Law Commons^™

The Law Of Vertical Integration And The Business Firm, 1880-1960, Herbert Hovenkamp

Herbert Hovenkamp

ABSTRACT

Vertical integration occurs when a firm does something for itself that it could otherwise procure on the market. For example, a manufacturer that opens its own stores is said to be vertically integrated into distribution. Both classical political economy and marginalist economics saw vertical integration and vertical contractual arrangements as much less threatening to competition than cartels or other horizontal arrangements. Nevertheless, vertical integration produced by far the greater amount of legislation at both federal and state levels and motivated many more political action groups. Two things explain this phenomenon. First, while economists prior to the 1930s rarely saw …

The Coase Theorem And Arthur Cecil Pigou, Herbert Hovenkamp

Herbert Hovenkamp

In “The Problem of Social Cost” Ronald Coase was highly critical of the work of Cambridge University Economics Professor Arthur Cecil Pigou, presenting him as a radical government interventionist. In later work Coase’s critique of Pigou became even more strident. In fact, however, Pigou’s Economics of Welfare created the basic model and many of the tools that Coase’s later work employed. Much of what we today characterize as the “Coase Theorem” was either stated or anticipated in Pigou’s work. Further, Coase’s extreme faith in private bargaining led him to fail to see problems that Pigou saw quite clearly and that …

Complex Bundled Discounts And Antitrust Policy, Herbert Hovenkamp

Herbert Hovenkamp

COMPLEX BUNDLED DISCOUNTS AND ANTITRUST POLICY

ABSTRACT

A bundled discount occurs when a seller conditions a discount or rebate on the buyer’s purchaser or two or more different products. Firms that produce fewer than all the good in the bundle find it difficult to compete because they must amortize the discount across a smaller range of goods. For example, if the dominant firm offers a 10% discount for purchase of both good A and good B, but the rival makes only good B, it will have to offer a discount that is large enough to match the dominant firm’s B …

United States Competition Policy In Crisis, 1890-1955, Herbert Hovenkamp

Herbert Hovenkamp

UNITED STATES COMPETITION POLICY IN CRISIS,1890-1955 Herbert Hovenkamp ABSTRACT The development of marginalist, or neoclassical, economics led to a fifty-year long crisis in competition theory. Given an industrial structure with sufficient fixed costs, competition always became "ruinous," forcing firms to cut prices to marginal cost without sufficient revenue remaining to pay off investment. Early neoclassicists such as Alfred Marshall were not able to solve this problem, and as a result many economists were hostile toward the antitrust laws in the early decades of the twentieth century. The ruinous competition debate came to an abrupt end in the early 1930's, when …

The Viability Of Antitrust Price Squeeze Claims, Herbert Hovenkamp

Herbert Hovenkamp

ABSTRACT A price squeeze occurs when a vertically integrated firm “squeezes’ a rival’s margins between a high wholesale price for an essential input sold to the rival, and a low output price to consumers for whom the two firms compete. Price squeezes have been a recognized but controversial antitrust violation for two-thirds of a century. We examine the law and economics of the price squeeze, beginning with Judge Hand’s famous discussion in the Alcoa case in 1945. While Alcoa has been widely portrayed as creating a “fairness” or “fair profit” test for unlawful price squeezes, Judge Hand actually adopted a …