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Coerced Reciprocal Dealing and the Leverage Theory


  • Kalyn Coatney
  • Sherrill Shaffer


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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  • Kalyn Coatney & Sherrill Shaffer, 2012. "Coerced Reciprocal Dealing and the Leverage Theory," CAMA Working Papers 2012-25, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2012-25

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    1. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    2. Goldberg, Lawrence G, 1973. "The Effect of Conglomerate Mergers on Competition," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 137-158, April.
    3. Walters, Stephen J K, 1986. "Reciprocity Reexamined: The Consolidated Foods Case," Journal of Law and Economics, University of Chicago Press, vol. 29(2), pages 423-438, October.
    4. 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 149-166, April.
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