SW Legal studies in Business

Company Monopolized Pay Phone Locations
Description Appeals court upheld a judgment against Southwestern Bell for monopolization of pay phone locations by use of various anticompetitive tactics. Cell phones do not compete with pay phones with respect to the value of pay phone locations, so the relevant market was pay phone locations.
Topic Antitrust
Key Words Monopolies; Product Market; Elasticity
C A S E   S U M M A R Y
Facts For decades up to November 1996, Southwestern Bell enjoyed a regulated monopoly over the provision of pay phone services in Oklahoma. Since then, pay phone service providers (PSPs) such as Bell and its new competitors have been free to deal with location owners for the placement of pay phones. Knowing that deregulation was coming, Bell is accused of having engaged in a flurry of activity to lock up the good locations and close out the competition. Location owners would pay a high penalty if they terminated the contract with Bell and, competitors claimed, Bell failed to remove phones when requested and damaged pay phone locations. Although Bell's competitors offered better commissions to location operators, two years after deregulation, Bell retained more than 87 percent of the market. Pay phone competitors sued, claiming monopolization in breach of state antitrust law. The trial court awarded the competitors $7 million in damages, to be trebled. Bell appealed.
Decision

Affirmed. Contrary to Bell's claim, the relevant product market included only pay phones, not cell phones. "The basic relevant product market is 'reasonable interchangeability.' Interchangeability may be measured by, and is substantially synonymous with, cross-elasticity. A market is elastic if demand goes down as price goes up. A market is cross-elastic if rising prices for product A cause consumers to switch to product B." While cell phones and pay phones may be interchangeable at the user level, they are not interchangeable at the location-owner level, which is where the monopolization occurred. Location owners will not swap pay phones for cell phones. The plaintiffs were able to show sufficient evidence of monopolization of that market.

Citation Telecor Communications v. Southwestern Bell Telephone, 305 F.3d 1124 (10th Cir., 2002)

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