Sunday, March 24, 2013
Posted by D. Daniel Sokol
C. Scott Hemphill, Columbia University - Law School and Tim Wu, Columbia University - Law School analyze Parallel Exclusion.
ABSTRACT: Scholars and courts have long debated whether and when "parallel pricing" — adoption of the same price by every firm in a market — should be considered a violation of antitrust law. But there has been a comparative neglect of the importance of "parallel exclusion" — conduct, engaged in by multiple firms, that blocks or slows would-be market entrants. Parallel exclusion merits greater attention, for it can be far more harmful than parallel price elevation. Setting a high price leaves the field open for new entrants and may even attract them. In contrast, parallel action that excludes new entrants both facilitates price elevation and can slow innovation. Reduced innovation has greater long-term significance for the economy. Moreover, parallel exclusion regimes may be more stable than parallel price-elevation regimes. A basic game-theoretic analysis reveals that the factors that leave price elevation vulnerable to breakdown do not apply as strongly to parallel exclusion. Indeed, in some instances, maintaining an exclusion scheme is a dominant strategy for each of the excluders. In such cases, the likelihood of collapse is even lower, yielding a potentially indefinite system of parallel exclusion. This Article proposes the recognition of parallel exclusion as a form of monopolization — subject to the strict limits already present in case law, including monopoly power, anticompetitive effect, and an absence of sufficient procompetitive justification. It also explains why parallel exclusion is a proper concern for merger policy, and why it is bad policy to automatically condemn certain boycotts without any evaluation of their anticompetitive effects.