Thursday, March 5, 2009
Posted by D. Daniel Sokol
Einer Elhauge of Harvard Law School discusses Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory.
ABSTRACT: Chicago School theorists have argued that tying cannot create anticompetitive effects because there is only a single monopoly profit. Some Harvard School theorists have argued that tying doctrine's quasi-per se rule is misguided because tying cannot create anticompetitive effects without foreclosing a substantial share of the tied market. This article shows both positions are mistaken. Even without substantial tied foreclosure, tying by a firm with market power generally increases monopoly profits and harms consumer welfare, absent offsetting efficiencies. Current doctrine is thus correct to require tying market power and a lack of offsetting efficiencies, but not substantial tied foreclosure. Doing so does not really apply a quasi-per se rule, but rather correctly identifies the conditions for the relevant anticompetitive effects. However, there should be an exception to this rule when the products are used or bundled in a fixed ratio and lack separate utility, because those conditions negate anticompetitive effects absent substantial tied foreclosure.
Bundled discounts can produce the same anticompetitive effects as tying without substantial tied foreclosure, but only when the unbundled price exceeds the but-for price. Thus, when the unbundled price exceeds the but-for price, bundled discounts should be condemned based on market power and a lack of offsetting efficiencies, absent the conditions that negate nonforeclosure effects. When the unbundled price is lower than the but-for price, bundled discounts should be condemned only when there is substantial foreclosure or direct proof of anticompetitive effects. Alternative tests for judging bundled discounts, such as comparing incremental prices to costs, are not only underinclusive, but perversely exempt the bundled discounts with the worst anticompetitive effects