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01/12/2022

Chapter 4. Section 2 of the Sherman Act

Kir Nuthi
Kir Nuthi Public Affairs Manager

Kir Nuthi and Chris Marchese would like to add a special thank you to our former intern, Malena Dailey, for her research and help in this chapter.

This section focuses on Section 2 of the Sherman Act. While Section 1 of the Sherman Act addresses actions between businesses, Section 2 focuses on anticompetitive behavior of a single business.

4.1 Section 2 Of The Sherman Act Bans Anticompetitive Monopolization

Section 2 of the Sherman Act makes it illegal to “monopolize, attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations.” 

In simple terms, this boils down to a two-part test: 

  • Did the business exercise monopoly power in its relevant market?
  • Did the business act anticompetitively to monopolize its relevant market? 

If the answers to both are yes, then the business violated Section 2 of the Sherman Act.

4.2 To “Monopolize” Means To Have An Iron Fist Over Prices And Profits

Section 2 of the Sherman Act focuses on the definition of “monopoly” and “monopolization.” But what does it mean to monopolize a market?

A business has monopoly power only if it has enough control over an industry to meaningfully raise prices or reduce quality without losing profits. If it can do this successfully, the business is a monopoly. 

That means being big isn’t enough. Take any large business like Ford—even if it controls over ¾ of the pickup truck market, it’s not automatically an unlawful monopoly unless it uses that control to harm consumers through higher prices, reduced quality, or stifled innovation.

4.3 Monopoly Power Isn’t Enough To Violate The Sherman Act

To be clear, it is not unlawful to be a monopoly; it is unlawful only to be a monopoly that acts anticompetitively. Anticompetitive conduct is found whenever a business harms consumers—for example, through higher prices, reduced quality, or stifled innovation.

As held in the important Supreme Court case United States v. Grinnell Corp. (1966), monopolies can form from “the willful acquisition or maintenance of that power” or as the “consequence of a superior product, business acumen, or historic accident.” Whereas the former is unlawful, the latter is lawful. 

The Supreme Court reaffirmed that 1966 ruling as recently as 2004, holding that “an element of anticompetitive conduct” is necessary to find “the possession of monopoly power” unlawful.

  • Chapter 4 Recap

    • Section 2 of the Sherman Act bans a company’s ability to use anticompetitive business practices to maintain or develop a monopoly.
    • A business has monopoly power if it can raise prices or reduce quality without losing profits.
    • Having monopoly power isn’t illegal unless the company has acted anticompetitively in ways that have harmed consumers.