The John M. Olin Center

Paper Abstract

664. Einer Elhauge, The Failed Resurrection of the Single Monopoly Profit Theory , 2/10; subsequently published in Competition Policy International, Vol. 6, No. 1, Spring 2010, 155-209.

Abstract:Various arguments attempting to resurrect the single monopoly profit theory of tying have been made, but none are successful. The Seabright claim that it is supported by a lack of empirical proof fails because the single monopoly profit theory is an impossibility theory, and my recommended exception applies to whatever empirical extent the necessary conditions for that theory actually exist. The claim that a lack of empirical proof favors critics of current tying doctrine also fails because it is the critics that favor a categorical rule (of legality either for all ties or for all ties that lack substantial foreclosure) that requires empirical proof across the category. In contrast, current tying doctrine uses no categorical rule, but rather weighs efficiencies against anticompetitive effects in each case and permits ties to whatever extent it turns out to be empirically true that the efficiencies outweigh the anticompetitive effects. Current tying doctrine is thus preferable to the critics’ recommended alternatives whether the standard is consumer welfare or total welfare, and whether one thinks most ties flunk that standard or not.
Seabright also makes the more minor claim that, absent empirical proof that most ties harm welfare, the law should shift the burden of proof on efficiencies away from defendants. But this claim fails because: (1) the burden of empirical proof on legal issues is on those who want to overrule precedent, (2) the fact that defendants have better access to evidence on tying efficiencies favors putting the burden of proof on them regardless of what one assumes about the welfare effects of most ties, (3) the relevant category is not all ties, but ties covered by current doctrine with my exception, a category that excludes ties without market power, ties of items routinely bundled in competitive markets, and fixed ratio ties of products that lack separate utility and create no substantial foreclosure share, and (4) theoretical considerations indicate that ties in the relevant set will usually reduce both consumer welfare (the actual antitrust standard) and ex ante total welfare.
The Crane-Wright claim that bundled discounts cannot credibly threaten unbundled prices that exceed but-for prices conflicts with the facts that: (1) firms can credibly threaten the refusal to sell at any price that is necessary to get buyers to agree to tying and monopoly pricing and (2) in markets with many buyers, buyers have collective action problems that make them price takers.
My conclusions on the subset of ties that are metering ties is confirmed by Nalebuff’s models. However, I think it more accurate to model metering ties by assuming that (1) buyers purchase a whole number of tied units rather than (as he assumes) infinitely divisible fractions of tied units, and (2) buyers have varying valuations rather than (as some of his models assume) the same valuation for tied product usage over the relevant range.
My legal conclusions are also generally confirmed by First’s conclusions using a multi-goal approach, but I prefer a welfarist analysis because I find the multi-goal approach and its non-welfarist components conclusory and unpersuasive when they conflict with welfare.


664: PDF