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Michael A. Salinger's
Scholarly Papers
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2,083 |
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Citations
43 |
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David S. Evans University of Chicago Law School Michael A. Salinger Boston University - Department of Finance & Economics
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29 May 04
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28 Oct 08
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708 (8,664)
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Abstract:
Tying the sale of products that could be sold separately is common in competitive markets - from left and right shoes, to the sports and living sections of daily newspapers, to cars and radios. This paper presents a cost-based theory for why tying occurs in competitive markets and uses this theory to examine bundling and tying in pain relievers and cold medicines, foreign electrical plug adapters, and mid-sized automobile sedans. It shows that product-specific scale economies are needed to understand tying but that these scale economies might be hard to detect even when they are present. We draw two principle conclusions for tying doctrine. First, per se condemnation in its various manifestations is wrong as a matter of economics. Neither the Jefferson-Parish test in the United States nor the Hilti/Tetra-Pak approach in the EU is capable of screening anti-competitive from pro-competitive tying. Second, if it is hard to establish efficiencies when practices could not arise for anticompetitive reasons, it might also be hard to establish the efficiencies required by the rule of reason or per se approaches. Both approaches are therefore likely to result in the frequent condemnation of efficient tying - that is a high rate of false convictions.
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Tying Law and Policy: A Decision Theoretic Approach
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Keith N. Hylton Boston University Michael A. Salinger Boston University - Department of Finance & Economics
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17 Apr 01
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28 Oct 08
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Keith N. Hylton Boston University Michael A. Salinger Boston University - Department of Finance & Economics
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25 Oct 01
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28 Oct 08
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This paper offers a decision theoretic framework for analyzing tying law, and presents a critical assessment of post-Chicago tying theory. The decision theoretic framework takes into account the likelihood of judicial error in the application of rules and the costs of such error. We use the decision theoretic framework to assess the proper legal rules regarding tying and technological integration. Three general themes run throughout much of our analysis. First, the per se rule against tying simply has no economic foundation. Second, while the post-Chicago literature established the theoretical possibility of anticompetitive tying, one must know the frequency of anticompetitive tying to formulate a rational legal rule. Because beneficial tying is so pervasive, rules against tying could be harmful even with a small rate of "false convictions." Third, the most plausible post-Chicago theory of anticompetitive tying is based on the assumption that the tying and tied goods are complementary and that they are both susceptible to market power. However, the long-established principle that integrated complementary monopoly results in lower prices than independent complementary monopolies suggests that a policy biased toward independent complementary monopolies has the predictable consequence of reducing consumer welfare. There are two implications for the law: for contractual tying cases, the rule of reason with a heavy burden of proof for plaintiffs should be applied; and for technological integration cases, the deferential legal standard in most circuits is preferable to the D.C. Circuit's rule of reason standard for software.
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Keith N. Hylton Boston University Michael A. Salinger Boston University - Department of Finance & Economics
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17 Apr 01
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Last Revised:
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28 Oct 08
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461
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Abstract:
This paper offers a decision theoretic framework for analyzing tying law, and presents a critical assessment of post-Chicago tying theory. The decision theoretic framework takes into account the likelihood of judicial error in the application of rules and the costs of such error. We use the decision theoretic framework to assess the proper legal rules regarding tying and technological integration. Three general themes run throughout much of our analysis. First, the per se rule against tying simply has no economic foundation. Second, while the post-Chicago literature established the theoretical possibility of anticompetitive tying, one must know the frequency of anticompetitive tying to formulate a rational legal rule. Because beneficial tying is so pervasive, rules against tying could be harmful even with a small rate of "false convictions." Third, the most plausible post-Chicago theory of anticompetitive tying is based on the assumption that the tying and tied goods are complementary and that they are both susceptible to market power. However, the long-established principle that integrated complementary monopoly results in lower prices than independent complementary monopolies suggests that a policy biased toward independent complementary monopolies has the predictable consequence of reducing consumer welfare.
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David S. Evans University of Chicago Law School A. Jorge Padilla Law and Economics Consulting Group (LECG), LLC - Brussels, Belgium Office Michael A. Salinger Boston University - Department of Finance & Economics
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15 Nov 03
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28 Oct 08
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349 (22,848)
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Abstract:
There is a wide and growing consensus among antitrust scholars and practitioners in favor of a rule-of-reason approach to the assessment of tying by dominant firms. However, a rule-of-reason analysis may or may not produce socially optimal outcomes depending on how it is conducted in practice. A rule-of-reason test that places the same weight on factual evidence as on theoretical speculation is bound to cause as much harm as a rule that considers tying per se illegal: many socially beneficial ties will be found illegal. This paper discusses how to best implement a rule-of-reason approach. We consider two alternatives, a simple balancing test and a structured test, and conclude in favor of the structured test, as it is less likely to lead to costly mistakes.
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Michael A. Salinger Boston University - Department of Finance & Economics David S. Evans University of Chicago Law School
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02 Nov 04
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08 Dec 04
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212 (40,180)
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Abstract:
We apply and extend the cost-based approach to bundling and tying under competition developed in Evans and Salinger (2004a) to over-the-counter pain relievers and cold medicines. We document that consumers pay much less for tablets with multiple ingredients than they would to buy tablets with each ingredient separately. We then decompose the sources of these savings into marginal cost savings and a component that reflects fixed costs of product offerings. The analysis both documents substantial economies of bundling and illustrates the sort of cost analysis that is necessary for understanding tying.
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David S. Evans University of Chicago Law School Michael A. Salinger Boston University - Department of Finance & Economics
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09 Jun 04
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28 Oct 08
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211 (40,370)
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Abstract:
We incorporate marginal cost savings from bundling, fixed costs of product offerings, and variation in customer preferences into a model of bundling and tying. To focus on cost effects, we assume perfectly contestable markets and analyze sustainable product offerings. Pure bundling can arise either because few people demand only one component or because, with high fixed costs, a single product is the efficient way to satisfy customers with diverse tastes. Two cases - sinus headache tablets and a package of four foreign plug adapters - illustrate the distinctions identified by the model.
Tying, Bundling, Contestable Markets
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David S. Evans University of Chicago Law School Michael A. Salinger Boston University - Department of Finance & Economics
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28 Sep 05
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11 Oct 05
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101 (78,388)
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Abstract:
We apply and extend the cost-based approach to bundling and tying under competition developed in Evans and Salinger (2004) to over-the-counter pain relievers and cold medicines. We document that consumers pay much less for tablets with multiple ingredients than they would if they bought tablets with each ingredient separately. We then decompose the sources of these savings into marginal cost savings and a component that reflects fixed costs of product offerings. The analysis both documents substantial economies of bundling and illustrates the sort of cost analysis that is necessary for understanding tying.
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7.
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Michael A. Salinger Boston University - Department of Finance & Economics Lawrence H. Summers Harvard University
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10 Nov 02
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20 Sep 08
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21 (164,320)
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Abstract:
No abstract is available for this paper.
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8.
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Michael A. Salinger Boston University - Department of Finance & Economics
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17 Apr 09
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07 Jun 09
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Abstract:
This paper extends the mark-up rule relating a firm’s profit-maximizing price to its marginal cost and its elasticity of residual demand to the news vendor problem with endogenous pricing. Two adjustments are necessary. First, the relevant elasticity of demand is the elasticity of the average quantity sold with respect to price. Second, marginal cost is the marginal cost per unit of an expected unit sold, computed as the marginal cost of an additional unit produced divided by the expected fraction of the marginal unit produced that the firm sells. Applying this rule clarifies why increased uncertainty about demand can cause an increase in output with additive uncertainty and a reduction in output with multiplicative uncertainty.
problem, demand uncertainty, mark-ups, Lerner Index
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9.
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Michael A. Salinger Boston University - Department of Finance & Economics
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25 Dec 98
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28 Oct 08
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0 (0)
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Abstract:
By comparing the demand for a bundle and the vertical sum of the demands for its components, this article analyzes the profitability and welfare consequences of bundling. If it does not lower costs, bundling tends to be profitable when reservation values are negatively correlated and high relative to costs. If bundling lowers costs and costs are high relative to average reservation values, positively correlated reservation values increase the incentive to bundle. Bundling and charging a price equal to the sum of the components prices lowers consumer surplus. Bundling can, however, increase consumer surplus when it results in lower prices.
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