Federal Trade Commission vs. Qualcomm: Mangling Microeconomics

By Carl Shapiro & Keith Waehrer

This paper provides an economic analysis of the antitrust case brought by the Federal Trade Commission against Qualcomm regarding Qualcomm’s “no-license/no-chips” policy. Under that policy, Qualcomm refused to sell its modem chips to cell-phone manufacturers such as Apple, Samsung, and Motorola unless they had agreed to pay Qualcomm’s preferred royalty for its standard-essential patents on devices containing modem chips sold by Qualcomm’s competitors. We show that this policy raised the costs of Qualcomm’s modem-chip rivals and thereby enhanced Qualcomm’s market power over modem chips, harming Qualcomm’s customers and final consumers. The District Court agreed with this analysis, but the Appeals Court reversed, making basic errors in microeconomics that we specifically identify.

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