Economics 632b: Winter 1998

Industrial Organization: Antitrust

Prof. Jeffrey K. MacKie-Mason
210 Lorch
Office Hours: Thurs 4-5:30 / 764-7438

Link to Econ 632a: Empirical IO (

Link to IO Seminar schedule


Goals: To understand the role of economics in competition policy and enforcement. To learn some economic theory applicable to antitrust issues. To learn to apply economic theory to the facts of real antitrust and merger cases.

Method: Each week we will study and discuss at least one major case. We will also read relevant economic literature. Class will proceed socratically: students will be asked questions about the economics relevant to the case, and will have to explain and defend their positions.

To prepare, students will write a 1-page (single-spaced) case outline each week. A case outline should include a summary of the facts, the issues presented, and the holding with a summary of the key arguments. It is hard to summary a case in a single page – part of the point of the exercise is to learn to find the most important (economic!) features of a case. You don’t have to (and won’t be able to) report on every issue in one page.

As a final assignment, students will prepare a detailed "expert report" on a case of their choosing.


  1. Substantial reading must be completed before class.
  2. Participation in class discussion of cases and theory.
  3. Written assignments:
Your grade for this part of the course will depend about equally on the expert report and case efforts (the outline and class participation).


Starred (*) readings are required for class. Other readings will be useful for class, but many are provided as a bibliographic guide to the literature to aid your future research and other professional practice.

Readings marked with (R) will be on Reserve in Foster Library. Readings marked (J) should be available from JSTOR ( Readings marked (W) are available on the Web from the indicated URL. Other readings are available from traditional library resources.

Useful Web Resources for Antitrust Economics

  1. US House of Representatives Internet Law Library: Antitrust (
  2. Owen School, Vanderbilt: Antitrust Policy (
  3. American Bar Association Section on Antitrust Law (
  4. Supreme Court Antitrust Debates (
  5. Law Journal Extra: Antitrust Law (
  6. Law and Economics Working Papers (
  7. Internet Resources in Industrial Organization (Steve Berry) (
  8. Economics of Networks (Nick Economides) (
  1. Background and Market Definition
  2. *CASE: (W) U.S. v. E. I. du Pont de Nemours & Co., 351 U.S. 377 (1956).

    *(W) US Dept. of Justice and Federal Trade Commission, "Horizontal Merger Guidelines", 1992 Revision, pp. 1-32 ("Introduction" and "Market Definition") (See also 1994 revision re: "efficiencies" at

    *(J) Stocking, George and Willard F. Mueller, (1955) "The Cellophane Case and the New Competition", American Economic Review, 45: 29-63.

    *Froeb, Luke and Gregory Werden, (1992) "The Reverse Cellophane Fallacy in Market Delineation", Review of Industrial Organization, 7: 241-247


  3. Raising Rivals’ Costs



    *CASE: (W) Standard Oil Company of New Jersey v. United States, 221 U.S. 1 (1911). Supposed to be available at (but I couldn’t get to it when I tried one night).

    *(R) Granitz, Elizabeth and Benjamin Klein, "Monopolization by ‘Raising Rivals’ Costs’: The Standard oil Case", (1996). Journal of Law and Economics 39: 1-47.

    *(R) Krattenmaker, Thomas and Steve Salop, (1986). "Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power Over Price", Yale Law Journal 96(2): 209-93.

    *(W) Economides, Nicholas, (1998). "The Incentive for Non-Price Discrimination by an Input Monopolist," International Journal of Industrial Organization (forthcoming).

    (R) Hovenkamp, Herbert, (1987). "Antitrust Policy, Restricted Distribution, and the Market for Exclusionary Rights," Minnesota Law Review 71(6): 1293-1318

    (J) Salop, Steven C. and David T. Scheffman, (1983). "Raising Rivals’ Costs", AEA Papers and Proceedings, 73(2).

    (J) Ordover, Janusz, Garth Saloner, and Steven C. Salop, (1990). "Equilibrium Vertical Foreclosure", American Economic Review, 80(1).

    Brennan, Timothy J., (1988). "Understanding ‘Raising Rivals’ Costs’" The Antitrust Bulletin (Spring).

  5. Price fixing: Ivy League



    *CASE: United States v. Addyston Pipe & Steel Company et al., 85 Fed. 271 (6th Cir. 1898).

    *Carlton, Dennis, Gustavo Bamberger, and R. Epstein. (1995). "Antitrust and Higher Education: Was There a Conspiracy to Restrict Financial Aid?" RAND Journal of Economics. 131-147.

    *(R) Netz, Janet. (1998) "Non-Profits and Price-Fixing: The Case of the Ivy League", Working Paper, Purdue University.

    (R) Bamberger, Gustavo and Carlton, Dennis. (1997) "Antitrust and Higher Education: MIT Financial Aid (1993)", forthcoming in John Kwoka and Lawrence White, The Antitrust Revolution, 3rd ed. (Oxford University Press: 1998).


  7. Microsoft: vertical integration between OS architecture and applications



    *CASE: U.S. v. Microsoft Corporation, Civil Action 94-1564 (Dist. Court D.C.) (Internet Explorer case)

    *(R) Gilbert, Richard. (1997). "Networks, Standards, and the Use of Market Dominance", forthcoming in John Kwoka and Lawrence White, The Antitrust Revolution, 3rd ed. (Oxford University Press: 1998).

    *(W) Economides, N. (1996). "The Economics of Networks". International Journal of Industrial Organization. October. Available from

    *Katz, M. L. and Shapiro, C. (1994). "Systems Competition and Network Effects". Journal of Economic Perspectives. 8(2): 93-115.

    *(W) Reback, G., Creighton, S., Killam, D., Nathanson, N., Saloner, G. et al. (1995). "White Paper: Technological, Economic and Legal Perspectives Regarding Microsoft's Business Strategy in Light of the Proposed Acquisition of Intuit, Inc." Upside. February 1, 1995. Available from

    (W) Arthur, Brian (1990). "Positive Feedbacks in the Economy", Scientific American 80: 92-99. (

    (W) Economides, N. and White, L. (1996). "One-Way Networks, Two-Way Networks, Compatibility, and Antitrust". Opening Networks to Competition: The Regulation and Pricing of Access. Edited by D. Gabel and D. Weiman. Amsterdam, Kluwer Academic Press. Available from

    Yale M. Braunstein and Lawrence J. White (1985). "Setting technical compatibility standards: An economic analysis", Antitrust Bulletin 30(2): 337-355.

    (W) Mark A. Lemley and David McGowan (1998). "Legal Implications of Network Economic Effects", California Law Review 86 (May). Available from:

    (R) Farrell, Joseph, Hunter K. Monroe, and Garth Saloner, (1994), "The Vertical Organization of Industry: Systems Competition versus Component Competition," mimeo.

    (R) Kende, Michael (1994). "Profitability Under an Open versus a Closed System". Mimeo.

    (W) Shapiro, "Antitrust in Network Industries," (1996). Speech before the American Law Institute and American Bar Association Conference, "Antitrust/Intellectual Property Claims in High Technology Markets", 25 January 1996.

    (W) Consumer Project on Technology: Microsoft Antitrust Issues

  9. Network Effects and Antitrust



    *CASE: Please answer the question: "Should the economic standards for an antitrust violation change for cases with strong network effects?"  In your one-page memo, summarize the arguments for and against the proposition, and provide a summary of your own argument.

    *(W) (R) Lemley, Mark, and David McGowan (1997).  "Legal Implications of Network Economic Effects," Draft working paper, University of Texas Law School.  Read esp. Sections I, II(A,B), and III.  Available from:  Also on reserve

  11. Tying



    *CASE: Jefferson Parish Hospital District No. 2 et al. v. Hyde, 466 U.S. 2 (1984).

    *Mathewson, F. and R. Winter, "Tying as a Response to Demand Uncertainty". The RAND Journal of Economics, Autumn 1997, 28(3): 566-583

    *(J) Whinston, Michael D. (1990). "Tying, Foreclosure, and Exclusion", The American Economic Review 80(4): 837-859

    (R) Bowman, Ward S. (1957). "Tying Arrangements and the Leverage Problem," Yale Law Review 67: 19-36.

    (J) Burstein, Meyer L. (1960). "The Economics of Tie-In Sales", Review of Economics and Statistics 42: 68-73.

  13. Aftermarkets: Kodak



    *CASE: Image Technical Services et al. v. Eastman Kodak Company

    *(W) Borenstein, Severin, Jeffrey MacKie-Mason and Janet Netz, "Exercising Market Power in Proprietary Aftermarkets", mimeo.

    *(R) Shapiro, Carl. (1995). "Aftermarkets and Consumer Welfare: Making sense of Kodak", Antitrust Law Journal 63(2): 483-512.

    (W) MacKie-Mason, Jeffrey and John Metzler (1998). "Links Between Vertically Related Markets: ITS v. Kodak", in The Antitrust Revolution, 3rd ed., J. Kwoka and L. White, eds. (forthcoming).

    *Chen, Zhiqi and Thomas Ross (1993). "Refusal to Deal, Price Discrimination and Independent Service Organizations," Journal of Economics and Management Strategy, 2(4): 593-614.

    (W) Bernheim, B. Douglas and Michael D. Whinston (1996). "Exclusive Dealing", NBER Working Paper 5666 (July 1996).


  15. Evaluating mergers in differentiated product markets

  16.  *(J) Farrell, Joseph and Carl Shapiro, "Horizontal Mergers: An Equilibrium Analysis". (1990). American Economic Review, 80: 107-26.
      *(R) Froeb, Luke M. and Gregory J. Werden (1996). "Simulating the Effects of Mergers Among Noncooperative Oligopolists", in Computational Economics and Finance: Modeling and Analysis with Mathematica®, Hal R. Varian, ed. (Springer-Verlag).

    *(R) Werden, Gregory J. and Luke M. Froeb (1994). "The Effects of Mergers in Differentiated Product Industries: Logit Demand and Merger Policy", Journal of Law, Economics & Organization 10(2): 407-426.

    (R) Werden, Gregory J., Luke M. Froeb, and Timothy J. Tardiff (1996). "The Use of the Logit Model in Applied Industrial Organization", International Journal of the Economics of Business 3: 83-105.