Lines and Systems

1
Lines and Systems

• Full-line forcing analyzed under R of R
• Efficiency pricing and Block Booking
• Optimal packaging v. price discrimination
• Jerrold Electronics Head end was dominant
  component in larger system
• Sensitive interaction costly to repair v. orig.
  installation captial intensive for buyers
• Is this just the good will/QC defense again?
• Sher 1/Clay 3 violation once others can service

2
Microsofts Bundling D.C. Cir

• Trial ct enjoins Microsoft from including IE w/i
  Windows 95 license
• Microsoft relied on consent decree exception for
  integrated products
• CCAs test product that combines functionalities
  in an advantageous way unobtainable if bought
  separately
• Court says evaluation of integration must be
  narrow and deferential

3
More on Microsoft in D.C. Cir.

• Ct reverses prelim. Injunction on procedural
  grounds finds true integration
• Network externalities support quasi-integration
• Def had 80 of mkt for PC Oss
• Jackson noted that IE4.0 sold separately
• Jackson felt that Microsoft would extend its
  Windows monopoly by incremental integration of
  other products

4
Sherman Act 2 Monopolization

• Monopolies can be outcome of healthy competition
  or of one-seller mkts or of IP rights, but the
  monopolist cant use anticompetitive means to
  prolong or extend
• Erecting artificial barriers to entry
• Predatory pricing
• Leveraging across geographic or product mkts
• Bottleneck refusals to deal
• Innovation or competitive pricing are OK

5
Economics of Monopoly

• Consumer surplus
• Producer surplus deadweight welfare loss
• Allocative efficiency price discrimination
• Profits, supranormal profits, and entry
• Economies of scale shifting supply curve
• Hidden costs of monopolization

6
The Alcoa Case

• Determination of monopolist status
• The numerator and denominator game
• Secondary as well as virgin in numerator?
• Exclude self-fabricated from denominator?
• Questionable behavior after patents expired
• Ct says growth not based on superior skill,
  foresight and industry
• Critical of anticipatory expansion!
• Alcoa 90 70 probably 80 for sure

7
The Discredited Theory of Price Squeezes

• Upstream monopolist and dual distribution
• Monopolist will sell to other retailers if more
  efficient than its own retail division
• Integration efficiencies one and only one
  monopoly profit
• Vertical integration as barrier to entryonly
  true if no more inputs/licenses available

8
Limit Pricing

• A possible explanation for monopolist with excess
  capacity
• Minimum scale of entry
• Can be tacitly attempted by oligopolists also
• Supranormal prices, but output not restricted
  enough to make room for an entrant (the cozy
  corner)
• A fat profit is better than the fattest
  possible profit if the latter encourages entry

9
The Durable Goods Strategy

• When there is an aftermarket for used goods,
  monopolist may end up competing with itself (i.e.
  may lose market share to its own products)
• If transaction costs not too high, would be wiser
  to rent to extract perceived value year by year