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The Failed Resurrection of the Single Monopoly Profit Theory

Einer Elhauge, Apr 01, 2010

Professor Paul Seabright claims that an absence of empirical proof supports the single monopoly profit theory. This claim fails because the single monopoly profit theory is an impossibility theorem. It also fails because my recommended exception applies to whatever empirical extent the necessary conditions for the single monopoly profit theory actually exist.

Seabright likewise claims that a lack of empirical proof favors critics of current tying doctrine. This claim fails because it is the critics that favor a categorical rule that requires empirical proof across the category: namely critics favor cate- gorical legality either for all ties or for all ties that lack substantial foreclosure. In contrast, current tying doctrine uses no categorical rule, but rather weighs efficiencies against anticompetitive effects in each case and permits ties to whatever extent it turns out to be empirically true that the efficiencies outweigh the anticompetitive effects. Current tying doctrine is thus preferable to the critics’ recommended alternatives whether the standard is consumer welfare or total welfare, and whether one thinks most ties flunk that standard or not.

Seabright also makes the more minor claim that, absent empirical proof that most ties harm welfare, the law should shift the burden of proof on efficiencies away from defendants. But this claim fails for four reasons. First, the burden of empirical proof on legal issues is on those who want to overrule precedent. Second, the fact that defendants have better access to evidence on tying efficiencies favors giving defendants the burden to prove those efficiencies, regardless of what one assumes about the welfare effects of most ties. Third, in allocating this burden of proof, the relevant set of ties are those for which defendants would have the burden to prove efficiencies, which is not all ties, but rather is only ties of separate products with tying market power where my recommended exception does not apply. The relevant category thus excludes: (1) ties of items deemed a single product because they are routinely bundled in competitive markets, (2) ties without market power, and (3) ties without a substantial foreclosure share that bundle products lacking separate utility in a fixed ratio. Fourth, even without general empirical proof, theoretical considerations indicate that ties in the relevant set will usually reduce both consumer wel- fare (the actual antitrust standard) and ex ante total welfare.

Professors Daniel Crane and Joshua Wright claim that bundled discounts cannot credibly threaten unbundled prices that exceed but-for prices. This claim conflicts with the fact that firms demonstrably can credibly threaten the refusal to sell at any price that is necessary to get buyers to agree to tying and monopoly pricing. This claim also ignores the fact that, in markets with many buyers, buyers have collective action problems that make them price takers.

Professor Barry Nalebuff offers models on ties that achieve intra-product price discrimination by metering use of the tying product that confirm my model’s conclusions on that subset of ties. To the extent our models diverge on some details, I think it is more accurate to model metering ties by assuming that buy- ers purchase a whole number of tied units, rather than infinitely divisible fractions of tied units (as he assumes). I also think it is more accurate to assume that buyers have varying valuations, rather than the same valuation for tied product usage over the relevant range (as some of his models assume).

My legal conclusions are also generally confirmed by the conclusions that Professor Harry First reaches with a multi-goal approach. However, I prefer a welfarist analysis because I find that the multi-goal approach and its non-welfarist components are conclusory and unpersuasive when they conflict with welfare.

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