Clarkson-11E: Case Problem With Sample Answer

Cross-7e: Case Problem with Sample Answer Chapter 27: Antitrust and the Restraint of Trade

27–7. Case Problem with Sample Answer

Dentsply International, Inc., is one of a dozen manufacturers of artificial teeth for dentures and other restorative devices. Dentsply sells its teeth to twenty-three dealers of dental products. The dealers supply the teeth to dental laboratories, which fabricate dentures for sale to dentists. There are hundreds of other dealers who compete with each other on the basis of price and service. Some manufacturers sell directly to the laboratories. There are also thousands of laboratories that compete with each other on the basis of price and service. Because of advances in dental medicine, however, artificial tooth manufacturing is marked by low growth potential, and Dentsply dominates the industry. Dentsply’s market share is greater than 75 percent and is about fifteen times larger than that of its next-closest competitor. Dentsply prohibits its dealers from marketing competitors’ teeth unless they were selling the teeth before 1993. The federal government filed a suit in a federal district court against Dentsply, alleging, among other things, a violation of Section 2 of the Sherman Act. What must the government show to succeed in its suit? Are those elements present in this case? What should the court rule? Explain. [United States v. Dentsply International, Inc., 399 F.3d 181 (3d Cir. 2005)]

Sample Answer:

To show that an exclusive-dealing arrangement, such as the one between Dentsply and its dealers, is being used to maintain a monopoly illegally, the government must show that a party (1) has monopoly power in the relevant market and (2) willfully acquired or maintained this power. In this case, the relevant market could likely include the market for the sale of teeth to dealers and to laboratories, in part because, although Dentsply markets its products through dealers, its nearest competitor sells directly to laboratories.

As for monopoly power, Dentsply’s share of the market is more than enough to establish a prima facie case of power, and Dentsply maintained this power and used it to adversely affect competition in the market by precluding its dealers from handling its competitors’ teeth. Dentsply might argue that its sales to its dealers are a series of separate transactions, terminable by any party at any time. But Dentsply’s large market share and its conduct make such arrangements as effective as if they are long-term, binding contracts. A court is not likely to find a sufficiently procompetitive justification for

Dentsply’s policy. The court should rule that the firm’s restrictions on its dealers’ product lines violate Section 2 of the Sherman Act.