Parallel Exclusion

72 Pages Posted: 17 Jan 2012 Last revised: 4 Oct 2015

C. Scott Hemphill

New York University School of Law

Tim Wu

Columbia University - Law School

Date Written: March 19, 2013

Abstract

Scholars and courts have long debated whether and when "parallel pricing" — adoption of the same price by every firm in a market — should be considered a violation of antitrust law. But there has been a comparative neglect of the importance of "parallel exclusion" — conduct, engaged in by multiple firms, that blocks or slows would-be market entrants. Parallel exclusion merits greater attention, for it can be far more harmful than parallel price elevation. Setting a high price leaves the field open for new entrants and may even attract them. In contrast, parallel action that excludes new entrants both facilitates price elevation and can slow innovation. Reduced innovation has greater long-term significance for the economy. Moreover, parallel exclusion regimes may be more stable than parallel price-elevation regimes. A basic game-theoretic analysis reveals that the factors that leave price elevation vulnerable to breakdown do not apply as strongly to parallel exclusion. Indeed, in some instances, maintaining an exclusion scheme is a dominant strategy for each of the excluders. In such cases, the likelihood of collapse is even lower, yielding a potentially indefinite system of parallel exclusion. This Article proposes the recognition of parallel exclusion as a form of monopolization — subject to the strict limits already present in case law, including monopoly power, anticompetitive effect, and an absence of sufficient procompetitive justification. It also explains why parallel exclusion is a proper concern for merger policy, and why it is bad policy to automatically condemn certain boycotts without any evaluation of their anticompetitive effects.

Keywords: antitrust, collective dominance, conspiracy to monopolize, contracts referencing rivals, most favored nation, MFN, oligopoly, parallel exclusion, parallel pricing, Posner, resale price maintenance, Section 5, shared monopoly, Sherman Act, Turner

JEL Classification: L12, L13, L41, L42, L74, L96, K21, O31

Suggested Citation

Hemphill, C. Scott and Wu, Tim, Parallel Exclusion (March 19, 2013). Yale Law Journal, Vol. 122, 2013; Columbia Law and Economics Working Paper No. 445. Available at SSRN: https://ssrn.com/abstract=1986407 or http://dx.doi.org/10.2139/ssrn.1986407

C. Scott Hemphill (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Tim Wu

Columbia University - Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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