As noted earlier,195 while predatory pricing is generally thought to be rarely a successful strategy, in the public utilities it has greater potential. Predatory pricing could make economic sense and, therefore, pose a significant antitrust problem when
1 9 3 This aspect is treated in more depth in the section on the essential facilities doctrine, infra,
notes 244-55, and accompanying text.
1 9 4 See City of Anaheim v. Southern Cal. Edison Co., 955 F.2d 1373 (9th Cir. 1992), in which the
court, while generally agreeing with the reasoning of Town of Concord, refused to go quite as far in articulating the difficulty of making out a case. Rather it stressed the specific intent of the pricing action as demonstrated, for example, by whether the defendant had any viable business explanation for the action, other than putting the plaintiffs at a competitive disadvantage. Thus the court, as the Supreme Court has recently in Kodak, see note 85, supra, and Aspen Ski, see note 100, supra, emphasized the absence of a legitimate business explanation as decisive. Where such a defense is presented it will offset the intent element of the monopolization conduct allegations. See also note 254, infra.
1 9 5 See notes 102-05, supra, and accompanying text. See also North Carolina Elect. Membership
Corp. v. Carolina Power & Light Co., 780 F. Supp. 322, 337 (M.D.N.C. 1991) (finding on the record presented that it was "implausible" that the firm had engaged in predatory pricing).
the firm operates in both regulated and unregulated markets. It may be able to charge off to the regulated market (and thus be assured of recouping) costs, such as joint and fixed costs, that its competitors, only operating in the unregulated market could not avoid. Then the firm could charge a below cost price in the unregulated market, driving out the competition and recoup its losses in the regulated market. Of course, it can be argued that the regulatory authorities would not permit that kind of cost subsidization built into the regulated prices. However, it may be very hard for a regulatory agency to detect such subsidies. Moreover, from an economic point of view the assignment of such joint costs is purely arbitrary. The leverage created by the government sanctioned monopoly can also be used to gain nonprice advantages.196
In all three public utilities regulated and unregulated markets are emerging. For the foreseeable future, one may assume continued regulation of the cost of access to the local retail serving distribution systems — wire or pipe. Since that function will in most instances continue to be controlled by a monopolist,197 which also is offering unbundled products and services in the "competitive" market, the potential for the regulated firm to act predatorily against its competitors is present.
In Town of Concord.1 9 8 Judge Breyer briefly alluded to the problem faced when one of the markets involved is regulated and the other is not. The court recognized that in such situations there is much greater potential for a successful price squeeze or predatory pricing and specifically stated that the law might treat this situation very
1 9 6 See Sievers & Albery, "Strategic Allocation of Overhead: The Application of Traditional
Predation Tests to Multiproduct Firms," 60 Antitrust L.J. 757 (1992); Noll & Owen, "The Anticompetitive Uses of Regulation: United States v. AT&T," in The Antitrust Revolution, at 290 (Kwoka & White, eds., Scott, Foresman 1989).
1 9 7 This is particularly true of electricity and gas, except, perhaps, for very large users. In
telecommunications the situation is less clear. There are several viable alternatives in place or on the horizon. The growth of use of radio waves and satellites have certainly made inroads on the need for a wire connection. However, at present, cost differences still give wire service great advantages. In addition, competition between traditional telephone service and cable television service is at hand.
However, at best this provides a tight oligopoly market, since it should be unthinkable to have multiple distribution networks. Sharing of that local distribution network on some kind of terms is essential. Thus, some form of regulatory control of that function will almost have to continue.
1 9 8 Supra, note 190, and accompanying text.
THE NATIONAL REGULATORY RESEARCH INSTITUTE— 69.
differently.199 Most scholars, even those generally critical of the price squeeze approach and the more general leveraging idea, concede that one instance in which such conduct might lead to larger monopoly reward, and thus inefficient, anti-consumer welfare conduct, occurs when a firm can escape effective control of a regulated
monopoly price.
Thus far, there has been relatively little clear litigation involving these kinds of price squeeze-leveraging ideas. However, a recent case in the Public Utilities Commission of Ohio illustrates the potential. It should be noted, however, that the decisions in the case thus far fall under the Ohio regulatory statute, not the antitrust laws,2 0 0 and the regulatory statute is considerably more specific in its application to the situation.2 0 1 The Commission found that the local electric company had entered into a contract to provide cooling service to a customer at a price below cost,2 0 2 making it
1 9 9 The court stated:
We recognize that a special problem is posed by a monopolist, regulated at only one level, who seeks to dominate a second, unregulated level, in order to earn at that second level the very profits that regulation forbids at the first. See 3 Areeda & Turner [supra note 26. atl ffl 726e. at 217-20.
Town of Concord, Mass. V. Boston Edison Co., 915 F.2d 17, 29 (1st Cir. 1990), cert, denied. 499 U.S. 931 (1991). The same point is made in Judge Posner's opinion in Olympia Equipment Leasing Co. v. Western Union Tel. Co., 797 F.2d 370 (7th Cir. 1986), cert, denied. 480 U.S. 934 (1987). See also United States v.
American Tel. & Tel. Co., 524 F. Supp. 1336 (D.D.C. 1981). See generally, Ross, supra note 26 at 74-75.
2 0 0 A parallel antitrust action raising the same issues has recently been filed in federal district
court. See PUR Utility Weekly. October 6,1995; "Ohio Edison Faces Antitrust Suit," Pub. Util. Fort, at 13 (December, 1995).
2 0 1 Youngstown Thermal Ltd. v. Ohio Edison Co., 163 P.U.R.4th 471 (Ohio P.U.C., Aug. 31, 1995),
order clarified on reh'q in part. 165 P.U.R.4th 135 (Ohio P.U.C., Oct. 18,1995). The case is currently pending on appeal to the Ohio Supreme Court.
The Ohio statute, R.C. 4905.26, provides in part that the Public Utilities Commission set for hearing and resolve any complaint against a public utility whenever reasonable grounds appear that "any rate, fare, charge.. .classification, or service rendered [or] charged.. .or proposed to be rendered [or]
charged,.. .is in any respect unjust, unreasonable, unjustly discriminatory, unjustly preferential, or in violation of law "
A similar situation may be posed when a telephone company with market power uses "predatory"
tactics to make it difficult for competitive publishers of phone directories to compete. See Great W.
Directories, Inc. v. Southwestern Bell Tel. Co., 63 F.3d 1378 (5th Cir. 1995), modified on reh'g, 74 F.3d 613 (1996) (damages for future possible violations are not permitted).
2 0 2 The case also illustrates the difficulty of deciding on the appropriate definition of cost in these
predatory pricing cases. The Commission appears to have correctly used long-run avoided cost as its definition of "actual cost," below which the pricing had to fall to violate the statute.
impossible for a potential competitor to bid successfully on the contract. The customer also took electric service from the defendant for other purposes. The Commission found that the price on the cooling service offered by the defendant was "predatory." It was being subsidized out of the profits from the portion of the total service that was regulated. The Commission expressly stated that was the reason why such predatory pricing, which in most situations might not make economic sense, would be in the firm's interest here. Thus, in any context in which a product or service is being sold in a competitive market but is closely related to a price regulated service, one must look very carefully at whether the power in the regulated market is being used to gain an enhanced position in the unregulated market and a monopoly rent, which otherwise could not be recovered, is now being extracted.
A number of cases have also been brought in recent years that involve
independent power producers or similar non-utility generators. They have sued alleging predatory behavior by the dominant utility firm in the area that erected road blocks to their entry, growth, or development. In most of these cases the plaintiffs have lost, either because they could not prove a causal link between the utility's conduct and their financial plight or because the injury was the result of more efficient operations by the utility. The courts have recognized that this is not the type of injury the antitrust laws were designed to protect against.2 0 3