Coercion, Deception, and Other Demand-Increasing Practices in Antitrust Law

Abstract

This article proposes a new antitrust analysis for sellers' practices seeking to increase demand for their products. These demand-increasing practices can be broadly divided into two categories (which nevertheless overlap): coercive ones, like tying, and deceptive ones, like manipulating product standards. These practices have been addressed by the Supreme Court only through ad hoc tests designed for particular practices; antitrust law has no general theory for analyzing them. This leaves the lower courts with no guidance in considering claims of coercion that do not involve tying, as in the recent challenge to Moody's practices in the debt-rating market, or claims of deception that do not involve standard-manipulation, as in cases challenging false advertising as an antitrust violation. In this article, I propose that a practice that increases demand for one product be treated as an antitrust violation only if it imposes costs on buyers of some other product. Under this test, antitrust law would not condemn procompetitive demand-increasing practices like product improvements. The costs of such practices e.g., product development costs are borne only by those who buy the products in which those costs are invested. In contrast, coercion (as defined in the article, not as defined in current tying law) can allow sellers to shift the costs of increasing demand for one product to buyers in another market. Similar distortions are created by manipulation of a product standard, which can impose costs on all users of a standard, even those who do not buy the manipulator's product, but not by false advertising, which typically imposes costs only on those led to buy the advertiser's product. The article also applies the proposed cost- shifting test to demand-increasing practices that are not easily labeled as coercive or deceptive, and the test produces sensible results in those cases as well. When cost- shifting distortions are present, the demand-increasing practices that cause them can be said to have foreclosed competition on the merits, in the words of the Supreme Court, and should therefore be condemned.

JEL Classification: K0