judge Hand said that 90% was monopolistic market share, 68% is doubtful to decide if its monopolistic share but 33% is definitely not a monopolistic market share. Judge hand stated that Alcoa had shown monopolistic behavior and had shown unlawfully controlled the aluminum ingot market in violation of section 2 of Sherman’s act.
• The company management as told to divest from Alcoa stock or Aluminium limited stock. The court ruled that the market share was very important in determining the monopoly power.

United States vs. DuPont: The court stated that 75% of control of the cellophane market constitute monopoly power. It was not considered monopoly because it is part of the flexible packaging material industry as DuPont share was just 20% of the industry.