Sherman Act. 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

Question

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. Be-cause 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 in part 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.

Answer 1

Sherman Act
The court ruled in Dentsply's favor, and the government appealed to the U.S. Court of Appeals for the Third Circuit, which reversed the ruling. The appellate court concluded that Dentsply's exclusivity policy, with respect to its restrictions on its dealers' product lines, violated Section 2 of the Sherman Act. 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 court reasoned that the relevant market included the market for the sale of teeth to dealers and to laboratories, in part because, although Dentsply marketed its products through dealers, its nearest competitor sold directly to laboratories. As for monopoly power, "Dentsply's share of the market is more than adequate to establish a prima facie case of power." Dentsply maintained this power and used it to adversely affect competi-tion in the market by precluding its dealers from handling its competitors' teeth. Of course, Dentsply's sales to its dealers were "technically" a series of separate transactions within relationships terminable at will. But, in the court's eyes, Dentsply's large market share and its conduct made the arrangements as effective as if they were binding contracts. The court also found no sufficiently procompetitive justification for the Dentsply's exclusivity policy.