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Slide 1

Exclusive Dealing:
Substance and Process

Joseph Farrell
FTC/DOJ Hearings
November 15, 2006




Slide 2

Well-informed Analysis

  • Both efficiency and anticompetitive effects/explanations are very possible
  • On each side, analysis is subtle
    • Efficiency: for example, investment-incentive theory
    • Anticompetitive: for example, divide-and- conquer theory


Slide 3

Investment Incentives

  • Segal/Whinston (Rand J. Econ. 2000)
  • Relationship-specific investments are NOT an efficiency rationale for exclusivity
  • Investments with spillover to customer-entrant deals MIGHT BE - it is very complex
    • Who invests, how it spills over, bias absent ED
  • How well could one disentangle this?


Slide 4

Divide-and-conquer exclusion

  • RRW-SW (Amer. Econ. Rev. 1991/2000) shows that such exclusion can (profitably and harmfully) work against end users
  • Usually exclusive dealing is with firms who then compete to sell to end users
    • That can seriously affect buyer incentives


Slide 5

Divide-and-conquer

  • Fumagalli and Motta (Amer. Econ. Rev.)
  • Simpson and Wickelgren; Yong; Shaffer?
  • Which is right and when?
    • My attempted diagnosis and their reaction
    • Presumably an intellectual resolution will emerge
    • How likely is one to be able to prove?


Slide 6

Antitrust under Uncertainty

  • (Bayesian thoughts)
  • Role of presumptions and burdens of proof
  • The two presumptions


Slide 7

Two presumptions

  • Laissez-faire: don't intervene unless reasonably sure intervention will help
  • Competition: protect "competition" unless reasonably sure alternative is better


Slide 8

"Competition"

  • Have drifted towards making "competition" simply mean "the good outcome"
    • Towards, not yet "to". Eyebrows, but not guffaws, at "pro-competitive monopoly"
  • Law protects "competition," so tautologically that linguistic shift would be good if we knew all
  • But di presumption in favor of competition then has no meaning!
    • Merger between major rivals must be proven to be "loss of competition"? [Philadelphia Bank... ]


Slide 9

The shoe on the other foot

  • What if "laissez-faire" were redefined as "the good outcome"?
    • Explicating idea, not proposing policy
  • Would redefine "intervention" as "bad intervention"
    • Opponents of intervention would have to prove how it is bad
    • Strict government rules would be "not necessarily intervention"
  • Pretty stupid, huh?
    • Words should mean what they mean...


Slide 10

Antitrust Intellectual History

  • The bad old days
  • The good new days
  • The not so good new days??!
  • International perspective


Slide 11

Dark Matter

  • Good idea: intervene only if intervention benefits efficiency/consumers
  • Maybe not such a good idea: only if can specifically prove that it would do so
  • Benefits of competition
    • Concrete, predictable, provable price effects
    • Dark matter


Slide 12

Words and Presumption

  • "Competition" means competition
  • Competition usually serves efficiency and consumers, but that's a fact, not a definition
  • Pretending it's a definition, while helpful in some ways, guts the crucial antitrust presumption


Slide 13

What does "competition" mean??

  • Hard question
    • Part of motive to redefine as "good stuff
      • Exclusive dealing as example
    • But that has huge dangers, maybe coming to roost
  • Beyond the study of words...
    • Want laissez-faire presumption
    • Want pro-competition presumption too
    • What to do?