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Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know

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  • Michael D. Whinston

Abstract

Research on capital structure attempts to explain how corporations finance real investment, with particular emphasis on the proportions of debt vs. equity financing. There is no universal theory of the debt-equity choice, and no reason to expect one. But three useful conditional theories are reviewed in this paper. The tradeoff theory says that firms seek debt levels that balance the tax advantages of additional debt against the costs of possible financial distress. The pecking order theory says that the firm will borrow, rather than issuing equity, when internal cash flow is not sufficient to fund capital expenditures. Thus, the amount of debt will reflect the firm's cumulative need for external funds. The free cash flow theory says that dangerously high debt levels will increase value, despite the threat of financial distress. Each of these theories "works" for some firms in some circumstances. More general theories will require a deeper understanding of the financial objectives of corporate managers.

Suggested Citation

  • Michael D. Whinston, 2001. "Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 63-80, Spring.
  • Handle: RePEc:aea:jecper:v:15:y:2001:i:2:p:63-80
    Note: DOI: 10.1257/jep.15.2.63
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.15.2.63
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    References listed on IDEAS

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    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. repec:bin:bpeajo:v:21:y:1990:i:1990-3:p:205-286 is not listed on IDEAS
    3. Jay Pil Choi, 1996. "Preemptive R&D, Rent Dissipation, and the "Leverage Theory"," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1153-1181.
    4. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
    6. Dennis W. Carlton, 2001. "A General Analysis of Exclusionary Conduct and Refusal to Deal - Why Aspen and Kodak are Misguided," NBER Working Papers 8105, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2005. "Exclusive Dealing, Entry and Mergers," CEPR Discussion Papers 4902, C.E.P.R. Discussion Papers.
    2. Harison, Elad & Koski, Heli, 2010. "Applying open innovation in business strategies: Evidence from Finnish software firms," Research Policy, Elsevier, vol. 39(3), pages 351-359, April.
    3. Paul Koutstaal & Michiel Bijlsma & Gijsbert Zwart & X. van Tilburg, 2009. "Market performance and distributional effects on renewable energy markets," CPB Document 190, CPB Netherlands Bureau for Economic Policy Analysis.
    4. David Spector, 2011. "Exclusive contracts and demand foreclosure," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 619-638, December.
    5. Dennis W. Carlton & Joshua S. Gans & Michael Waldman, 2010. "Why Tie a Product Consumers Do Not Use?," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 85-105, August.
    6. Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2007. "On the Anticompetitive Effect of Exclusive Dealing when Entry by Merger is Possible," Working Paper Series 718, Research Institute of Industrial Economics.
    7. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, March.
    8. Rockett, Katharine, 2010. "Property Rights and Invention," Handbook of the Economics of Innovation, Elsevier.
    9. Joshua Wright, 2011. "Does Antitrust Enforcement in High Tech Markets Benefit Consumers? Stock Price Evidence from FTC v. Intel," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(4), pages 387-404, June.
    10. John Vickers, 2007. "Some Economics of Abuse of Dominance," Economics Series Working Papers 376, University of Oxford, Department of Economics.
    11. Litan, Robert E. & Shapiro, Carl, 2001. "Antitrust Policy During the Clinton Administration," Competition Policy Center, Working Paper Series qt45r5r72p, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    12. Steven J. Davis & Jack MacCrisken & Kevin M. Murphy, 2001. "Economic Perspectives on Software Design: PC Operating Systems and Platforms," NBER Working Papers 8411, National Bureau of Economic Research, Inc.
    13. Zigic, Kresimir & Maçi, Ilir, 2011. "Competition policy and market leaders," Economic Modelling, Elsevier, vol. 28(3), pages 1042-1049, May.
    14. Gans, Joshua S., 2011. "Remedies for tying in computer applications," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 505-512, September.
    15. Yusupova, Gyuzel F., 2016. "Federal Antitrust Authority against Google: Economic Analysis for Special Markets," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 82-99, December.

    More about this item

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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