Module 2

Module 2: Dominance and its Abuse (the economics of art. 102)

(12 a.h.¹)

Outline of Course Contents

A. Introduction and basic concepts

a. Exclusionary practices

i. Possession versus abuse of dominance
ii. Effects-based versus form-based approach
iii. A general analytical framework

b. Exploitative practices (Excessive pricing)

B. Predatory prices

a. The Chicago School
b. Theories based on imperfect information
c. A theory based on scale economies and incumbency advantage.
d. Crucial ingredients for a theory of harm
e. Price-cost tests for predatory pricing
f. Anti-trust cases.

C. Price Discrimination and Conditional Rebates

a. Selective price-cuts as divide and conquer strategies
b. Conditional rebates and exclusivity rebates
c. Welfare justifications for price discrimination and conditional rebates.
d. Crucial ingredients for a theory of harm
e. Price-cost tests for conditional rebates?
f. Anti-trust cases.

D. Exclusive Dealing

a. The Chicago School
b. Scale economies and externalities among buyers
c. Efficiency enhancing exclusive dealing
d. Crucial ingredients for a theory of harm
e. Anti-trust cases

E. Tying and Bundling

a. The Chicago School
b. Bundling and imperfect rents extraction
c. Bundling as a commitment to aggressive behavior
d. Bundling as a defensive strategy
e. Efficiency justifications of tying and Bundling
f. Crucial ingredients for a theory of harm
g. Anti-trust cases

F. Vertical Foreclosure (Refusal to Deal and Margin Squeeze)

a. The Chicago School
b. Imperfect rents extraction
c. A dynamic theory of vertical foreclosure
d. Crucial ingredients for a theory of harm
e. The need to preserve incentives to innovate
f. Tests for margin squeeze
g. Anti-trust cases

For each topic, the most recent economic theories of exclusionary practices will be reviewed and criteria that can guide antitrust enforcement will be drawn. Moreover, actual cases will be discussed in the light of the reviewed theory.

Main references

  • Exclusionary Practices (The Economics of Monopolisation and Abuse of Dominance), 2018. C. Fumagalli, M. Motta and C. Calcagno. Cambridge University Press.
  • Lectures on Antitrust Economics, 2006. M.D. Whinston. MIT Press.
  • Bolton and Scharfstein, 1990. “A Theory of Predation based on Agency Problems in Financial Contracting”. American Economic Review. 80: 93-106.
  • Calzolari and Denicolò, 2015. “Exclusive Contracts and Market Dominance”, American Economic Review. 105: 3321-51.
  • Carlton and Waldman, 2002. “The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries”. RAND Journal of Economics. 33: 194-220.
  • Choi and Jeon, 2020. “A Leverage Theory of Tying in Two-sided Markets with Non-Negative Price Constraints”, American Economic Journal: Microeconomics,forthcoming.
  • Hart and Tirole, 1990. “Vertical Integration and Market Foreclosure.” Brookinh Papers on Economic Activity (Microeconomics). 1990: 205-85.
  • Segal and Whinston, 2000. “Naked Exclusion: Comment”. American Economic Review. 90: 296-309.
  • Segal and Whinston, 2000. “Exclusive Dealing and Protection of Investments”. Rand Journal of Economics. 31: 603-33.

¹ a.h. = academic hour (50 minutes)