Comments on: Section 2 Symposium: Howard Marvel on Safe Harbors for Short Term Exclusive Dealing Contracts http://truthonthemarket.com/2009/05/06/section-2-symposium-howard-marvel-on-safe-harbors-for-short-term-exclusive-dealing-contracts/ Academic commentary on law, business, economics and more Sat, 02 Jun 2012 12:17:14 +0000 hourly 1 http://wordpress.com/ By: Michael Salinger http://truthonthemarket.com/2009/05/06/section-2-symposium-howard-marvel-on-safe-harbors-for-short-term-exclusive-dealing-contracts/#comment-7705 Wed, 06 May 2009 22:57:27 +0000 http://www.truthonthemarket.com/?p=1983#comment-7705 The duration of exclusive contracts is a factor to consider, but short contracts should not be a safe harbor. Certainly, there are valid reasons for companies to want exclusivity from their trading partners. But the distinction Tim Brennan drew is the right one. Section 2 challenges about competing too hard – charging too low a price, improving products, investing in capacity, adding product features – should be judged under standards that entail low risks of false positives. Exclusionary behavior – in effect paying firms not to deal with rivals – is more problematic. Because firms presumably have to pay in some way for any exlcusivity they get, exclusive dealing is the sort of practice where a no economic sense or disproportionate harm test is inappropriate.

Should Microsoft (or Intel) be allowed to refuse to sell to OEMs who sell machines with Linux (or AMD chips)? There are serious arguments on both sides of the question, but they do not turn on the duration of the contracts.

]]> By: Tim Brennan http://truthonthemarket.com/2009/05/06/section-2-symposium-howard-marvel-on-safe-harbors-for-short-term-exclusive-dealing-contracts/#comment-7704 Wed, 06 May 2009 15:32:14 +0000 http://www.truthonthemarket.com/?p=1983#comment-7704 Howard’s sensible recommendation regarding timing would be more likely to be followed if the analysis of exclusive dealing focused on the market that matters–the complement providers, such as distributors, dental labs, retail outlets, input suppliers–with whom the exclusive dealing contracts were made. One could and should treat multiple instances of exclusive dealing as tantamount to a merger of those complement providers, as far as dealing the product is concerned.

That, in turn, invites applying the Horizontal Merger Guidelines to assessing the competitive effects in that complement market. One aspect of the HMGs is entry–if the exclusive dealer ties up the complement market, how long will it take new competition to enter? If entry is sufficiently rapid, there’s no problem with the merger.

It is but a short step to say that if the complement providers who signed the exclusive contract could and would bolt within that HMG-specified time limit, there’s unlikely to be a competitive problem with the exclusive dealing arrangement. I’ll leave it to Howard and others to debate that principle would apply to Dentsply.

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