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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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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2012/252012.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2012-25.

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Length: 34 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:een:camaaa:2012-25
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  1. 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.
  2. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-59, September.
  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 423-38, October.
  4. 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.
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