Competition Law, Innovation and Antitrust

Competition Law, Innovation and Antitrust

An Analysis of Tying and Technological Integration

New Horizons in Competition Law and Economics series

Hedvig Schmidt

This innovative book assesses the hotly debated topic of tying from three different perspectives: competition law, economics and intellectual property rights. It highlights the faults and benefits of the current approaches to tying under EC competition law and US antitrust law.

Chapter 2: Tying from an Economic Perspective

Hedvig Schmidt

Subjects: law - academic, competition and antitrust law, intellectual property law

Extract

1. INTRODUCTION Every person who sells anything imposes a tying arrangement. This is true because every product or service could be broken down into smaller components capable of being sold separately, and every seller either refuses at some point to break the product down any further or, what comes to the same thing, charges a proportionally higher price for the smaller unit.1 Tying is a common form of business practice, yet it is also thought to produce a harmful effect on competition, especially when the tying company holds significant market power.2 The competition laws in both the US and EC have not always appreciated that tying can be both harmful and offer efficiencies which enhance consumer welfare.3 This chapter will assess the economic incentives behind tying, some pro-, and others anti-competitive. It is hoped that gaining an understanding of the economic reasoning behind tying will provide a perspective for a more realistic legal approach to tying. From a historical perspective, the law and economic theory of tying can be divided into three major eras, the classical, the Chicago School, and the postChicago School.4 In the classical period the US courts developed a strict illegal per se approach to tying based on the theory that tying was an attempt to leverage market power from one market (the tying product market) into another (the tied product market).5 From the 1950s to the 1970s the Chicago School’s argument that tying should be legal was at its height, and this greatly influenced the...

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