Wednesday, August 15, 2012
Posted by D. Daniel Sokol
Kalyn Coatney, Mississippi State University and Sherrill Shaffer, University of Wyoming Centre for Applied Macroeconomic Analysis (CAMA), ANU discuss Coerced Reciprocal Dealing and the Leverage Theory.
ABSTRACT: Recent international mergers have potentially revived interest in a long-standing concern of U.S. courts that, under certain conditions, a conglomerate that buys from and sells products to its intermediary supplier may be able to profitably leverage its downstream market power to restrict competition in the upstream market and harm welfare via coerced reciprocal dealing. Economists have debated the court precedent, invoking the leverage theory established from various models of tying arrangements, a cousin of coerced reciprocal dealing. We develop the first explicit model of coerced reciprocal dealings to investigate the validity of the leverage theory. Our results support the concerns.