Two on SCOTUS Antitrust Cases

Josh Wright —  18 January 2008

Courtesy of Larry Solum’s Legal Theory Blog, the following two papers have been posted on SSRN and may be of interest to our readers. First is Keith Hylton’s analysis of the Weyerhaueser decision, Weyerhaeuser, Predatory Bidding, and Error Costs.  Here is the abstract:

In Weyerhaeuser v. Ross-Simmons the Supreme Court held that the predatory pricing standard adopted in Brooke Group also applies to predatory bidding claims, because the two types of predation are “analytically similar”. I argue that predatory bidding is likely to be more harmful to consumer welfare than is predatory pricing. Successful input market predation may lead to a “dual market power” outcome in which the firm has market power in both the input and the output market. In spite of the analytical distinction, consideration of error costs leads me to conclude that Brooke Group remains the best standard to apply to predatory bidding claims.

Also, my GMU colleague Bruce Kobayashi has posted Spilled Ink or Economic Progress? The Supreme Court’s Decision in Illinois Tool Works vs. Independent Ink.  Kobayashi argues that while the rejection of the presumption market power is a positive step:

“the Court’s decision may be limited by the flawed and outdated modified per se rule used to evaluate tying arrangements generally. Moreover, while the Court undermined the underlying rationale for the modified per se rule against tying, it chose not to revisit this issue. In addition, while the Court’s opinion implicitly adopts a robust standard for market power, it failed to address its contradictory holding in Kodak v. ITS, its most recent decision evaluating a tying arrangement.”

Professor Kobayashi’s analysis is spot on and he joins a number of commentators, including myself in this Cato Supreme Court Review article, who have characterized Independent Ink as a decision that moves antitrust doctrine in the right direction but also as plagued by missed opportunities.  In my analysis, I focus on the missed opportunity to clarify the status of competitive price discrimination in antitrust analysis.  I argue that the failure to reject the view that price discrimination implies antitrust relevant market power

“is costly because it deters competitive price discrimination, which despite widely perpetuated economic myths, is not generally associated with consumer welfare losses and may benefit all consumers. While antitrust law has come a long way in terms of economic sophistication, the persistent association of anticompetitive inferences with an inherently competitive practice is evidence that it has not yet fully incorporated fundamental lessons from the economic literature.”

Professor Kobayashi explores different “missed opportunities” in the Court’s Independent Ink decision.  Specifically, he rightfully criticizes the failure of the Court to revisit its last, and highly controversial, tying decision in Kodak.

Both of these papers look very interesting and apply an error-cost framework to understand appropriate rules for predatory bidding and tying.  Both are worth reading.