1. Antitrust Economics 2013 David S. Evans University of Chicago, Global Economics Group Elisa Mariscal CIDE, Global Economics Group Topic 14: Vertical Restraints Topic 14| Part 1 14 November 2013 Date

2. Overview

3. Vertical Restraints Overview

4. Vertical Restraints Impose Conditions on the Actions of the Buyer or Seller

5. Common Vertical Restraints Considered by Competition Policy

6. Vertical Restraints Can Involve Downstream Firm or Final Customer

7. Manufacturer Retailer Consumers Vertical Restraints can Involve Sale by Upstream Firm to Downstream Firm Upstream Downstream

8. Key Competition Policy Issues

9. Single-Monopoly Profit Theorem

10. The Chicago Single Monopoly Profit Theorem

11. Illustration of Single-Monopoly Profit Theorem

12. Monopolist in A’s Best Strategy is to Enable Consumers to Get Product B at Lowest Cost

13. Hilti AG v. EC Commission

14. Single Monopoly Profit Theorem Not Necessarily True if Variable Proportions

15. Tying

16. “Tying” Involves Only Selling One Product with Another Product In each case the firm is limiting the ability of the consumer to choose the “tying good” (A) without getting the “tied good” (B) too.

17. European Commission Case Against Microsoft Classic Tying Case

18. Overview

19. Some Common Examples of Tying

20. Product Design and Bundles

21. Better Products for Consumers

22. Less Costly Products for Firms

23. Tying Complementary Products

24. Aggregating Demand and Cost Reductions

25. Metering Demand for Durable Good

26. Bundling to Get More Consumer Surplus “Block Booking Example” from Nobel Prize Winner George Stigler

27. Extending Monopoly Into Secondary Market: Example 1

28. Preventing Entry into Primary Monopoly: Example 2

29. Critical Question: Does Firm Have Incentive and Ability to Foreclose?

30. The Ability to Foreclose Rivals Is Limited

31. Evolution of Tying From Very Bad to Usually Good

32. Per Se Approach Could Prevent Good Tying

33. Recommended Rule of Reason Approach

34. End of Part 1, Next Class Part 2