Coerced Reciprocal Dealing and the Leverage Theory
Recent international mergers have potentially revived interest in a long-standing concern of U.S. courts that, under certain conditions, a conglomerate that buys from and sells products to its intermediary supplier may be able to profitably leverage its downstream market power to restrict competition in the upstream market and harm welfare via coerced reciprocal dealing. Economists have debated the court precedent, invoking the leverage theory established from various models of tying arrangements, a cousin of coerced reciprocal dealing. We develop the first explicit model of coerced reciprocal dealings to investigate the validity of the leverage theory. Our results support the concerns.
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- Lorie, James H & Halpern, Paul, 1970. "Conglomerates: The Rhetoric and the Evidence," Journal of Law and Economics, University of Chicago Press, vol. 13(1), pages 149-66, April.
- Goldberg, Lawrence G, 1973. "The Effect of Conglomerate Mergers on Competition," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 137-58, April.
- Walters, Stephen J K, 1986. "Reciprocity Reexamined: The Consolidated Foods Case," Journal of Law and Economics, University of Chicago Press, vol. 29(2), pages 423-38, October.
- Michael D. Whinston, 1989.
"Tying, Foreclosure, and Exclusion,"
NBER Working Papers
2995, National Bureau of Economic Research, Inc.
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