Market Power in Antitrust: Economic Analysis after Kodak

Posted by Social Science Research Network

Market Power in Antitrust: Economic Analysis after Kodak – Benjamin Klein (University of California, Los Angeles (UCLA) – Department of Economics ; Compass Lexecon)

ABSTRACT: The Eastman Kodak company tied the sale of some of its photocopying and micrographic equipment to the sale of replacement parts and service. In the Kodak decision, a divided Supreme Court concluded that Kodak’s absence of market power in the original equipment market did not necessarily preclude the conclusion that Kodak possessed market power in the aftermarkets for replacement parts and service. In this article, Professor Klein criticizes both the majority’s reliance on a theory of “market imperfection ” and the dissent’s use of the economist’s model of “perfect competition.” He offers an alternative explanation of Kodak’s policy: that the tie was a device for charging different prices to different classes of buyers. The use of such a device, which neither is nor should be illegal, does not imply the existence of market power. Professor Klein concludes by arguing that identifying the degree of a firm’s market power with the firm’s own elasticity of demand, as most economists do, is an inappropriate guide for antitrust policy. Instead, the courts should determine whether a firm possesses market power by examining the firm’s share in a relevant market and its ability to appreciably increase market prices. This approach, which has been applied in the past, is superior to the seemingly more sophisticated economic analysis found in either of the Kodak opinions.