2018 Individual Refusals to Deal amp Predation Randal C Picker James Parker Hall Distinguished Service Professor of Law The Law School The University of Chicago Copyright 200018 ID: 738024
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Slide1
Class 12Antitrust Fall 2020Tying
Randal C. Picker
James Parker Hall Distinguished Service Professors of Law
The Law School
The University of Chicago
Copyright
© 2000-20
Randal C. Picker. All Rights Reserved.Slide2
October 15, 2020
2
The Left Shoe Monopolist
Situation
M has a monopoly in the production of left shoes.
Marginal cost of making a left shoe is $1.Anyone can produce right shoes at a marginal cost of $1.Customers value pairs of shoes at $102.
TTYN (1 of 2)Slide3
October 15, 2020
3
The Left Shoe Monopolist
What should our monopolist do?
Sell left shoes alone?
Offer both and let consumers choose?Require consumers to buy both?
TTYN (2 of 2)Slide4
October 15, 2020
4
Fixed Proportions and Tying
Don’t Need To Tie Shoes
M can extract the full monopoly profit by setting a price for left shoes of $101.
Absent a more sophisticated story, tying will not increase the profits of M in the fixed proportions case.Slide5
IBM
October 15, 2020
5
298 U.S. 131 (1936
)Slide6
International Salt
October 15, 2020
6
332 U.S. 392 (1947
)Slide7
October 15, 2020
7
Fixed v. Variable Proportions
Variable Proportions Case
We cannot make a general statement about social welfare and tying in the variable proportions case.
Price discrimination through tying can either increase welfare or reduce it.
Fixed Proportions Case
Tying should not increase profits, so we should expect other motives to be at work.Slide8
Metering and TyingMonopoly over MachineHow do I exploit my monopoly power over the machine?More than One PriceI would like to charge different customers different prices for the machineHow do I do that?
October 15, 2020
8Slide9
Effects of a Metering TieTwo Consumers with Different Demands for PrintingOctober 15, 2020
9
1
2
2
3
P
’000 pages
100
40
Andy
P
’000 pages
100
40
Bill
1
4Slide10
Effects of a Metering TieCost and Choice StructureAssume $20 to make printer and zero to make toner cartridgeMonopoly seller of machine, toner market competitiveMachine seller can set single price for machine or tie toner cartridge purchases to machine
October 15, 2020
10Slide11
Effects of a Metering TieOctober 15, 2020
11
Profit Calculation
Profit
Social welfare
Single price
$140
$280
140 – 20 + 140 – 20 =
280 – 20 =
240
260
380
260
Tie
$60|$40
(60 + 80 – 20) + (60 + 160 – 20) =
320
380Slide12
Effects of a Metering TieIf tying is barredSets single price of $280 with overall social welfare of $260 (and profits of $260)If tying is allowedTies with prices of $60/$40Profits are $320 and social welfare is $380
Tying improves the outcome
October 15, 2020
12Slide13
Effects of a Metering Tie (V2)Two Consumers with Different Demands for PrintingOctober 15, 2020
13
1
2
P
’000 pages
100
40
Andy
P
150
90
Carly
’000 pages
1
2Slide14
Effects of a Metering TieOctober 15, 2020
14
Profit Calculation
Profit
Social welfare
Single price
$140
$240
140 – 20 + 140 – 20 =
240 – 20 =
240
220
340
220
Meter
$10|$90
(10 + 90 – 20) + (10 + 180 – 20) =
250
300Slide15
Effects of a Metering TieIf tying is barredSets single price of $140 with profits of $240 and social welfare of $340If tying is allowed Will set prices of $10/$90 with profits of $250 and social welfare of $300Tying makes matters worse
October 15, 2020
15Slide16
Metering and TyingNo Desire as Such to Extend Monopoly (or Leverage Monopoly) to Second GoodUse Second Good to Create Multiple Prices for Monopolized MachineWith non-competitive price on consumable (punch card or salt) heavy users effectively pay more for machine
October 15, 2020
16Slide17
Metering and TyingTechnological Change and MeteringMuch easier these days to assess use of machine directly and charge accordinglyLess reason to use consumables as counting mechanism
October 15, 2020
17Slide18
Jefferson Parish
October 15, 2020
18
466 U.S. 2 (1984
)Slide19
October 15, 2020
19
Jefferson Parish (
US
1984)
Key FactsExclusive contract for anesthesiological services between hospital and Roux and Assoc.Hyde sought admission to staff of East Jefferson Hospital, and deniedFeb. 1971 ContractSigned before hospital openedSlide20
October 15, 2020
20
Jefferson Parish
Roux could designate anesthesiologists for admission to EJH staff
EJH appointed nursing staff, subject to Roux approval
EJH would use Roux exclusively and vice versa1976 Contract
Seemingly drops exclusivity on both sides but EJH remains exclusiveSlide21
October 15, 2020
21
Jefferson Parish
Market Info
20 hospitals in New Orleans metro area
70% of those in Jefferson Parish go to hospitals other than EJHSlide22
What Does This Mean?
October 15, 2020
22
Jefferson Parish (
US
1984)
“Thus,
the law draws a distinction between the exploitation of market power by merely enhancing the price of the tying product, on the one hand, and by attempting to impose restraints on competition in the market for a tied product, on the other
.”Slide23
What Does This Mean?
October 15, 2020
23
Jefferson Parish (
US
1984)
“
When
the seller’s power is just used to maximize its return in the tying product market, where presumably its product enjoys some justifiable advantage over its competitors, the competitive ideal of the Sherman Act is not necessarily compromised
.”Slide24
What Does This Mean?
October 15, 2020
24
Jefferson Parish (
US
1984)
“
But if that power is used to impair competition on the merits in another market, a potentially inferior product may be insulated from competitive pressures
.”Slide25
What Does This Mean?
October 15, 2020
25
Jefferson Parish (
US
1984)
“This impairment could either harm existing competitors or create barriers to entry of new competitors in the market for the tied product,
Fortner I
, 394
U.S
., at 509,
and can increase the social costs of market power by facilitating price discrimination, thereby increasing monopoly profits over what they would be absent the tie
,
Fortner II
, 429
U.S
., at 617.”Slide26
Tying Tests: Power
and Forcing
October 15, 2020
26
Jefferson Parish (
US
1984)
“[T]he essential characteristic of an invalid tying arrangement lies in the
seller’s exploitation of its control over the tying product
to force the buyer into the
purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms
.”Slide27
October 15, 2020
27
Separateness
Tying requires two distinct products
What makes for separate products?
Functional relation?Do we ever see anesthesiological services purchased without a hospital operating room?
Character of demand?
Even if simultaneous use is inevitable, do consumers want to self-bundle?Slide28
Separate Consumer Demand
October 15, 2020
28
Jefferson Parish (
US
1984)
“Thus, in this case no tying arrangement can exist unless there is a
sufficient demand for the purchase of
anesthesiological
services separate from hospital services to identify a distinct product market
in which it is efficient to offer
anesthesiological
services separately from hospital services.”