Friday, January 17, 2014

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 monopolies.
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 (1942).
  • Judge Hand’s conclusion regarding the monopoly is almost certainly correct, but he was exceptionally aggressive in finding a bad act (of exclusion).

1 comment:


    "This appeal comes to us by virtue of a certificate of the Supreme Court, under the
    amendment of 1944 to § 29 of 15 U.S.C.A. The action was brought under § 4 of that title,
    praying the district court to adjudge that the defendant, Aluminum Company of America, was
    monopolizing interstate and foreign commerce, particularly in the manufacture and sale of
    'virgin' aluminum ingot, and that it be dissolved; and further to adjudge that that company and the
    defendant, Aluminum Limited, had entered into a conspiracy in restraint of such commerce. It
    also asked incidental relief..."


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