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Refusal to Deal, Intellectual Property Rights, and Antitrust

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  • Chen, Yongmin

Abstract

A vertically integrated firm, having acquired the intellectual property (IP) through innovation to become an input monopolist, can extract surplus by supplying efficient downstream competitors. That the monopolist would refuse to do so is puzzling and has led to numerous debates in antitrust. In this paper, I clarify the economic logic of refusal to deal, and identify conditions under which prohibiting such conduct would raise or lower consumer and social welfare. I further show how IP protection (as determined by IP laws) and restrictions on IP holders' conduct (as determined by antitrust laws) may interact to affect innovation incentive and post-innovation market performance.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31974.

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Date of creation: Jun 2011
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Handle: RePEc:pra:mprapa:31974

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Keywords: Refusal to Deal; Intellectual Property Rights; IP protection; Antitrust; innovation;

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  1. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
  2. Yongmin Chen, 2000. "On Vertical Mergers and Their Competitive Effects," Econometric Society World Congress 2000 Contributed Papers 0383, Econometric Society.
  3. John Vickers, 2009. "Competition Policy and Property Rights," Antitrust Chronicle, Competition Policy International, vol. 6.
  4. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, vol. 97(5), pages 1703-1730, December.
  5. Choi, J.P. & Yi, S.S., 1997. "Vertical Foreclosure with the Choice of Input Specifications," Discussion Paper 1997-16, Tilburg University, Center for Economic Research.
  6. Michael Waldman, 2010. "Competition, Monopoly, and Aftermarkets," Journal of Law, Economics and Organization, Oxford University Press, vol. 26(1), pages 54-91, April.
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  8. Jerry R. Green & Suzanne Scotchmer, 1995. "On the Division of Profit in Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 20-33, Spring.
  9. Yongmin Chen & David E. M. Sappington, 2011. "Exclusive Contracts, Innovation, and Welfare," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 194-220, May.
  10. Michael D. Whinston, 1989. "Tying, Foreclosure, and Exclusion," NBER Working Papers 2995, National Bureau of Economic Research, Inc.
  11. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
  12. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
  13. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
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