Antitrust in the new economy

Antitrust Law Journal

Volumn 68, Issue 3, 2001, Pages 925-942

  Posner, Richard A ^a  

^a NONE

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EID: 0035579072     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (36)

1. But still an overstatement, because there are selling and servicing costs associated with each sale or rental of software.
2. See Mark A. Lemley, Beyond Preemption: The Law and Policy of Intellectual Property Licensing, 87 CAL. L. REV. 111, 124-134 (1999).
3. See, e.g., Stanley M. Besen & Joseph Farrell, Choosing How to Compete: Strategies and Tactics in Standardization, J. ECON. PERSP., Spring 1994, at 117; Joseph Farrell & Garth Saloner, Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation, 76 AM. ECON. REV. 940 (1986); Michael L. Katz & Carl Shapiro, Technology Adoption in the Presence of Network Externalities, 94 J. POL. ECON. 922 (1986).
4. See, e.g., Stanley M. Besen & Joseph Farrell, Choosing How to Compete: Strategies and Tactics in Standardization, J. ECON. PERSP., Spring 1994, at 117; Joseph Farrell & Garth Saloner, Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation, 76 AM. ECON. REV. 940 (1986); Michael L. Katz & Carl Shapiro, Technology Adoption in the Presence of Network Externalities, 94 J. POL. ECON. 922 (1986).
5. See, e.g., Stanley M. Besen & Joseph Farrell, Choosing How to Compete: Strategies and Tactics in Standardization, J. ECON. PERSP., Spring 1994, at 117; Joseph Farrell & Garth Saloner, Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation, 76 AM. ECON. REV. 940 (1986); Michael L. Katz & Carl Shapiro, Technology Adoption in the Presence of Network Externalities, 94 J. POL. ECON. 922 (1986).
6. This is what makes Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992), involving the tying of repair services to the purchase of the product, along with most other tying cases, so questionable, as it was plain that, at worst, Eastman Kodak was merely exploiting its customers, not killing equally or more efficient competitors. Benjamin Klein, Market Power in Antitrust: Economic Analysis after Kodak, 3 SUP. CT. ECON. REV. 43 (1994).
7. A patent confers a lawful monopoly, but the expenditures on obtaining a patent may exceed the social benefits of that lawful monopoly. Imagine a case in which those social benefits, which I'll assume are equal to the royalties that the patentee will obtain, are $10 million, and the optimal path to creating the patentable innovation involves two firms each spending $4 million. The firm that creates it first will obtain the patent. Suppose that after each has spent $3 million, they estimate that it will take another six months to complete their respective patent applications. Since the expenditure of $6 million is a sunk cost, each will spend up to an additional $5 million (assuming each thinks he has a 50 percent chance of winning the race if he persists) to complete his application a day before his rival; but the social benefit of the acceleration in the completion day will be negligible. Monopoly in this example draws excessive resources into innovating.
8. United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945) (L. Hand, J.).
9. See, e.g., United States v. Syufy Enters., 903 F.2d 659, 669 (9th Cir. 1990); Olympia Equip. Leasing Co. v. Western Union Tel. Co., 797 F.2d 370, 375-76 (7th Cir. 1986); Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 544 (9th Cir. 1983). These cases reflect a series of emphatic post-Alcoa statements by the Supreme Court that the antitrust laws protect competition in the sense of efficient business practices rather than in the sense of rivalry per se. See, e.g., Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 19-20 (1979); Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979).
10. See RICHARD A. POSNER, ANTITRUST LAW: AN ECONOMIC PERSPECTIVE ch. 8 (1976).
11. A more fundamental point, however, is that tying makes the tied product a complement of the tying one; the buyer cannot get the tying product without the tied product and will therefore pay less for the tying product the higher the price for the tied product. The significance of the fact that the tied product is usually a complement of the tying product independently of the tie is that the quantity demanded of the tied product is a measure of the intensity of the buyer's demand for the tying product.
12. Perfect price discrimination would bring about the same output as under competition, because no customer willing to pay the seller's marginal cost would be turned away. But perfect price discrimination is infeasible, and imperfect price discrimination can result in a lower or higher output than under competition, or the same output. See F.M. SCHERER & DAVID ROSS, MARKET STRUCTURE AND INDUSTRIAL PERFORMANCE 494-96 (3d ed. 1990); PAUL A. SAMUELSON, FOUNDATIONS OF ECONOMIC ANALYSIS 42-45 (1947); JOAN ROBINSON, THE ECONOMICS OF IMPERFECT COMPETITION 188-95 (1933). Many economists believe that even crude discrimination is more likely to expand than to reduce output, see, e.g., ROBINSON, supra, at 201; SCHERER & ROSS, supra, at 494-96; Peter O. Steiner, Book Review, 44 U. CHI. L. REV. 873, 882 (1977), but there does not appear to be a firm basis for this belief. A Hal R. Varian, Price Discrimination, in HANDBOOK OF INDUSTRIAL ORGANIZATION, at 597, 629-33 (Richard Schmalensee & Robert D. Willig eds., 1989).
13. Perfect price discrimination would bring about the same output as under competition, because no customer willing to pay the seller's marginal cost would be turned away. But perfect price discrimination is infeasible, and imperfect price discrimination can result in a lower or higher output than under competition, or the same output. See F.M. SCHERER & DAVID ROSS, MARKET STRUCTURE AND INDUSTRIAL PERFORMANCE 494-96 (3d ed. 1990); PAUL A. SAMUELSON, FOUNDATIONS OF ECONOMIC ANALYSIS 42-45 (1947); JOAN ROBINSON, THE ECONOMICS OF IMPERFECT COMPETITION 188-95 (1933). Many economists believe that even crude discrimination is more likely to expand than to reduce output, see, e.g., ROBINSON, supra, at 201; SCHERER & ROSS, supra, at 494-96; Peter O. Steiner, Book Review, 44 U. CHI. L. REV. 873, 882 (1977), but there does not appear to be a firm basis for this belief. A Hal R. Varian, Price Discrimination, in HANDBOOK OF INDUSTRIAL ORGANIZATION, at 597, 629-33 (Richard Schmalensee & Robert D. Willig eds., 1989).
14. Perfect price discrimination would bring about the same output as under competition, because no customer willing to pay the seller's marginal cost would be turned away. But perfect price discrimination is infeasible, and imperfect price discrimination can result in a lower or higher output than under competition, or the same output. See F.M. SCHERER & DAVID ROSS, MARKET STRUCTURE AND INDUSTRIAL PERFORMANCE 494-96 (3d ed. 1990); PAUL A. SAMUELSON, FOUNDATIONS OF ECONOMIC ANALYSIS 42-45 (1947); JOAN ROBINSON, THE ECONOMICS OF IMPERFECT COMPETITION 188-95 (1933). Many economists believe that even crude discrimination is more likely to expand than to reduce output, see, e.g., ROBINSON, supra, at 201; SCHERER & ROSS, supra, at 494-96; Peter O. Steiner, Book Review, 44 U. CHI. L. REV. 873, 882 (1977), but there does not appear to be a firm basis for this belief. A Hal R. Varian, Price Discrimination, in HANDBOOK OF INDUSTRIAL ORGANIZATION, at 597, 629-33 (Richard Schmalensee & Robert D. Willig eds., 1989).
15. Perfect price discrimination would bring about the same output as under competition, because no customer willing to pay the seller's marginal cost would be turned away. But perfect price discrimination is infeasible, and imperfect price discrimination can result in a lower or higher output than under competition, or the same output. See F.M. SCHERER & DAVID ROSS, MARKET STRUCTURE AND INDUSTRIAL PERFORMANCE 494-96 (3d ed. 1990); PAUL A. SAMUELSON, FOUNDATIONS OF ECONOMIC ANALYSIS 42-45 (1947); JOAN ROBINSON, THE ECONOMICS OF IMPERFECT COMPETITION 188-95 (1933). Many economists believe that even crude discrimination is more likely to expand than to reduce output, see, e.g., ROBINSON, supra, at 201; SCHERER & ROSS, supra, at 494-96; Peter O. Steiner, Book Review, 44 U. CHI. L. REV. 873, 882 (1977), but there does not appear to be a firm basis for this belief. A Hal R. Varian, Price Discrimination, in HANDBOOK OF INDUSTRIAL ORGANIZATION, at 597, 629-33 (Richard Schmalensee & Robert D. Willig eds., 1989).
16. Perfect price discrimination would bring about the same output as under competition, because no customer willing to pay the seller's marginal cost would be turned away. But perfect price discrimination is infeasible, and imperfect price discrimination can result in a lower or higher output than under competition, or the same output. See F.M. SCHERER & DAVID ROSS, MARKET STRUCTURE AND INDUSTRIAL PERFORMANCE 494-96 (3d ed. 1990); PAUL A. SAMUELSON, FOUNDATIONS OF ECONOMIC ANALYSIS 42-45 (1947); JOAN ROBINSON, THE ECONOMICS OF IMPERFECT COMPETITION 188-95 (1933). Many economists believe that even crude discrimination is more likely to expand than to reduce output, see, e.g., ROBINSON, supra, at 201; SCHERER & ROSS, supra, at 494-96; Peter O. Steiner, Book Review, 44 U. CHI. L. REV. 873, 882 (1977), but there does not appear to be a firm basis for this belief. A Hal R. Varian, Price Discrimination, in HANDBOOK OF INDUSTRIAL ORGANIZATION, at 597, 629-33 (Richard Schmalensee & Robert D. Willig eds., 1989).
17. Perfect price discrimination would bring about the same output as under competition, because no customer willing to pay the seller's marginal cost would be turned away. But perfect price discrimination is infeasible, and imperfect price discrimination can result in a lower or higher output than under competition, or the same output. See F.M. SCHERER & DAVID ROSS, MARKET STRUCTURE AND INDUSTRIAL PERFORMANCE 494-96 (3d ed. 1990); PAUL A. SAMUELSON, FOUNDATIONS OF ECONOMIC ANALYSIS 42-45 (1947); JOAN ROBINSON, THE ECONOMICS OF IMPERFECT COMPETITION 188-95 (1933). Many economists believe that even crude discrimination is more likely to expand than to reduce output, see, e.g., ROBINSON, supra, at 201; SCHERER & ROSS, supra, at 494-96; Peter O. Steiner, Book Review, 44 U. CHI. L. REV. 873, 882 (1977), but there does not appear to be a firm basis for this belief. A Hal R. Varian, Price Discrimination, in HANDBOOK OF INDUSTRIAL ORGANIZATION, at 597, 629-33 (Richard Schmalensee & Robert D. Willig eds., 1989).
18. Perfect price discrimination would bring about the same output as under competition, because no customer willing to pay the seller's marginal cost would be turned away. But perfect price discrimination is infeasible, and imperfect price discrimination can result in a lower or higher output than under competition, or the same output. See F.M. SCHERER & DAVID ROSS, MARKET STRUCTURE AND INDUSTRIAL PERFORMANCE 494-96 (3d ed. 1990); PAUL A. SAMUELSON, FOUNDATIONS OF ECONOMIC ANALYSIS 42-45 (1947); JOAN ROBINSON, THE ECONOMICS OF IMPERFECT COMPETITION 188-95 (1933). Many economists believe that even crude discrimination is more likely to expand than to reduce output, see, e.g., ROBINSON, supra, at 201; SCHERER & ROSS, supra, at 494-96; Peter O. Steiner, Book Review, 44 U. CHI. L. REV. 873, 882 (1977), but there does not appear to be a firm basis for this belief. A Hal R. Varian, Price Discrimination, in HANDBOOK OF INDUSTRIAL ORGANIZATION, at 597, 629-33 (Richard Schmalensee & Robert D. Willig eds., 1989).
19. Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346 (1922).
20. Aaron Director & Edward H. Levi, Law and the Future: Trade Regulation, 51 Nw. U. L. REV. 281, 293 (1956); POSNER, supra note 9, at 202 n.48 (1976). See generally John E. Lopatka & William H. Page, Posner's Program for the Antitrust Division: A Twenty-Five Year Perspective, 48 SMU L. REV. 1713, 1734, 1745-46 (1995).
21. Aaron Director & Edward H. Levi, Law and the Future: Trade Regulation, 51 Nw. U. L. REV. 281, 293 (1956); POSNER, supra note 9, at 202 n.48 (1976). See generally John E. Lopatka & William H. Page, Posner's Program for the Antitrust Division: A Twenty-Five Year Perspective, 48 SMU L. REV. 1713, 1734, 1745-46 (1995).
22. Aaron Director & Edward H. Levi, Law and the Future: Trade Regulation, 51 Nw. U. L. REV. 281, 293 (1956); POSNER, supra note 9, at 202 n.48 (1976). See generally John E. Lopatka & William H. Page, Posner's Program for the Antitrust Division: A Twenty-Five Year Perspective, 48 SMU L. REV. 1713, 1734, 1745-46 (1995).
23. ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 305-07 (2d ed. 1993). Bork also argues that Standard Fashion's market share, 40 percent, was too small to enable it to foreclose rivals. But that was its nationwide market share, and the Supreme Court pointed out that in many towns and smaller cities it had a monopoly. It should probably be regarded therefore as a case involving a series of local monopolies rather than a national monopoly.
24. 312 U.S. 457 (1941).
25. As expressly authorized by FED. R. EVID. 706.
26. See MERTON J. PECK, COMPETITION IN THE ALUMINUM INDUSTRY 1945-1958 (1961), under index references to Limited. (The name of the Canadian subsidiary was "Aluminium Limited.")
27. I am not proposing a net increase in the appropriations for these agencies, just that they be authorized to allocate a portion of their existing appropriations to hiring technical experts.
28. That is, Congress should enact a statute that (to the extent permitted by Congress's power over interstate and foreign commerce) would make antitrust law, like patent, copyright, and bankruptcy law, an exclusively federal body of law enforceable only in federal courts.
29. Cf. Robert H. Lande, When Should States Challenge Mergers: A Proposed Federal/State Balance, 35 N.Y. L. SCH. L. REV. 1047, 1064-66 (1990).
30. See, e.g., 29 U.S.C. § 626(c) (1); EEOC v. G-K-G, Inc., 39F.3d 740, 744-45 (7th Cir. 1994).
31. See, e.g., William F. Baxter, The Political Economy of Antitrust (Robert D. Tollison ed., 1980); George J. Stigler, The Origin of the Sherman Act, 14 J. LEGAL STUD. 1 (1985); Malcolm B. Coate, Richard S. Higgins & Fred S. McChesney, Bureaucracy and Politics in FTC Merger Challenges, in THE CAUSES AND CONSEQUENCES OF ANTITRUST: THE PUBLIC-CHOICE PERSPECTIVE 213 (Fred S. McChesney & William F. Shughart II eds., 1995). But see Roger L. Faith, Donald R. Leavens & Robert D. Tollison, Antitrust Pork Barrel, 25 J.L. & ECON. 329 (1982) (finding evidence that the FTC in the 1960s was unduly influenced in its enforcement activity by the parochial interests of members of Congress who had budgetary and oversight powers with respect to the Commission).
32. See, e.g., William F. Baxter, The Political Economy of Antitrust (Robert D. Tollison ed., 1980); George J. Stigler, The Origin of the Sherman Act, 14 J. LEGAL STUD. 1 (1985); Malcolm B. Coate, Richard S. Higgins & Fred S. McChesney, Bureaucracy and Politics in FTC Merger Challenges, in THE CAUSES AND CONSEQUENCES OF ANTITRUST: THE PUBLIC-CHOICE PERSPECTIVE 213 (Fred S. McChesney & William F. Shughart II eds., 1995). But see Roger L. Faith, Donald R. Leavens & Robert D. Tollison, Antitrust Pork Barrel, 25 J.L. & ECON. 329 (1982) (finding evidence that the FTC in the 1960s was unduly influenced in its enforcement activity by the parochial interests of members of Congress who had budgetary and oversight powers with respect to the Commission).
33. See, e.g., William F. Baxter, The Political Economy of Antitrust (Robert D. Tollison ed., 1980); George J. Stigler, The Origin of the Sherman Act, 14 J. LEGAL STUD. 1 (1985); Malcolm B. Coate, Richard S. Higgins & Fred S. McChesney, Bureaucracy and Politics in FTC Merger Challenges, in THE CAUSES AND CONSEQUENCES OF ANTITRUST: THE PUBLIC-CHOICE PERSPECTIVE 213 (Fred S. McChesney & William F. Shughart II eds., 1995). But see Roger L. Faith, Donald R. Leavens & Robert D. Tollison, Antitrust Pork Barrel, 25 J.L. & ECON. 329 (1982) (finding evidence that the FTC in the 1960s was unduly influenced in its enforcement activity by the parochial interests of members of Congress who had budgetary and oversight powers with respect to the Commission).
34. See, e.g., William F. Baxter, The Political Economy of Antitrust (Robert D. Tollison ed., 1980); George J. Stigler, The Origin of the Sherman Act, 14 J. LEGAL STUD. 1 (1985); Malcolm B. Coate, Richard S. Higgins & Fred S. McChesney, Bureaucracy and Politics in FTC Merger Challenges, in THE CAUSES AND CONSEQUENCES OF ANTITRUST: THE PUBLIC-CHOICE PERSPECTIVE 213 (Fred S. McChesney & William F. Shughart II eds., 1995). But see Roger L. Faith, Donald R. Leavens & Robert D. Tollison, Antitrust Pork Barrel, 25 J.L. & ECON. 329 (1982) (finding evidence that the FTC in the 1960s was unduly influenced in its enforcement activity by the parochial interests of members of Congress who had budgetary and oversight powers with respect to the Commission).
35. As Louis Kaplow has pointed out, it is not true that the federal courts in antitrus cases suddenly discovered economics in the 1970s. Kaplow, Antitrust, Law and Economics and the Courts, LAW & CONTEMP. PROBS., Autumn 1987, at 181, 187. See also Herber Hovenkamp, The Antitrust Movement and the Rise of Industrial Organization, 68 TEX. L. REV 105 (1989).
36. As Louis Kaplow has pointed out, it is not true that the federal courts in antitrus cases suddenly discovered economics in the 1970s. Kaplow, Antitrust, Law and Economics and the Courts, LAW & CONTEMP. PROBS., Autumn 1987, at 181, 187. See also Herber Hovenkamp, The Antitrust Movement and the Rise of Industrial Organization, 68 TEX. L. REV 105 (1989).