Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Saturday, October 20, 2007

Bundled Discounts, Leverage Theory, and Downstream Competition

Posted by D. Daniel Sokol

With so much recently in policy circles on unilateral conduct (ICN unilateral working group, US AMC Report and Section 2 hearings, and EU Article 82 white paper to name just a few), John Simpson (FTC) and Abraham L. Wickelgren (Northwestern University Law School) provide some insights into Bundled Discounts, Leverage Theory, and Downstream Competition in the latest issue of the American Law and Economics Review.

ABSTRACT: Under plausible circumstances, a monopolist in one market can use its control of prices in that market to force competing downstream buyers to sign tying contracts that will lever its monopoly into another market. Specifically, the monopolist of the tying good can place each downstream buyer in a prisoner's dilemma by offering them more favorable pricing on the tying good if they sign a requirements-tying contract covering the tied good. Since a buyer benefits on receiving more favorable pricing on the tying good and the competitors do not, and suffers if the competitors receive more favorable pricing on the tying good and the buyer does not, buyers will sign the tying contract even when they would earn higher profits if they all refused to sign. This enables a monopolist in one market to inefficiently exclude an entrant in another market.

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