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Antitrust Policy and Vertical Restraints

Antitrust Policy and Vertical Restraints

Robert W. Hahn editor
Copyright Date: 2006
Pages: 94
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  • Book Info
    Antitrust Policy and Vertical Restraints
    Book Description:

    Antitrust law is intended to protect consumer welfare and foster competition. At first glance, however, it is often unclear whether certain business practices have positive or detrimental effects. Businesses frequently engage in activities that may appear anticompetitive on the surface, but are actually beneficial to consumers. Business tying practices, for example, make the sale of one product conditional upon the sale of another product. This practice can either deprive consumers of choice and drive up prices or lower costs and improve convenience. Therefore, it is critical that policymakers have a keen understanding of which vertical restraints -limitations imposed on businesses by firms located in the production chain -are likely to harm consumers more than they benefit competition. In order to formulate economically efficient policies, they must be able to identify and limit those practices that are likely to do more harm than good. In Antitrust Policy and Vertical Restraintsa group of leading scholars takes a hard look at how restraints limit the conditions under which firms may purchase, sell, or resell a good or service. The authors, representing both sides of the antitrust debate over tying practices, provide a uniquely broad perspective on this critical economic policy issue. Contributors include Dennis Carlton (University of Chicago), David Evans (University College London), Bruce Kobayashi (George Mason University), and Michael Waldman (Cornell University).

    eISBN: 978-0-8157-3392-8
    Subjects: Law, Business

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Foreword
    (pp. vii-x)
    Robert W. Hahn and Robert E. Litan

    Businesses frequently engage in practices that may look anticompetitive on first blush but after some reflection turn out not to be so detrimental. One example might be the bundling of multiple features in what we have come to call a car. So, for example, a car is sold with a radio and windshield wipers even though some folks might not want the radio or might choose to replace the existing one with a different radio. The majority of consumers, however, are happy to get a car with a radio because it saves them time and trouble.

    This book, at its...

  4. 1 Introduction
    (pp. 1-9)

    For some years, “vertical restraint” issues have been front and center in antitrust lawsuits. In the Department of Justice case against Microsoft, for example, one of the central issues was whether Microsoft’s inclusion of Internet Explorer in the Windows operating system was an illegal tie, preventing personal computer manufacturers (and consumers) from choosing Netscape Navigator.¹ In another high profile case, Wal-Mart and other retailers accused Visa and MasterCard of illegally tying debit cards to the acceptance of credit cards, preventing retailers from defining their own payment policies. In a more recent case, Apple is being sued over allegedly tying its...

  5. 2 Two Tales of Bundling: Implications for the Application of Antitrust Law to Bundled Discounts
    (pp. 10-37)

    Bundling, or the selling of two separate goods in a package, is a ubiquitous phenomenon. Bundling is used by firms producing a wide variety of products and services, and is used to sell products at both the retail and wholesale level. Bundling is used by established firms and by new entrants, by dominant firms and by firms with many competitors, and by firms in both regulated and unregulated industries. The widespread and ubiquitous use of bundling by firms, especially by those in highly competitive markets, suggests that bundling yields widespread benefits for both firms and consumers.

    Firms bundle for a...

  6. 3 Why Tie an Essential Good?
    (pp. 38-64)

    Numerous important antitrust cases, such as the IBM cases of the 1970s and 1980s and the Microsoft cases of the 1990s and 2000s, alleged tying or related behavior employed for exclusionary reasons. For example, an important allegation of theUnited Statesv.Microsoftcase was that Microsoft tied Internet Explorer to its Windows operating system in order to harm Netscape.¹ The standard theory of tie-ins implies that the tying or tying-like behavior took place in these cases in settings in which tying for exclusionary reasons does not result in increased profitability. This introduces the following question: Does standard theory correctly...

  7. 4 Tying: The Poster Child for Antitrust Modernization
    (pp. 65-88)

    Tying is an area of antitrust in desperate need of modernization. First, tying is an utterly common business practice in competitive markets. That distinguishes this practice from all other practices subject to per se prohibitions and from many other practices, such as pricing below cost, that are considered suspect under a rule of reason analysis.¹ The Supreme Court recently recognized this point in its unanimous decision inIllinois Tool Works:“Many tying arrangements, even those involving patents and requirements ties, are fully consistent with a free, competitive market.”²

    Second, there is no support in modern economics for either a general...

  8. Contributors
    (pp. 89-90)
  9. Index
    (pp. 91-94)
  10. Back Matter
    (pp. 95-96)