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Wednesday, May 1, 2013

Jon Baker on Parallel Exclusion

Posted by Jon Baker

Scott Hemphill and Tim Wu have little patience for conventional wisdom.  One of the many marvelous things about “Parallel Exclusion” is the conviction with which it takes controversial positions in not just one but two important areas of antitrust.

One of these is the article’s embrace of exclusionary conduct as a central concern of competition policy.  As I explain in detail in a forthcoming article, exclusionary conduct can be thought of as the stepchild of modern antitrust – inappropriately relegated to the periphery in the rhetoric of courts, commentators and enforcers.  In “Parallel Exclusion,” Scott and Tim play fairy godmother – turning a form of exclusion that looks nothing like the conduct that got Microsoft into trouble into the star of the antitrust ball.

Cinderella is not just any type of exclusionary conduct: Scott and Tim are concerned specifically with parallel exclusion among rival firms.   Parallel conduct short of agreement, even if collusive, has been left at home, kept away from the antitrust party, since the Supreme Court famously stated in 1954 that “‘conscious parallelism’ has not read conspiracy out of the Sherman Act entirely.”  Antitrust has instead largely taken the less interventionist side of the famous Turner-Posner debate over the standards courts should apply to infer “agreement” from parallel conduct (though there now is renewed academic attention to the controversy, for example here and here). 

Scott and Tim create a glittering coach in which parallel exclusion rides.  The article’s core contribution is in explaining why parallel exclusion is a more serious problem than parallel price elevation:  because the anticompetitive conduct may be more likely to persist, so the harm may be longer lasting, and because innovation may be harmed, so the social cost may be greater.  (My forthcoming article on exclusion makes a similar point about innovation, explaining that anticompetitive exclusion may be a more important problem than anticompetitive collusion because of the particular threat exclusion poses to economic growth.  I’m not sure how to evaluate whether parallel collusive conduct is on average more or less stable than parallel exclusion, but Scott and Tim could be right and their hypothesis should spawn more economic studies.)

The article’s last major section, on doctrine, takes on a more difficult task in the Cinderella story:  searching high and low to find a doctrinal hook that would bring parallel exclusion to the heart of antitrust’s royal family.   Scott and Tim consider several:  shared monopoly, conspiracy to monopolize, unfair conduct under the FTC Act, considering the presence of exclusionary vertical agreements involving rivals when evaluating the reasonableness of individual firm exclusionary practices, and recognizing as a coordinated effect of merger the possibility that an acquisition would raise the likelihood of anticompetitive parallel exclusion.

To complete the tale someone has to play Prince Charming, and find a contemporary case to slip a parallel exclusion foot into a perfect-fit doctrinal shoe.   That seems an unlikely role for a Supreme
Court that expressed skepticism about coordinated exclusionary conduct in Brooke Group, but with princess parties now apparently in vogue, why shouldn’t Scott and Tim dream of a fairy tale ending?

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