Rehabilitating Jefferson Parish: Why Ties Without a Substantial Foreclosure Share Should Not Be Per Se Legal

Abstract

Current tying law uses a bifurcated rule of reason, condemning ties that involve either tying market power or a substantial tied foreclosure share, absent an offsetting procompetitive justification. Many critics of tying law advocate overruling the first branch, commonly called the quasi per se rule, thus rendering all ties without a substantial foreclosure share per se legal. This article shows they are mistaken. Even without substantially foreclosing market share, ties with market power restrain competition in ways that are likely to harm both consumer welfare and total welfare if they foreclose a substantial dollar amount of sales. Critics claim that these are not cognizable anticompetitive effects because they do not impair the general ability of rivals to compete for unrestrained sales. Their position conflicts with legal precedent and with the principle that antitrust protects competition, not competitors. Both precedent and economics also show that critics are wrong in claiming that no valid distinction exists between setting a profit-maximizing price and extracting the remaining consumer surplus through tying agreements. Given that the critics acknowledge that consumer welfare and total welfare are harmed by some ties with market power that lack a substantial foreclosure share, even their own analysis fails to support their position of per se legality for such ties. It would instead support the current doctrine that sorts out the ties with market power that harm consumer welfare from those that do not.

Keywords: Tying, ties, antitrust, quasi per se, bundling, requirements ties, metering ties, price discrimination, extracting consumer surplus, consumer welfare, foreclosure share, Jefferson Parish

JEL Classification: C72, K21, L12, L40, L41, L42