The John M. Olin Center

Paper Abstract

801. Einer Elhauge, Rehabilitating Jefferson Parish: Why Ties Without a Substantial Foreclosure Share Should Not Be Per Se Legal, 11/2014; forthcoming in Antitrust Law Journal (2015).

Abstract: Current tying law uses a bifurcated rule of reason, condemning ties that have either tying market power or a substantial tied foreclosure share, absent an offsetting procompetitive justification. Many critics of tying law advocate overruling the first branch, commonly called the quasi per se rule, thus making all ties without a substantial foreclosure share per se legal.  This article shows they are mistaken.  Even without a substantial foreclosure share, ties with market power restrain competition in ways that are likely to harm both consumer welfare and total welfare as long as they foreclose a substantial dollar amount of sales.  Critics claim that these effects do not legally count as anticompetitive because they do not impair rivals, but their claim conflicts with precedents that rule otherwise and with the principle that antitrust protects competition, not competitors. Both precedents and economics also show that critics are wrong in claiming that there is no valid distinction between setting a profit-maximizing price and extracting the remaining consumer surplus through tying agreements.  Because even the critics admit that consumer welfare and total welfare are harmed by some ties with market power that lack a substantial foreclosure share, even their own analysis fails to support their position of per se legality for such ties.  It would instead support the current doctrine that sorts out the ties with market power that harm consumer welfare from those that do not.

801: PDF