A Bargaining Model v. Reality in FTC v. Qualcomm: A Reply to Kattan & Muris

Abstract

In a recent article Joe Kattan and Tim Muris (K&M) criticize our article on the predictive power of bargaining models in antitrust, in which we used two recent applications to explore implications for uses of bargaining models in courts and antitrust agencies moving forward. K&M focus exclusively upon one aspect of our prior article: We argued that, as in AT&T/Time Warner, the market realities at issue in FTC v. Qualcomm are inconsistent with the use of Dr. Carl Shapiro’s bargaining model to predict competitive effects in the relevant market. K&M criticize our analysis and invite us to delve more deeply into the record evidence presented at trial, which they argue support the FTC’s case and Dr. Shapiro’s economic analysis. We accept their invitation. We demonstrate K&M’s position that the evidence “supports Shapiro’s testimony overwhelmingly” ignores the sound empirical evidence employed by Dr. Aviv Nevo during trial and has not aged well in light of the internal Apple documents made public in Qualcomm’s Opening Statement following the companies’ decision to settle the case. The documents undermine Apple’s public complaints about Qualcomm, call into question the validity of the underlying theory of harm in the FTC’s case, and directly refute some of the arguments K&M put forth in their critique of our prior article. We also discuss the implications of the newly-public internal Apple documents for the FTC’s case.

Keywords: Qualcomm, Federal Trade Commission, bargaining model, antitrust, monopolization, Section 5, refusal to deal, intellectual property

JEL Classification: L4, L5, K21