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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. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, American Economic Association, vol. 80(4), pages 837-59, September.
  2. Dennis W. Carlton & Michael Waldman, 1998. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," NBER Working Papers 6831, National Bureau of Economic Research, Inc.
  3. Yongmin Chen & David E. M. Sappington, 2011. "Exclusive Contracts, Innovation, and Welfare," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 3(2), pages 194-220, May.
  4. Green, J.R. & Scotchmer, S., 1993. "On the Division of Profit in Sequential Innovation," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1638, Harvard - Institute of Economic Research.
  5. John Vickers, 2010. "Competition Policy and Property Rights," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 120(544), pages 375-392, 05.
  6. Yongmin Chen, 2000. "On Vertical Mergers and Their Competitive Effects," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0383, Econometric Society.
  7. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, American Economic Association, vol. 97(5), pages 1703-1730, December.
  8. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 127-42, March.
  9. Jay Pil Choi & Sang-Seung Yi, 2000. "Vertical Foreclosure with the Choice of Input Specifications," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 717-743, Winter.
  10. Michael Waldman, 2010. "Competition, Monopoly, and Aftermarkets," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 26(1), pages 54-91, April.
  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. 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.
  13. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, American Economic Association, vol. 77(3), pages 388-401, June.
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