Monday, July 18, 2005
Sunk Costs and Real Options in Antitrust
by Robert S. Pindyck - #11430 (IO)
Sunk costs play a central role in antitrust economics, but are often misunderstood and mismeasured. I will try to clarify some of the conceptual and empirical issues related to sunk costs, and explain their implications for antitrust analysis. I will be particularly concerned with the role of uncertainty. When market conditions evolve unpredictably (as they almost always do), firms incur an opportunity cost when they invest in new capital, because they give up the option to wait for the arrival of new information about the likely returns from the investment. This option value is a sunk cost, and is just as relevant for antitrust analysis as the direct cost of a machine or a factory.
Thanks to Joe Hodnicki, editor of Law Librarian Blog for the tip
Wednesday, July 6, 2005
A recently released report from the American Antitrust Institute recommends reforms to the Robinson-Patman Act to strengthen enforcement against secondary line price discrimination cases, or cases involving price discrimination among buyers. The report concludes that after the Brooke Group decision, which applied the legal standard of predatory pricing to primary line cases (involving differential pricing intended to limit competition among sellers), primary line price discrimination cases are on the right course. The one caveat that the report provides is the current criminalization of primary line price discrimination, which the report recommends abolishing. As for secondary line cases, the report recommends a stronger market power requirement and a stronger defense of cost justification. Since the Supreme Court will be reviewing an important Robinson Patman case next term, a case involving alleged price discrimination by Volvo in the distribution of its trucks, it will be interesting to see whether the rules for secondary line cases will be reformed in the way that the rules for primary line cases were reformed over 10 years ago in Brooke Group.
Kenneth Davidson, recently retired FTC Commissioner, will be a Senior Fellow with the American Antitrust Institute. His memoirs of his 27 years as commissioner provide an insight into the workings of the FTC and the developments of international antitrust law, particularly in Indonesia.
Tuesday, July 5, 2005
Go, the maker of software for computer pen styluses, presses on with its lawsuit against Microsoft, claiming that the Redmond software company attempted to kill its operating system in the early 90's and stole its design for a stylus for the tablet computer. The suit was filed a few days before Microsoft's settlement with IBM.