Raising rivals' costs is a concept or theory in United States antitrust law describing a tactic or device to gain market share or exclude competitors.
The origin of the concept has been attributed to Professors Aaron Director and Edward H. Levi of the University of Chicago Law School, who wrote briefly in 1956 that a firm with monopoly power can decide to impose additional costs on others in an industry for exclusionary purposes.
[2] The concept of raising rivals' costs was developed more thoroughly in the 1980s in a series of articles by Jaunusz A. Ordover, Garth Saloner, Steven C. Salop, David T. Scheffman[3] The concept of raising rivals' costs has been the basis for finding an antitrust violation in such rebate-bundling cases as LePage's, Inc. v. 3M[4] and SmithKline Corp. v. Eli Lilly & Co.[5] In those cases, the defendants adopted rebate systems over their broad range of products such that, to match the net dollar value of the rebates to purchasers, the plaintiffs' competitors with narrower product ranges had either to provide a much greater unit rebate on their sales or else exit the business.
Scheffman concludes: The important lesson that was largely ignored, at least in the ensuing economics literature, was that lawyers and the judicial system could not be convinced that economics could suitably draw the line determining when a firm with market power was doing "too much" of what are otherwise normal competitive strategies and tactics, particularly with respect to product innovation and introduction, expansion, and pricing.
[9] The Court ruled: [A] union forfeits its exemption from the antitrust laws when it is clearly shown that it has agreed with one set of employers to impose a certain wage scale on other bargaining units.
In JTC Petroleum Co. v. Piasa Motor Fuels, Inc.,[13] a group of construction firms that applied asphalt emulsion to the surfaces of public roads (the "applicators") agreed among themselves to divide markets and rig bids on jobs for local governments.
[19] The Sixth Circuit said the jury had before it evidence that "beginning in 1990 USTC began a systematic effort to exclude competition from the moist snuff market."
"[20] The court concluded: The jury could have found, and apparently did find, that USTC's pervasive practice of destroying Conwood's racks and POS materials and reducing the number of Conwood facings through exclusive agreements with and misrepresentations to retailers was exclusionary conduct without a sufficient justification, and that USTC maintained its monopoly power by engaging in such conduct.
Therefore, the district court did not err in holding that there was sufficient evidence for a jury to find willful maintenance of monopoly power.