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Author: Patrick Greenlee Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Consider a monopolist in one market that faces competition in a second market. Bundled loyalty discounts, in which customers receive a price break on the monopoly good in exchange for making all purchases from the monopolist, have ambiguous welfare effects. To analyze such discounts as predatory pricing is incorrect. In some settings, they act as tie-in sales. Existing tests for whether such discounts violate Section 2 of the Sherman Act do not track changes in consumer surplus or total surplus. We present a new test and use it in an illustrative example based on SmithKline that assumes the "tied" market is a homogeneous good. If the tied market is characterized by Hotelling competition, bundling by the monopolist causes the rival firm to reduce its price. In numerical examples, we find that this can deter entry or induce exit.
Author: Thomas A. Lambert Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
The Third Circuit's decision in Lepage's v. 3M created a great deal of uncertainty about the legality of so-called bundled discounts - i.e., discounts (or rebates) conditioned upon purchasing multiple products from disparate product markets. This paper, prepared for a joint Department of Justice/Federal Trade Commission hearing on single-firm exclusionary conduct, describes the competitive risk bundled discounts present, summarizes and critiques the six leading approaches courts and commentators have proposed for evaluating the legality of such discounts, and proposes an alternative evaluative approach.
Author: Herbert Hovenkamp Publisher: ISBN: Category : Languages : en Pages : 40
Book Description
A bundled discount occurs when a seller conditions a discount or rebate on the buyer's purchaser or two or more different products. Firms that produce fewer than all the good in the bundle find it difficult to compete because they must amortize the discount across a smaller range of goods. For example, if the dominant firm offers a 10% discount for purchase of both good A and good B, but the rival makes only good B, it will have to offer a discount that is large enough to match the dominant firm's B discount as well as the foregone discount on A. The Antitrust Modernization Commission and several courts have adopted an quot;attributionquot; test for assessing the antitrust legality of bundled discounts. The test attributes the full discount to the product(s) for which rivals are claiming exclusion, and asks whether the resulting price is below cost. This test contains some features of the cost-based rule for single product predatory pricing, but it also differs in important respects. Both tests query whether an equally efficient rival can match the dominant firm's price. On the other hand, bundles that fail the attribution test can still be quot;sustainable.quot; That is, they need not involve pricing below cost, and thus their success does not depend on recoupment during a subsequent period of higher prices.Most models of bundled discounting consider two goods that are purchased in a one-to-one ratio. None of the judicial decisions involve such simplicity. In most the bundle consists of more than two goods, and different rivals may produce differing subsets of the dominant firm's bundle. Further, in nearly all of the cases the proportion of goods in the bundle can be varied at the will of the customer. We show that in such situations antitrust analysis of the bundle is significantly more complex and anti-competitive exclusion must typically be assessed on a rival-by-rival and customer-by-customer basis. This has important implications for the certification of class actions in bundled discount cases. We also provide some apparatus for assessing bundled discounts in these situations.
Author: Sean Gates Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Antitrust law has become dominated by economics. With its chief end the enhancement of economic welfare through the preservation of the competitive process, antitrust jurisprudence now seeks to follow consensus economic theory. Antitrust liability rules are thus based on prevailing economic views. But what are courts to do when there is no consensus on the economics underlying particular conduct? How can the courts rationally develop antitrust liability rules when the economic analysis of certain conduct is unsettled? That is the case with loyalty rebates and bundled discounts, through which price rebates or discounts are conditioned on the customer purchasing a certain percentage of its requirements or multiple products from the seller. There is no established framework of analysis for conduct involving rebates. There is no long line of cases. There is no “great weight of scholarly opinion” presenting a consensus view. Economists and scholars simply disagree on when such practices may harm competition. Rebates thus offer a rare window into the development of antitrust jurisprudence in the absence of a consensus economic theory. Existing case law presents three analogies -- exclusive dealing, tying, and predatory pricing. Judicial decisionmaking regarding rebates is thus a study in analogical reasoning. But what is sorely missing from the current jurisprudence are in-depth analyses of the efficacy of these analogies. Fuller examination of the three analogies reveals flaws in each. But this examination also points to a better solution.
Author: Herbert Hovenkamp Publisher: ISBN: Category : Languages : en Pages : 41
Book Description
A bundled discount occurs when a seller charges less for a bundle of goods than for its components when sold separately. A characteristic of such discounting is that a rival who makes only one of the products in the bundle may have to give a larger per item discount in order to compensate the buyer for the foregone discount on goods that the rival does not sell. For example, if I sell A and B and offer a 20% discount only to customers who purchase one A and one B together, a rival in the B market might be able to match the discounted B price. But the rival must also compensate the customer for the loss of discount on A, given that the customer would still have to purchase A from the dominant firm at the undiscounted price. As a result, a rival who is equally efficient in other respects but who makes only product B may not be able to match the discount. The final Report of the Antitrust Modernization Commission (AMC) proposed a three part test for the illegality of a monopolist's bundling under Section 2 of the Sherman Act: (1) after allocating all discounts and rebates attributable to the entire bundle of products to the competitive product, the defendant sold the competitive product below its incremental cost for the competitive product; (2) the defendant is likely to recoup these short-term losses; and; (3) the bundled discount or rebate program has had or is likely to have an adverse effect on competition. We argue that the first of these three tests must be restated in order to take into account important possibilities, such as economies of scope; even so it is seriously overdeterrent particularly when bundling is used to facilitate price discrimination, where the secondary market is competitive, or where bundling is used to disguise price cuts in oligopolistic or cartelized markets. We also argue that the AMC's recoupment test is not helpful in most circumstances, but that its requirement of a separate showing of an adverse impact on competition is essential.
Author: Einer Elhauge Publisher: Edward Elgar Publishing ISBN: 0857938096 Category : Law Languages : en Pages : 425
Book Description
One might mistakenly think that the long tradition of economic analysis in antitrust law would mean there is little new to say. Yet the field is surprisingly dynamic and changing. The specially commissioned chapters in this landmark volume offer a rigorous analysis of the field's most current and contentious issues. Focusing on those areas of antitrust economics that are most in flux, leading scholars discuss topics such as: mergers that create unilateral effects or eliminate potential competition; whether market definition is necessary; tying, bundled discounts, and loyalty discounts; a new theory of predatory pricing; assessing vertical price-fixing after Leegin; proving horizontal agreements after Twombly; modern analysis of monopsony power; the economics of antitrust enforcement; international antitrust issues; antitrust in regulated industries; the antitrust-patent intersection; and modern methods for measuring antitrust damages. Students and scholars of law and economics, law practitioners, regulators, and economists with an interest in industrial organization and consulting will find this seminal Handbook an essential and informative resource.
Author: Gianluca Faella Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
The controversial debate on the appropriate standard for the assessment of bundled discounts echoes the difficulties encountered by courts, antitrust authorities and scholars in their ongoing attempt to develop a coherent theoretical framework to distinguish exclusionary conduct from legitimate competition. Currently, there is no general consensus on the treatment of the practice. Even the recent DOJ report on single-firm conduct - withdrawn by the new US administration - and the Commission guidance on Article 82 EC have not definitely clarified the proper approach to bundled discounting. The application of general principles on foreclosure could prevent the use of an effective competitive tool and may result in reduced price competition and protection of inefficient competitors. On the other hand, a total bundle predation-style safe harbor would not detect above-cost bundled discounts that are capable of excluding or limiting the competitive capacity of equally efficient rivals. The US discount allocation test aims at tempering the excesses of the two above-mentioned approaches, but it is too simplistic, does not fit most actual cases and may be both over-deterrent and under-deterrent. The test proposed by the Commission guidance may give rise to similar inconveniences, although it is more likely to be over-deterrent. This paper proposes a refined cost-based test, aimed at establishing whether an equally efficient rival could reasonably compete for the (contestable portion of demand for the) product(s) reasonably open to competition. This test is based on the idea that a practice should be considered a legitimate form of competition on the merits if, notwithstanding the possible existence of one or more competitive advantages that cannot be reasonably replicated or overcome by rivals in an acceptable time frame, a hypothetical competitor that is equally efficient under all remaining aspects could react to the dominant firm's behavior through a conduct that would benefit consumers. However, in case of complex pricing policies, cost-based tests are imperfect and approximate tools, which may provide useful evidence and indications as to the risk of exclusion of equally efficient rivals, but cannot usually function as a safe harbor for dominant firms. A cost-based test can only be part of a comprehensive assessment of the likely effects of the practice. When the application of an appropriate cost-based test turns out to be too complex and uncertain or, in any case, the test does not provide sufficiently complete and reliable indications, a proper allocation of the burden of proof could reduce the risk of type I and type II errors.