U.S. v. Aluminum Co. of America (Alcoa) case brief summary
U.S. v. Aluminum Co. of America (Alcoa) case brief summary United States v. Alcoa case brief summary
148 F.2d 416 (2d Cir. 1945)
Alcoa produced extremely large quantities of virgin aluminum ingot through 1938 (secondary aluminum has less of a demand when reclaimed from scrap) with a market share of 90% (if fabricated aluminum was included and secondary aluminum was excluded), 64% (with fabrication included and secondary included), or 33% (with aluminum that Alcoa itself fabricated excluded and secondary production included in the market).
The Court determined that the ingot used in Alcoa’s own fabrication should be included in the market (because it reduced Alcoa’s ingot that might otherwise be purchased on the market) and that secondary ingots must be excluded (it was originally within Alcoa’s control when it was virgin and would be considered in Alcoa's original pricing decisions). Having found a monopolization, Hand rejected the idea that Alcoa’s monopoly was inevitable and ruled that there was no more effective exclusion than progressively to embrace each new opportunity as it opened…facing every newcomer with new capacity already geared into a great organization.
Before 1912, Alcoa had bought
exclusive rights to use electric power for aluminum manufacture from
all parties that had the rights to build dams for hydropower. Since
the two key inputs for aluminum are bauxite and electricity, and
hydropower is an extremely cheap source of electricity, Alcoa
essentially created a monopoly through otherwise legal agreements.
Learned Hand declares “[90%] is
enough to constitute a monopoly; it is doubtful whether sixty or
sixty-four percent would be enough; and certainly thirty-three
percent is not.”
The court discussed Congressional
non-economic concerns about the sheer power of trusts and
Analysis and Notes
The exclusion of recycled material
is actually a very hard question; a modern study determined that
recycled scrap is not a close substitute. Nonetheless, Judge Hand actually decided the issue based on the idea that Alcoa
already captured the added value of the recycled scrap in the price
of the virgin ingot. Hand failed to consider that the purchasers
of the virgin ingot generally did not reap the benefit of the
recycled scrap and that the scrap makes a small difference in the market
if it is constantly expanding.
Hand’s inclusion of factories
that produce their own aluminum (and the aluminum that Alcoa used in
its factories) is blessed by the Merger Guidelines and similar
reasoning is used in the contemporary case of Wickard v. Filburn
Judge Hand’s conclusion regarding the
monopoly is almost certainly correct, but he was exceptionally
aggressive in finding a bad act (of exclusion).
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