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Abstract:
The U.S. Supreme Court has now decided 14 antitrust cases in a row in favor of the defendant. But this does not indicate an embrace of the conservative Chicago School over the moderate Harvard School. To the contrary, on every issue the Court has addressed where those two schools are in conflict, the Supreme Court has sided with the Harvard School. It has also sided with sound antitrust economics rather than with formalisms favoring plaintiffs or defendants.

antitrust, competition, Supreme Court, Leegin, price-fixing, resale price maintenance, vertical minimum price-fixing, Dr. Miles, Harvard, Chicago, Harvard School, Chicago School, stare decisis, Weyerhaeuser, predatory bidding, predatory buying, oligopolistic coordination, antitrust exemption

Abstract:
Chicago School theorists have argued that tying cannot create anticompetitive effects because there is only a single monopoly profit. Some Harvard School theorists have argued that tying doctrine’s quasi-per se rule is misguided because tying cannot create anticompetitive effects without foreclosing a substantial share of the tied market. This Article shows both positions are mistaken. Even without a substantial foreclosure share, tying by a firm with market power generally increases monopoly profits and harms consumer and total welfare, absent offsetting efficiencies. The quasi-per se rule is thus correct to require tying market power and a lack of offsetting efficiencies, but not a substantial tied foreclosure share. However, the quasi-per se rule should have an exception for products with a fixed ratio that lack separate utility, because those conditions generally negate anticompetitive effects absent a substantial foreclosure share. Cases meeting this exception should instead be governed by a traditional rule of reason that requires a substantial foreclosure share or effect.

Bundled discounts can produce the same anticompetitive effects as tying without substantial tied foreclosure, but only when the unbundled price exceeds the but-for price. Thus, when the unbundled price exceeds the but-for price, bundled discounts should be condemned based on market power absent offsetting efficiencies, with the same exception for products with a fixed ratio that lack separate utility. When the unbundled price does not exceed the but-for price, bundled discounts should be condemned only when there is substantial foreclosure or direct proof of anticompetitive effects. Alternative tests for judging bundled discounts, such as comparing the effective price to cost, are not only underinclusive, but perversely exempt the bundled discounts with the worst anticompetitive effects.

.Tying, Bundled Discounts, Bundled Rebates, Mixed Bundling, Single Monopoly Profit, Loyalty Discounts, Loyalty Rebates, Exclusionary, Foreclosure, Cumulative Foreclosure, Aggregate Foreclosure, Equally Efficient Rival, Monopolization, Anticompetitive, Restraints of Trade, Antitrust

Abstract:
Disgorgement of illicitly-gained profits is a legally available remedy, but is rarely sought by antitrust agencies. This piece argues that the main conventional explanation for its rare usage - the availability of private damage remedies - is often unconvincing given obstacles to such suits, and is becoming even less convincing given recent antitrust decisions narrowing private and class action damage suits. Further, because the behavioral and structural remedies otherwise sought by the government are often ineffective in monopolization cases, disgorgement might often be a referable governmental remedy. Finally, if we understood the EC claim for excessive pricing to be a claim for disgorgement of profits earned through the anticompetitive acquisition of a dominant position, we could both make better policy sense of that claim and fill a regulatory gap that EC law would otherwise leave for exclusionary conduct that created a dominant position, but did not abuse existing dominance.

antitrust, competition law, monopolization, abuse of dominance, disgorgement, antitrust remedies, structural remedies, behavior remedies, equitable remedies, equitable monetary remedies, equitable monetary relief, FTC, DOJ, Microsoft, class action, excessive pricing

Abstract:
Some recent literature has concluded that patent remedies result in systematically excessive royalties because of holdup and stacking problems. This article shows this literature is mistaken. The royalty rates predicted by the holdup models are often (plausibly most of the time) below the true optimal rate. Further, those predicted royalty rates are overstated because of incorrect assumptions about constant demand, one-shot bargaining, and informational symmetry. Although this literature concludes that overcompensation problems are exacerbated by doctrines measuring damages using past negotiated royalties, in fact such doctrines exacerbate undercompensation problems. Undercompensation problems are further increased to the extent that juries cannot measure damages with perfect accuracy, a problem that persists even if damages are just as likely to be overestimated as underestimated. Nor do the royalty rates predicted by the holdup model apply if there is competition in the downstream product market or upstream market for inventions. Royalty stacking does not lead to royalties that exceed the optimal rate, contrary to this literature, but in fact tends to produce royalties that are at or below the optimal rate.

patent, patent remedies, patent injunction, patent damages, patent holdup, holdup, up, royalty stacking, patent royalties, patent economics, eBay, patent bargaining, royalty benchmark, optimal patent rate, excessive royalties, patent overcompensation, patent undercompensation, patent licensing

Abstract:
Loyalty discounts are agreements to sell at a lower price to buyers who buy all or most of their purchases from the seller. This article proves that loyalty discounts can create anticompetitive effects, not only because they can impair rival efficiency, but also because loyalty discounts can perversely discourage discounting even when they have no effect on rival efficiency. The essential reason, missed in prior work, is that firms using loyalty discounts have less incentive to compete for free buyers, because any price reduction to win sales to free buyers will, given the loyalty discount, also lower prices to loyal buyers. This in turn reduces the incentive of rivals to cut prices, because there will exist an above-cost price that rivals can charge to free buyers without being undercut by the firm using loyalty discounts. These anticompetitive effects occur even if buyers can breach or terminate commitments, and even if the loyalty conditions require no buyer commitments and less than 100 percent loyalty. These anticompetitive effects also differ from those created by most-favored-nation or price-matching clauses, neither of which requires the seller to commit to maintain a price difference between loyal and disloyal buyers. Further, I prove that these anticompetitive effects are exacerbated if multiple sellers use loyalty discounts. None of the results depend on switching costs, market differentiation, imperfect competition, or whether the loyalty discount bundles contestable and incontestable demand. Contrary to commonly held views, I prove that these anticompetitive effects exist even (1) when all prices are above seller or rival costs, (2) buyers voluntarily agree to the conditions, and (3) discount and foreclosure levels are low, although such low levels do lower the likelihood that buyers would agree to anticompetitive loyalty discounts. I also derive formulas for calculating the inflated price levels in each situation. However, because loyalty discounts can have efficiencies, rule of reason analysis remains appropriate.

C72, K21, L12, L40, L41, L42

Abstract:
Loyalty discounts are agreements to sell at a lower price to buyers who buy all or most of their purchases from the seller. This article proves that (assuming no efficiency justifications) loyalty discounts can create anticompetitive effects, not only because they can impair rival efficiency, but because loyalty discounts perversely discourage discounting even when they have no effect on rival efficiency. The essential reason, missed in prior work, is that firms using loyalty discounts have less incentive to compete for free buyers, because any price reduction to win sales to free buyers will, given the loyalty discount, also lower prices to loyal buyers. This in turn reduces the incentive of rivals to cut prices, because there will exist an above-cost price that rivals can charge to free buyers without being undercut by the firm using loyalty discounts. These anticompetitive effects occur even if buyers can breach or terminate commitments, and even if the loyalty conditions require no buyer commitments and less than 100% loyalty. These anticompetitive effects also differ from those created by most-favored-nation or price matching clauses, neither of which require the seller to commit to maintain a price difference between loyal and disloyal buyers. Further, I prove that these anticompetitive effects are exacerbated if multiple sellers use loyalty discounts. None of the results depend on switching costs, market differentiation, imperfect competition, or whether the loyalty discount bundles contestable and incontestable demand. Contrary to commonly held views, I prove these anticompetitive effects exist even (1) when all prices are above seller or rival costs; (2) buyers voluntarily agree to the conditions; and (3) discount and foreclosure levels are low, although such low levels do lower the likelihood buyers would agree to anticompetitive loyalty discounts. I also derive formulas for calculating the inflated price levels in each situation. However, because loyalty discounts can have efficiencies, rule of reason analysis remains appropriate.

Loyalty Discounts, Fidelity Rebates, Conditional Discounts, Market-Share Discounts, Naked Exclusion

Abstract:
Although the Google Books Settlement has been criticized as anticompetitive, I conclude that this critique is mistaken. For out-of-copyright books, the settlement procompetitively expands output by clarifying which books are in the public domain and making them digitally available for free. For claimed in-copyright books, the settlement procompetitively expands output by clarifying who holds their rights, making them digitally searchable, allowing individual digital display and sales at competitive prices each rightsholder can set, and creating a new subscription product that provides digital access to a near-universal library at free or competitive rates. For unclaimed in-copyright books, the settlement procompetitively expands output by helping to identify rightsholders and making their books saleable at competitive rates when they cannot be found. The settlement does not raise rival barriers to offering any of these books, but to the contrary lowers them. The output expansion is particularly dramatic for commercially unavailable books, which by definition would otherwise have no new output.

Google, books, Google Books, Google Books Settlement, copyright, digital books, cartel, monopoly, monopolization, orphan books, out-of-copyright, out-of-print, entry barriers, restraints of trade, Internet, antitrust

Abstract:
Some recent literature has concluded that patent remedies result in systematically excessive royalties because of holdup and stacking problems. This article shows that this literature is mistaken. The royalty rates predicted by the holdup models are often (plausibly most of the time) below the true optimal rate. Further, those predicted royalty rates are overstated because of incorrect assumptions about constant demand, one-shot bargaining, and informational symmetry. Although this literature concludes that overcompensation problems are exacerbated by doctrines measuring damages using past negotiated royalties, in fact such doctrines exacerbate undercompensation problems. Undercompensation problems are further increased to the extent that juries cannot measure damages with perfect accuracy, a problem that persists even if damages are just as likely to be overestimated as underestimated. Nor do the royalty rates predicted by the holdup model apply if there is competition in the downstream product market or upstream market for inventions. Royalty stacking does not lead to royalties that exceed the optimal rate, contrary to this literature, but in fact tends to produce royalties that are at or below the optimal rate.

K00, K10, K11, K20, K21, K29, K30, K39, K40, K41, K49, L40, L49, L50, L51, L59

Abstract:
Monopolization doctrine is currently governed by vacuous standards and conclusory labels that provide no meaningful guidance about which conduct is condemned. Current proposals to focus on whether the defendant sacrificed short-term profits in order to reap long run monopoly returns by excluding rivals also turn out to have no logical connection to whether the conduct was undesirable. The proper monopolization standard should focus on whether the alleged exclusionary conduct's ability to further monopoly power depends on the defendant improving its own efficiency, or whether it would do so by impairing the efficiency of rivals whether or not defendant efficiency were enhanced, permitting the former and prohibiting the latter. Under this standard, a defendant that has increased its own efficiency by investing in its intellectual or physical property should not have a duty to share that property with rivals, but has no privilege to discriminate by offering worse terms to rivals - or those who deal with rivals - since such discrimination is not necessary to support optimal ex ante investment incentives, and its success may thus depend not on increasing the value of the property and the efficiency of the monopolist, but rather on selectively impairing the efficiency of rivals. While existing doctrine on monopoly power is not as problematic, it too suffers from great ambiguities, including difficulty dealing with the ubiquitous pricing discretion of firms in modern brand-differentiated markets, vague references to a "substantial" degree of a power that itself only exists when substantial, and an underlying split over whether pricing discretion or market share is the underlying variable whose substantiality matters. This Article shows that proper economic analysis of how to judge the exclusionary conduct that must be causally connected to that monopoly power explains why monopoly power requires showing both (a) a market share above 50% and (b) an ability to either influence marketwide prices or impose significant marketwide foreclosure that impairs rival efficiency. This Article further shows that these proposed standards would not only provide a more coherent and desirable standard for guiding lower courts and juries, but better explain the actual pattern of Supreme Court case results.

Abstract:
It is commonly assumed that statutory indeterminancy must be resolved by judicial judgment. This Article argues that where hermeneutics gives out, statutory indeterminancy instead can, is, and should be resolved by default rules designed to minimize the expected dissatisfaction of enactable preferences. This probabilistic goal justifies many judicial practices such as broad-ranging inquiries into legislative history even if it does not accurately reveal any shared legislative intent. It also often supports adopting moderate interpretations even when more extreme interpretations are more likely to match legislative preferences. Further, while the general default rule normally requires estimating enacting legislative preferences, the enacting legislature itself would prefer to shift to a default rule of tracking current legislative preferences when those can be reliably ascertained from official action. The basic reason is that the enacting legislature would prefer influence over the interpretation of the entire stock of statutes being interpreted while it is office rather than influence over the future interpretation (when it is out of office) of the statutory ambiguities that exist on the few topics for which it made enactments. Such a current preferences default rule explains many cases that rely on subsequent legislative action despite its hermeneutic irrelevance, and explains both the general doctrine of deference to agency interpretations and the pattern of exceptions to that deference.

Abstract:
One puzzlement of statutory interpretation is that so many statutory canons run contrary to likely legislative preferences, sound policy, or even the judicial self-interest in avoiding being legislatively overridden. The first conflict seems inconsistent with honest agent theories of interpretation, including theories (like mine) that counsel judges to resolve statutory uncertainty in ways that maximize the satisfaction of enactable political preferences. The second conflict seems inconsistent with traditional legal models of interpretation that assume judges should exercise their own policy judgment in resolving statutory uncertainty. The third conflict seems inconsistent with more cynical modern rational choice models that assume judges try to push their own ideological views as far as they can without being overruled. These puzzlements are deepened by the commonplace observation that judges do not consistently apply these canons but often ignore them or apply counter-canons. This article argues that the solution to these puzzlements is to understand many canons as preference-eliciting statutory default rules, which maximize the satisfaction of enactable political preferences by eliciting a legislative reaction that eliminates uncertainty about what those preferences are. Such preference-eliciting default rules will, however, enhance political satisfaction only when one interpretive default rule is sufficiently more likely to elicit a legislative response to outweigh a weak estimate that another interpretation might better match enactable preferences. The seemingly inconsistent application of these canons can then be explained because this theory indicates these canons should not be uniformly applied but rather should be (and generally are) applied only in cases where these limited conditions are satisfied. Where the preferences of neither the enacting nor current legislatures can be reliably estimated or elicited, courts should and do use default rules that track the preferences of political subunits or, where that is unavailing, that limit the variance of judicial judgment. Various alternative default rules - like interpreting all statutory ambiguities to disfavor interest groups, protect reliance interests, or reduce the effect or change caused by the statute - should be rejected because they are not limited to cases where they satisfy the conditions for maximizing political satisfaction but rather advance one view on substantive controversies that the political process is supposed to resolve.

Abstract:
Recently, European and U.S. officials have made surprising moves toward restricting firms from using above-cost price cuts to drive out entrants. This Article argues that these legal developments likely reflect the fact that scholarly critiques of cost-based tests of predatory pricing have never been satisfactorily addressed, and offers a better explanation about why restrictions on reactive above-cost price cuts are likely to be undesirable. It begins concluding that "costs" should be defined functionally as whichever cost measure assures that prices above costs cannot deter or drive out equally efficient rivals, and shows how applying that functional benchmark resolves numerous apparent anomalies in current predatory pricing law. It then shows that reactive above-cost price cuts do not necessarily indicate an undesirable protection of market power, but rather can be an efficient response to deviations from the output-maximizing price discrimination schedule in competitive markets, particularly in the airline industry that has been the greatest cause of concern. Even when an incumbent does have market power, restrictions on reactive above-cost price cuts have mainly undesirable effects. They fail to encourage entry but do raise post-entry prices in the bulk of cases, where the entrants are or will predictably become as efficient as the incumbent, or would have entered anyway despite relative inefficiency. They can only weakly encourage less efficient entry since the restrictions cannot protect less efficient entrants in the long run, and even in such cases they have mixed effects on post-entry prices since they give incumbents perverse incentives to raise post-entry prices to speed the day when the restriction expires. In all cases, they impose wasteful transition costs and losses in productive efficiency, and they lessen incentives to create more efficient incumbents and entrants. These adverse effects are worsened by implementation difficulties that cannot be avoided no matter how the rules are defined, including that possible definitions of the moment of entry or exit either make the restrictions ineffectual or make their adverse effects last far longer than any benefits from entry, that they will inefficiently increase or decrease innovation rates, and that any price floor or output ceiling will cause inefficiencies because of either great uncertainty or inflexibility in the fact of changing market conditions.

Abstract:
We consider loyalty discounts whereby the seller promises to give buyers who commit to buy from it a lower price than the seller gives to uncommitted buyers. We show that an incumbent seller can use loyalty discounts to soften price competition between itself and a rival, which raises market prices to all buyers. Each individual buyer’s agreement to a loyalty discount externalizes most of the harm of that individual agreement onto all the other buyers. The resulting externality among buyers makes it possible for an incumbent to induce buyers to sign these contracts even if they reduce buyer and total welfare. Thus, if the entrant cost advantage is not too large, we prove that with a sufficient number of buyers, there does not exist any equilibrium in which at least some buyers do not sign loyalty discount contracts, and there exists an equilibrium in which all buyers sign and the rival is foreclosed from entry. As a result, with a sufficient number of buyers, an incumbent can use loyalty discounts to increase its profit and decrease both buyer and total welfare. Further, the necessary number of buyers can be as few as three. These effects occur even in the absence of economies of scale in production and even if the buyers are not intermediaries who compete with each other in a downstream market.