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"Elhauge, Einer"
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Research handbook on the economics of antitrust law
One might mistakenly think that the long tradition of economic analysis in antitrust law would mean there is little new to say. Yet the field is surprisingly dynamic and changing. The specially commissioned chapters in this volume offer a rigorous analysis of the field's most current and contentious issues.
Book
Contrived Threats versus Uncontrived Warnings: A General Solution to the Puzzles of Contractual Duress, Unconstitutional Conditions, and Blackmail
Contractual duress, unconstitutional conditions, and blackmail have long been puzzling. The puzzle is why these doctrines sometimes condemn threatening lawful action to induce agreements but sometimes do not. This Article provides a general solution to this puzzle. Such threats are (and should be) deemed unlawfully coercive only when they are contrived, meaning that the threatened action would not have occurred if no threat could have been made. I show that such contrived threats can be credible because making the threat strongly influences whether the threatened action occurs. When such threats are uncontrived warnings, meaning that the threatened action would have occurred even if no threat could have been made, they are not coercive and can only benefit the agreeing parties. However, sometimes (as with blackmail) agreements produced by uncontrived warnings are also unlawful on the ground that they harm third parties. The contrived-threat test explains why the Medicaid-defunding threat in the Affordable Care Act was unconstitutional. It also explains why the recent King v Burwell conclusion—that the Affordable Care Act does not withhold tax credits from states that do not create insurance exchanges—would have been constitutionally required even if it had not been required by the statutory text.
Journal Article
The irrelevance of the broccoli argument against the insurance mandate
Those who have legally challenged the Affordable Care Act's individual mandate to obtain health insurance argue that Congress cannot regulate “inactivity.” But Congress does in fact have the power to force purchases.
Journal Article
HORIZONTAL SHAREHOLDING
Horizontal shareholdings exist when a common set of investors own significant shares in corporations that are horizontal competitors in a product market. Economic models show that substantial horizontal shareholdings are likely to anticompetitively raise prices when the owned businesses compete in a concentrated market. Recent empirical work not only confirms this prediction, but also reveals that such horizontal shareholdings are omnipresent in our economy. I show that such horizontal shareholdings can help explain fundamental economic puzzles, including why corporate executives are rewarded for industry performance rather than individual corporate performance alone, why corporations have not used recent high profits to expand output and employment, and why economic inequality has risen in recent decades. I also show that stock acquisitions that create anticompetitive horizontal shareholdings are illegal under current antitrust law, and I recommend antitrust enforcement actions to undo them and their adverse economic effects.
Journal Article
Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory
Chicago School theorists have argued that tying cannot create anticompetitive effects because there is only a single monopoly profit. Some Harvard School theorists have argued that tying doctrine's quasi-per se rule is misguided because tying cannot create anticompetitive effects without foreclosing a substantial share of the tied market. This Article shows that both positions are mistaken. Even without a substantial foreclosure share, tying by a firm with market power generally increases monopoly profits and harms consumer and total welfare, absent offsetting efficiencies. The quasi-per se rule is thus correct to require tying market power and a lack of offsetting efficiencies, but not a substantial tied foreclosure share. However, the quasi-per se rule should have an exception for products with a fixed ratio that lack separate utility, because those conditions generally negate anticompetitive effects absent a substantial foreclosure share. Cases meeting this exception should instead be governed by a traditional rule of reason that requires a substantial foreclosure share or effect. Bundled discounts can produce the same anticompetitive effects as tying without substantial tied foreclosure, but only when the unbundled price exceeds the but-for price. Thus, when the unbundled price exceeds the but-for price, bundled discounts should be condemned based on market power absent offsetting efficiencies, with the same exception for products with a fixed ratio that lack separate utility. When the unbundled price does not exceed the but-for price or this exception applies, bundled discounts should be condemned only when a substantial foreclosure share or effect exists. Alternative tests for judging bundled discounts, such as comparing the effective price to cost, are not only underinclusive, but perversely exempt the bundled discounts with the worst anticompetitive effects.
Journal Article
The Welfare Effects of Metering Ties
Critics of current tying doctrine argue that metering ties can increase consumer welfare and total welfare without increasing output and that they generally increase both welfare measures. Contrary to those claims, we prove that metering ties always lower both consumer welfare and total welfare unless they increase capital good output. We further show that under market conditions we argue are realistic (which include a lognormal distribution of usage rates that are independently distributed from per-usage valuations), metering ties always harm consumer welfare, even when output increases. Whether metering ties raise or lower total welfare depends on the dispersion of desired usage, the cost structure, and the dissipation of profits caused by metering. For realistic cost values, metering ties will reduce total welfare if the dispersion in desired usage of the metered good is below 0.62. (For comparison, 0.74 is the dispersion of income in the United States.) If 5% of metering profits are dissipated, metering will reduce total welfare for all cost levels unless the dispersion in desired usage exceeds 150% of the dispersion of income in the United States
Journal Article
Solving the Patent Settlement Puzzle
Courts and commentators are sharply divided about how to assess \"reverse payment\" patent settlements under antitrust law. The essential problem is that a PTO-issued patent provides only a probabilistic indication that courts would hold that the patent is actually valid and infringed, and parties have incentives to structure reverse payment settlements to exclude entry for longer than this patent probability would merit. Some favor comparing the settlement exclusion period to the expected litigation exclusion period, but this requires difficult case-bycase assessments of the probabilities of patent victory. Others instead favor a formal \"scope of the patent\" test that allows such settlements for nonsham patents if the settlement does not delay entry beyond the patent term, preclude noninfringing products, or delay nonsettling entrants. However, the formal scope of the patent test excludes entry for longer than merited by the patent strength, and it provides no solution when there is either a significant dispute about infringement or a bottleneck issue delaying other entrants. This Article provides a way out of this dilemma. It proves that when the reverse payment amount exceeds the patent holder's anticipated litigation costs, then under standard conditions the settlement will, according to the patent holder's own probability estimate, exclude entry for longer than both the expected litigation exclusion period and the optimal patent exclusion period, and thus will both harm consumer welfare and undermine optimal innovation incentives. Further, whenever a reverse payment is necessary for settlement, it will also have those same anticompetitive effects according to the entrant's probability estimate. This proof thus provides an easily administrable way to determine when a reverse payment settlement is necessarily anticompetitive, without requiring any probabilistic inquiry into the patent merits. We also show that, contrary to conventional wisdom, patent settlements without any reverse payment usually (but not always) exceed both the expected litigation exclusion period and the optimal patent exclusion period, and we suggest a procedural solution to resolve such cases. [PUBLICATION ABSTRACT]
Journal Article
Defining Better Monopolization Standards
Monopolization doctrine currently uses vacuous standards and conclusory labels that provide no meaningful guidance about which conduct will be condemned as exclusionary. This problem is not solved by proposals to focus on whether the defendant sacrificed short-term profits in order to reap long-run monopoly returns by excluding rivals. Such proposals either implicitly exclude profits that were acquired undesirably-and thus give no meaningful guidance since they leave undefined the criteria for desirability-or include all actual profits-which provides guidance at the cost of condemning highly desirable conduct and failing to condemn highly undesirable conduct. The proper monopolization standard should instead focus on whether the alleged exclusionary conduct succeeds in furthering monopoly power (1) only if the monopolist has improved its own efficiency or (2) by impairing rival efficiency whether or not it enhances monopolist efficiency. Under this standard, which would permit the former conduct and prohibit the latter, a defendant that has increased its own efficiency by investing in its intellectual or physical property should not have a duty to share that property with rivals, but has no privilege to discriminate by offering worse terms to rivals or those who deal with rivals. Such discrimination on the basis of rivalry is not necessary to support optimal ex ante investment incentives, and its success may thus depend not on increasing the value of the property and the efficiency of the monopolist but rather on selectively impairing the efficiency of rivals. Currently vague standards for defining monopoly power can also be improved by realizing that, because monopoly power must be causally connected to exclusionary conduct: (a) the discretionary power that matters is not just a firm's power over its own prices but also a power to influence marketwide prices or impose significant marketwide foreclosure that impairs rival efficiency, and (b) courts demand proof of high market shares not because they provide a more administrable proxy for discretionary power but because shares have independent economic significance in assessing the causal connection. These improved standards for judging exclusionary conduct and monopoly power would not only provide more coherent guidance for lower courts and juries, but better fit and explain the actual pattern of Supreme Court case results.
Journal Article
REHABILITATING JEFFERSON PARISH
[...]the quasi-per se rule on tying has never truly been a per se rule; instead, it is a form of rule of reason review that requires evidence of market power and considers offsetting procompetitive justifications, just like the typical rule of reason applied to vertical agreements. [...]as Part I shows, the elements of the quasi-per se rule precisely fit the three economic theories concerning when ties without a substantial foreclosure share will harm consumer welfare by worsening price discrimination or extracting individual consumer surplus. [...]Jefferson Parish rejected requiring a substantial foreclosure share based on each of the three economic theories for how ties with tying market power can create extraction or price discrimination effects that harm consumer welfare without a substantial foreclosure share.
Book Review