A Structural Approach to the Application of Section One of the Sherman Act to Oligopolistic Interdependence

A central tenet of American economic thought is that markets in which many producers compete for business are preferable to those in which one or a few sellers dominate. The conventional wisdom underlying this preference is that competitive markets produce more of the goods consumers want at lower prices than do noncompetitive markets. Oligopolies are markets in which there are few sellers. Oligopolistic markets are characterized frequently by higher prices and lower outputs than competitive markets. Many sectors of the American economy are oligopolistic. For example, the American automobile industry is dominated by "the big three," General Motors, Ford, and Chrysler. The American oil industry is dominated by eight firms. Many parts of the electrical equipment industry are controlled by two sellers, as is the entire can industry. In addition, there are numerous cases of less well-known oligopolies. Since the turn of the century, antitrust laws have existed to control the harmful effects of monopolies and to prevent other firms from acting in concert to achieve the inflated prices characteristic of monopolistic markets. Thus, price-fixing agreements, monopolization, and other practices in restraint of trade are banned by the Sherman Act and other antitrust statutes. Oligopolistic markets have posed a special problem for antitrust enforcers, however, because of the widespread belief that oligopolists can coordinate their prices and outputs to achieve monopoly-like results without entering an illegal price-fixing agreement. Legal commentators have tried for the past forty years to find a way to apply section one of the Sherman Act to supracompetitive pricing by oligopolists. Most have concluded that section one cannot be applied because of the difficulty of proving that oligopolists have acted in accordance with an agreement. If such an agreement is not proved, firms incur no antitrust liability. Thus, many commentators have argued that new legislation is necessary if antitrust enforcers are to reach the harmful effects of oligopoly. This Comment reconsiders the application of section one, and argues that a structural approach to oligopolistic behavior makes the application of section one feasible.