Defensive Leveraging in Antitrust
University of California Hastings College of the Law
Georgetown Law Journal, Vol. 87, June 1999
Antitrust commentators have struggled to explain why firms engage in leveraging behavior and whether leveraging damages competition. The literature has focused on whether a firm with a monopoly in one market can use leveraging to gain additional monopoly profit from a second market. This article introduces the theory of defensive leveraging. According to the theory, leverage behavior should not be analyzed solely as an attempt to reap additional monopoly profit from a second market. Rather, it may be an attempt to prevent erosion of the primary monopoly. The article analyzes the life cycle of a monopoly and explains how defensive leveraging helps a monopolist extend the life of its primary monopoly by preventing splintering and next generation substitution. The article then applies defensive leveraging theory to three market examples: Microsoft's behavior in the market for Internet browsers, competition between physician and nonphysician health care providers, and Eli Lilly's behavior in the market for cephalosporins.
Accepted Paper Series
Date posted: September 8, 1999
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