Town of Concord, Massachusetts v. Boston Edison Company

The chief question raised by this appeal is whether a pricing practice known as a price squeeze violates the antitrust laws when it takes place in a fully regulated industry.

To understand the nature of a price squeeze the reader must keep three basic facts in mind. First, a firm can engage in a price squeeze only if it operates at two levels of an industry, and only if its competitors at one level are also its customers. Alcoa, the defendant in a famous antitrust case, provides an example of such a firm. See United States v. Aluminum Co., 148 F.2d 416 (2d Cir.1945) (Alcoa). For several decades, Alcoa controlled the domestic production of almost all of America’s aluminum ingot. It sold its ingot to independent fabricators, some of whom turned the ingot into aluminum sheet; it also fabricated sheet itself. Both Alcoa and the independents sold the finished sheet to the same group of consumers. Alcoa, therefore, operated at two levels of the aluminum business — ingot production and sheet production — and it competed with its customers (the independent sheet fabricators) at the second level.

Second, a price squeeze occurs when the integrated firm’s price at the first level is too high, or its price at the second level is too low, for the independent to cover its costs and stay in business. Suppose, hypothetically, that Alcoa’s price for ingot was $100 per ton; that the independents' costs of fabricating ingot into sheet was $50 per ton; and that Alcoa’s price for sheet was $145 per ton. Under these circumstances, the independents, with ingot costs of $100 and fabricating costs of $50, would have no “room” to make a profit, for they could not charge more than $145 for sheet without losing all of their business to Alcoa. Alcoa’s prices of $100 for ingot and $145 for sheet would squeeze the independents out of business.

Third, Judge Learned Hand, in United States v. Aluminum Co., supra, wrote that a price squeeze violates Sherman Act § 2, 15 U.S.C. § 2(a), when (1) the firm conducting the squeeze has monopoly power at the first industry level, (2) its price at this level is “higher than a ‘fair price,’ ” and (3) its price at the second level is so low that its competitors cannot match the price and still make a “living profit.” See id. at 437-38. Other courts, using substantially similar language, have reached the same conclusion. See, e.g., Bonjorno v. Kaiser Aluminum & Chem. Corp., 752 F.2d 802, 808-11 (3d Cir.1984), cert. denied, 477 U.S. 908, 106 S.Ct. 3284, 91 L.Ed.2d 572 (1986); George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 553 (2d Cir.1977); Carl Hizel & Sons, Inc. v. Browning-Ferris Indus., Inc., 600 F.Supp. 161, 161-62 (D.Colo.1985).

This case raises a narrow question about the price squeeze theory of antitrust liability: does Sherman Act § 2 forbid a govern- *19 mentally regulated firm with fully regulated prices — prices that are regulated at both industry levels — from asking regulators to approve prices that could create a price squeeze? Despite language in some cases suggesting that the answer is yes, see pp. 28-29, infra, our analysis of the likely effects of a price squeeze in a fully regulated industry leads us to conclude that the answer is no. Effective price regulation at both the first and second industry levels makes it unlikely that requesting such rates will ordinarily create a serious risk of significant anticompetitive harm. At the same time, regulatory circumstances create a significant risk that a court’s efforts to stop such price requests will bring about the very harms — diminished efficiency, higher prices — that the antitrust laws seek to prevent. We conclude, therefore, that price regulation will, in most cases, prevent a price squeeze from constituting an “exclusionary practice” of the sort that Sherman Act § 2 forbids.

We also conclude that, regardless, the plaintiffs in this particular case did not demonstrate the existence of an unlawful exclusionary practice, for the evidence does not support a critical jury finding. It does not show that the defendant, Boston Edison, possessed monopoly power in the primary product market.

For these reasons, we reverse a judgment in favor of the plaintiffs.

I

Background

The private firms that supply American homes and businesses with electricity are called “investor-owned utilities.” Most of these firms are fully integrated, operating at all three levels of the electric power industry: (1) they produce (or generate) electricity, (2) they transmit electricity from generators to local distributors, and (3) they distribute electricity at the local level. See generally Joskow, Mixing Regulatory and Antitrust Policies in the Electric Power Industry: The Price Squeeze and Retail Market Competition, in Antitrust and Regulation 175-78 (F.M. Fisher ed. 1985) [hereinafter Joskow ]; Meeks, Concentration in the Electric Power Industry: The Impact of Antitrust Policy, 72 Colum.L.Rev. 64, 67-69 (1972) [hereinafter Meeks\ Despite being fully integrated, these firms typically do not distribute only electricity that they themselves have generated. Rather, in many parts of the country, groups of firms have formed power “pools” through which they coordinate the generation, transmission, and distribution of electricity throughout a large geographical area. These pooling arrangements aim to enhance reliable and efficient electric service by matching customer demands (which change minute by minute) with available low-cost supply sources. As a result of power pooling, an integrated utility will often wind up distributing electricity generated by a different, interconnected company. See generally 16 U.S.C. § 824a-1 (governing pooling agreements); New England Power Pool Agreement, 56 F.P.C. 1562 (1976) (describing the New England Power Pool), petitions for review denied, Municipalities of Groton v. FERC, 587 F.2d 1296 (D.C.Cir.1978); C. Phillips, Jr., The Regulation of Public Utilities 585-92 (1988) (discussing coordination among electric utilities) [hereinafter C. Phillips ]. Even in the absence of explicit pooling arrangements, the many physical interconnections among American utilities, combined with the tendency of electricity to flow instantaneously along interconnected lines to wherever it is demanded, make it likely that electricity distributed by one utility will be supplied by another. One legal consequence of these interconnections and pooling arrangements is that most electricity flows “interstate,” permitting federal, as well as state, regulation of electricity. See Cincinnati Gas & Elec. Co. v. FPC, 376 F.2d 506, 507-09 (6th Cir.), cert. denied, 389 U.S. 842, 88 S.Ct. 77, 19 L.Ed.2d 106 (1967); Public Serv. Co. v. FPC, 375 F.2d 100 (7th Cir.), cert. denied, 387 U.S. 931, 87 S.Ct. 2054, 18 L.Ed.2d 992 (1967); see generally FPC v. Florida Power & Light Co., 404 U.S. 453, 92 S.Ct. 637, 30 L.Ed.2d 600 (1972).

Investor-owned utilities of the type we have described supply approximately 75% *20 of the nation’s electricity. The remainder is supplied by government- and consumer-owned systems. Unlike their investor-owned counterparts, these systems tend not to be integrated. The federal government, for example, generates about 10% of the nation’s electricity (at systems such as the Tennessee Valley Authority), but sells most of it to independent distributors. Approximately 2,000 municipalities and cooperatives own small-scale distribution companies, but only a handful generate their own electricity; most purchase the electricity they distribute from investor-owned utilities or from the federal government. In contrast to investor-owned systems, municipal systems typically enjoy generous tax and financing subsidies and substantial freedom from regulation. See generally Joskow at 175-78; Joskow and Schmalen-see, Markets for Power: An Analysis of Electric Utility Deregulation 17-20 (1983); Lopatka, The Electric Utility Price Squeeze as an Antitrust Cause of Action, 31 UCLA L.Rev. 563, 568 & n. 29 (1984) [hereinafter Lopatka ]; Meeks, 72 Colum. L.J. at 67-69.

The record before us reveals facts typical of the national pattern. The defendant, Boston Edison, is a fully integrated investor-owned utility. It belongs to the New England Power Pool (“NEPOOL”). It transmits electricity (either self-generated or, e.g., secured from other NEPOOL members) to 52 cities and towns in eastern Massachusetts. Each of these towns has only one distribution system serving all of the towns’ inhabitants. In 39 of the towns, Edison owns the distribution system. In the remaining towns, either the town itself or another utility owns the distribution system. Concord and Wellesley, the plaintiffs, are two of the towns that own their own distribution systems. They take all of their electricity over Edison’s transmission lines, and buy most of it directly from Boston Edison.

Edison’s rates are completely regulated. The Federal Energy Regulatory Commission (“FERC,” or the “Commission”) regulates the rates that Edison charges when it sells electricity at “wholesale” (i.e., when it sells electricity to other firms, including municipal distributors, for resale to final customers). See 16 U.S.C. § 824 (regulating the “transmission ... and ... sale of electric energy at wholesale in interstate commerce”). Before Edison can increase its rates, it must publish the new-rates in the Federal Register and give notice of the proposed increase to each of its wholesale customers. See 18 C.F.R. § 35.8 (1990). If an interested party raises a legitimate question about the rate increase, FERC normally will suspend the new rates for up to five months, investigate them, and, if it has not completed its investigation by then, permit them to take effect subject to refund in the event it ultimately rejects them. See 16 U.S.C. § 824d(d, e). Similarly, the Massachusetts Department of Public Utilities (“DPU”) regulates the “retail” rates that Boston Edison charges to consumers in the 39 cities and towns in which it distributes electricity. See M.G.L. c. 164, §§ 93-94G. In contrast, as we mentioned earlier, no agency regulates the retail rates that municipal distributors, such as Concord and Wellesley, charge to their customers, for these distributorships are non-profit entities indirectly controlled (through the ballot) by the very customers they serve.

Between 1984 and 1987, Edison filed a series of wholesale rate increases with FERC. Wellesley and Concord vigorously opposed those rate increases before the Commission. In each case, after briefly suspending the rates, the Commission allowed them to take effect subject to refund. The towns sought judicial review of FERC’s decisions. _ Eventually, with one exception not relevant here, see Towns of Wellesley, Concord and Norwood v. FERC, 786 F.2d 463 (1st Cir.1986), this court upheld as lawful the relevant FERC determinations, see Towns of Concord and Wellesley v. FERC, 844 F.2d 891 (1st Cir.1988); Boston Edison Co. v. FERC, 885 F.2d 962 (1st Cir.1989).

Concord and Wellesley then attacked the same wholesale rate increases on another legal front. They brought this antitrust action in federal district court. They pointed out that these wholesale rate increases filed with FERC were not matched by cor *21 responding retail rate increases. Thus, over a three-year period, Edison’s rates to Concord and Wellesley increased while its rates to its own retail customers in the 39 towns surrounding Concord and Wellesley stayed roughly the same. The effect of this disparity, said Concord and Wellesley, was to put the two towns in a price squeeze. If they did not raise their own retail rates to reflect the higher cost of buying electricity from Edison, they would make less money; but if they raised their retail rates while Edison’s stayed the same, customers for whom they and Edison compete (say, a small manufacturer with high energy costs) might decide to forego Concord and Wellesley and settle in a town served by Edison. In light of the resulting potential harm to their electricity distributing businesses, Concord and Wellesley argued that the wholesale price increases, in the absence of corresponding retail price increases, amounted to unlawful monopolization. See Sherman Act § 2, 15 U.S.C. § 2(a). A jury agreed, and the district court declined to overturn its verdict. See Town of Concord v. Boston Edison Co., 721 F.Supp. 1456 (D.Mass.1989). We disagree with the district court, and we reverse the judgment.

II

The Price Squeeze

The basic legal principles that govern this monopolization case are well settled. Even though Boston Edison is a regulated firm, it has no blanket immunity from the antitrust laws. See Otter Tail Power Co. v. United States, 410 U.S. 366, 372-75, 93 S.Ct. 1022, 1027-28, 35 L.Ed.2d 359 (1973); see also Cantor v. Detroit Edison, 428 U.S. 579, 596 n. 35, 96 S.Ct. 3110, 3120 n. 35, 49 L.Ed.2d 1141 (1976); Gulf States Utils. Co. v. FPC, 411 U.S. 747, 758-59, 93 S.Ct. 1870, 1877-78, 36 L.Ed.2d 635 (1973). The antitrust law relevant in this case makes it unlawful for a firm to “monopolize ... any part of the trade or commerce among the several States.” Sherman Act § 2, 15 U.S.C. § 2(a). To prove a violation of this statute, a plaintiff must demonstrate (1) that the defendant possesses “monopoly power in the relevant market,” and (2) that the defendant has acquired or maintained that power by improper means. See United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 230 (1st Cir.1983). Like many courts and commentators, we refer to improper methods of acquiring or maintaining monopoly power as “exclusionary conduct.” Borrowing from Professors Ar-eeda and Turner, we have defined “exclusionary conduct” as “ ‘conduct, other than competition on the merits or restraints reasonably “necessary” to competition on the merits, that reasonably appears capable of making a significant contribution to creating or maintaining monopoly power.’ ” Barry Wright, 724 F.2d at 230 (quoting 3 P. Areeda & D. Turner, Antitrust Law 11 626, at 83 (1978) [hereinafter Areeda & Turner ]).

We shall assume for now that Edison has monopoly power in a relevant market and begin by examining whether Edison’s pricing practices amount to exclusionary conduct. Traditional antitrust principles will guide our analysis. We shall compare the challenged practice’s likely anticompetitive effects with its potentially legitimate business justifications. See Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478, 486 (1st Cir.1988), cert. denied, 488 U.S. 1007, 109 S.Ct. 789, 102 L.Ed.2d 780 (1989); Interface Group, Inc. v. Massachusetts Port Auth., 816 F.2d 9, 10 (1st Cir.1987); Meeks, 72 Colum.L.J. at 80. In doing so, we shall bear in mind that a practice is not “anticompetitive” simply because it harms competitors. After all, almost all business activity, desirable and undesirable alike, seeks to advance a firm’s fortunes at the expense of its competitors. Rather, a practice is “anticompetitive” only if it harms the competitive process. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488-89, 97 S.Ct. 690, 697-98, 50 L.Ed.2d 701 (1977); Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521, 8 L.Ed.2d 510 (1962); Clamp-All, 851 F.2d at 486. It harms that *22 process when it obstructs the achievement of competition’s basic goals — lower prices, better products, and more efficient production methods. See, e.g., Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792, 794 (1st Cir.1988); Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 228-29 (D.C.Cir.1986), cert. denied, 479 U.S. 1033, 407 S.Ct. 880, 93 L.Ed.2d 834 (1987); Olympia Equip. Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 379 (7th Cir.1986), on denial of r’hrg, 802 F.2d 217, cert. denied, 480 U.S. 934, 107 S.Ct. 1574, 94 L.Ed.2d 765 (1987); Assam Drug Co. v. Miller Brewing Co., 798 F.2d 311, 315 (8th Cir.1986); Westman Comm’n Co. v. Hobart Int’l, Inc., 796 F.2d 1216, 1220 (10th Cir.1986), cert. denied, 486 U.S. 1005, 108 S.Ct. 1728, 100 L.Ed.2d 192 (1988); see also Reiter v. Sonotone, 442 U.S. 330, 343, 99 S.Ct. 2326, 2333, 60 L.Ed.2d 931 (1979) (“Congress designed the Sherman Act as a ‘consumer welfare prescription.’ ”) (quoting R. Bork, The Antitrust Paradox 66 (1978)); Apex Hosiery Co. v. Leader, 310 U.S. 469, 500-01, 60 S.Ct. 982, 996-97, 84 L.Ed. 1311 (1940) (“Restraints on competition” do not constitute antitrust violations unless they “have or [are] intended to have an effect upon prices in the market' or otherwise ... deprive purchasers or consumers of the advantages which they derive from free competition”).

Finally, we shall take account of the institutional fact that antitrust rules are court-administered rules. They must be clear enough for lawyers to explain them to clients. They must be administratively workable and therefore cannot always take account of every complex economic circumstance or qualification. See Barry Wright, 724 F.2d at 234. (Indeed, the need for clarity and administrability sometimes leads to per se rules that prohibit inquiry into the actual harms and benefits of challenged conduct. See Northern Pac. R. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958).) They must be designed with the knowledge that firms ultimately act, not in precise conformity with the literal language of complex rules, but in reaction to what they see as the likely outcome of court proceedings.

These last-mentioned administrative considerations are particularly important when courts apply antitrust law to a regulated industry. That is because “regulation” and “antitrust” typically aim at similar goals— i.e., low and economically efficient prices, innovation, and efficient production methods — but they seek to achieve these goals in very different ways. Economic regulators seek to achieve them directly by controlling prices through rules and regulations; antitrust seeks to achieve them indirectly by promoting and preserving a process that tends to bring them about. An antitrust rule that seeks to promote competition but nonetheless interferes with regulatory controls could undercut the very objectives the antitrust laws are designed to serve. Thus, where regulatory and antitrust regimes coexist, see, e.g., Otter Tail, 410 U.S. at 372, 93 S.Ct. at 1027 (electric industry); United States v. Philadelphia Nat’l Bank, 374 U.S. 321, 352, 83 S.Ct. 1715, 1735, 10 L.Ed.2d 915 (1963) (bank mergers), antitrust analysis must sensitively “recognize and reflect the distinctive economic and legal setting” of the regulated industry to which it applies. Watson & Brunner, Monopolization by Regulated “MonopoliesThe Search for Substantive Standards, 22 Antitrust Bull. 559, 565 (1977) [hereinafter Watson & Brunner ]; see generally Meeks, supra.

For reasons we shall now set out, these principles lead us to conclude that a price squeeze of the sort at issue here does not ordinarily violate Sherman Act § 2 where the defendant’s prices are regulated at both the primary and secondary levels. In so holding, we are not saying either that the antitrust laws do not apply in this regulatory context, or that they somehow apply less stringently here than elsewhere. Rather, we are saying that, in light of regulatory rules, constraints, and practices, the price squeeze at issue here is not ordinarily exclusionary, and, for that reason, it does not violate the Sherman Act. Cf. 1 Areeda & Turner ¶ 223d, at 140 (noting that “antitrust courts can and do consider *23 the particular circumstances of an industry and therefore adjust their usual rules to the existence, extent, and nature of regulation”); Watson & Brunner, 22 Antitrust Bull, at 560 (warning that “the dogmatic transposition of monopolization concepts from conventional market settings to regulated industries” may produce results inimical to the goals of antitrust). We reach this conclusion by (1) analyzing the ordinary price squeeze, (2) comparing it to the “regulatory” price squeeze, and (3) noting that regulation makes a critical difference in terms of antitrust harms, benefits, and administrative considerations.

A. Price Squeeze Liability in an Unregulated Industry

To explain our conclusion, we must first discuss the ordinary price squeeze case, the case of an unregulated monopolist whose prices (at, say, the wholesale and retail levels) leave inadequate room for an independent competitor (at, say, the retail level) to survive. Only if the reader understands the major antitrust harms, benefits, and administrative considerations in that ordinary case, and sees how they are rather evenly balanced, will he understand why price regulation tips that balance so significantly towards legality. Cf. 3 Areeda & Turner ¶ 729c, at 235-38 (arguing that Alcoa overstated the harms, understated the benefits, and disregarded significant administrative burdens associated with the ordinary price squeeze).

The antitrust argument against the price squeeze typically begins by observing that a “one-level” monopolist engaged in a prolonged price squeeze may drive independent competitors out of business and thereby extend its monopoly power to a second industry level. This fact alone, however, does not mean that a price squeeze is anti-competitive. Merely eliminating competitors is not necessarily anticompetitive, for, as we explained earlier, even legitimate business activity that succeeds in helping a firm will likely disadvantage the firm’s competitors. See pp. 21-22, supra, and cases cited. Moreover, the extension of monopoly power from one to two levels does not necessarily, nor in an obvious way, give a firm added power to raise prices. As several members of the Supreme Court have pointed out, a “widely accepted” (albeit “counterintuitive”) economic argument supports the conclusion of many commentators that “there is but one maximum monopoly profit to be gained from the sale of an end-product,” 3 Areeda & Turner ¶ 725b at 199. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 36, 104 S.Ct. 1551, 1570, 80 L.Ed.2d 2 (O’Connor, J., concurring in the judgment); see also R. Bork, The Antitrust Paradox 229 (1978) (“[Vjertically related monopolies can take only one monopoly profit”) [hereinafter R. Bork]; R. Posner & F. Easter-brook, Antitrust 870 (2d ed. 1989) (“There is only one monopoly profit to be made in a chain of production.”). (For an intuitive explanation of this “counterintuitive” argument, see Appendix A to this opinion.) What difference does it make, one might ask, whether the monopolist obtains this “maximum monopoly profit” by controlling two industry levels or just one?

At least two arguments have been made in answer to this question. The first is that a monopolist who extends his monopoly to a second industry level raises “entry barriers,” thereby fortifying his monopoly position. Assume, for example, that Alcoa has monopolized only ingot production and has raised its prices somewhat above the competitive level. Alcoa’s monopoly position in ingot will no doubt deter some new firms from entering ingot production, but it might also attract some new firms hoping to obtain a share of Alcoa’s supercompeti-tive profits. Now assume Alcoa extends its monopoly to sheet production as well, the industry level, say, that consumes most of Alcoa’s ingot. New firms might now be more reluctant to enter ingot production, fearing that Alcoa, in its capacity as “sheet fabricator-monopolist,” would refuse to buy ingot from the new ingot producer, or that it would drop its own ingot prices and take the industry’s entire “single monopoly profit” from the sale of sheet. The new firm might conclude that the only prudent way to challenge Alcoa would be to enter the industry at both levels at once. Inso *24 far as it is more difficult for a firm to enter an industry at two levels than at one, the monopolist, by expanding its monopoly power, has made entry by new firms more difficult. And insofar as the monopolist previously set prices cautiously to avoid attracting a competitive challenge, the added security of a two-level monopoly could even lead that monopolist to raise its prices. See 3 Areeda & Turner ¶ 725h, at 204-08; see also id. ¶ 1011, at 243-54; Shepherd, Potential Competition Versus Actual Competition, 42 Admin.L.Rev. 5-34 (1990).

The second argument against permitting extension of monopoly power concerns “non-price” competition. The existence of competitors at a second “level,” irrespective of their effects upon price, provides an added incentive for the monopolist to develop better products and better, more efficient ways to produce the product. See 2 Areeda & Turner ¶¶ 402b2-402b3, at 269-70; id. ¶ 403c, at 272 & n. 3; 3 Areeda & Turner ¶ 725g, at 204. Indeed, a “second-level” independent firm that develops better products or more efficient production methods may thereby obtain the strength needed to challenge the monopolist at the “primary level.”

We recognize that there are other arguments one might make about the possible anticompetitive effects of a price squeeze, see generally 3 Turner & Areeda ¶¶ 725e-725f, at 201-04 (reviewing other arguments); and we realize, as well, that scholars dispute the practical significance of the two arguments just made. Compare 3 Areeda & Turner ¶¶ 725g-725h, at 204-08 with R. Bork at 240-43. Nonetheless, we believe that other arguments (such as those related to economic price discrimination) tend to be inconclusive in respect to anti-competitive effects. See 3 Areeda & Turner Till 725e-725f, at 201-04; R. Bork at 241-42. We therefore believe that the two arguments just given are the most important of those that favor prohibiting a price squeeze; and we are willing to assume they would justify such a prohibition were there nothing to be said in favor of permitting prices that could create such a squeeze.

There are, however, at least two traditional circumstances in which prices that create a squeeze might simultaneously bring about economic benefits. First, the primary-level monopolist might carry out its second-level activities more efficiently than its independent competitors. If so, prices that squeeze the less efficient second-level competitors, even to the point of forcing them from the business, could (by lowering costs) lower prices, or, in any event, save economic resources. See 3 Areeda & Turner ¶ 725d, at 201 (“Whenever vertical integration produces new efficiencies, some of the cost savings ... [will] be translated into a price reduction and ... [will] save productive resources.”); R. Bork at 243.

Second, prices that squeeze a “second-level” firm will benefit consumers whenever the “second-level” firm is itself a monopolist. See Fishman v. Estate of Wirtz, 807 F.2d 520, 563 (Easterbrook, J., dissenting) (“That successive monopolies injure consumers is a proposition on which there is unanimous agreement”) (collecting authority). If, for example, ingot costs $40, the fabricating process costs $35, and the profit-maximizing price for sheet is $100, an ingot monopolist will charge $65 for the ingot, hoping that competition at the fabricating level will keep the total price at $100. If a different, independent monopolist dominates the fabricating level, however, that independent monopolist buying ingot at $65 will mark up the price by more than $35, because he wants to earn monopoly profits as well. The result will be a market price of more than $100, resulting in smaller monopoly profits overall (for the final price is too high), but greater profits for the second monopolist than if he sold sheet for only $100. (Appendix B to this opinion contains a numerical example that may help the interested reader understand intuitively why this is so.) Under these circumstances, entry by the ingot monopolist into the sheet-fabrication level — even by means of a price squeeze — will help the consumer by limiting the final price of sheet to $100. Cf. Atlantic Richfield Co. v. USA Petroleum Co., — U.S. -, 110 *25 S.Ct. 1884, 1891, 109 L.Ed.2d 333 (1990) (“When a firm, or even a group of firms adhering to a vertical agreement, lowers prices but maintains them above predatory levels, the business lost by rivals cannot be viewed as an ‘anticompetitive’ consequence of the claimed violation.” (footnote omitted)); see generally 3 Areeda & Turner ¶ 725c, at 200-01.

Again, the price squeeze may have additional benefits, see generally 3 Turner & Areeda ¶¶ 725e-725f, at 201-04, and one can debate the empirical significance of those we have mentioned. But we believe that the two examples we have given show that prices that create a squeeze can, at least sometimes, have important beneficial effects.

Finally, we note that it is not easy for courts to administer Judge Hand’s price squeeze test. That test makes it unlawful for a monopolist to charge more than a “fair price” for the primary product while simultaneously charging so little for the secondary product that its second-level competitors cannot make a “living profit.” See Alcoa, 148 F.2d at 437-38. But how is a judge or jury to determine a “fair price?” Is it the price charged by other suppliers of the primary product? None exist. Is it the price that competition “would have set” were the primary level not monopolized? How can the court determine this price without examining costs and demands, indeed without acting like a rate-setting regulatory agency, the rate-setting proceedings of which often last for several years? Further, how is the court to decide the proper size of the price “gap?” Must it be large enough for all independent competing firms to make a “living profit,” no matter how inefficient they may be? If not, how; does one identify the “inefficient” firms? And how should the court respond when costs or demands change over time, as they inevitably will?

We do not say that these questions are unanswerable, but we have said enough to show why antitrust courts normally avoid direct price administration, relying on rules and remedies (such as structural remedies, e.g., prohibiting certain vertical mergers) that are easier to administer. See United States v. Trenton Potteries Co.,