Barriers to Entry

1
Barriers to Entry

• The conundrum of Shoe Machinery
• Intensive research efforts a true innovator
• Demos that even legitimate monopolist can violate
  Sherman 2 by abusing its monopoly power.
• Significance of renting equip?
• Significance of bundled (and free) service?
• Signif. of lease duration/termination clauses
• Signif. of machine interdependence?

2
More on Shoe Machinery

• Test used Was this growth economically
  innevitable?
• Was size maintained (or did further growth occur)
  solely due to superior skill, natural
  advantages, technological efficiency, low margins
  of profit maintained continuously and without
  discrimination, or patents or public franchises?
• If not, Rule of Reason analysis

3
Appropriate Remedies

• In Shoe Machinery rent or buy option no
  long-duration leases segregate service work
  divest supply divisions
• Divested units must stand on their own feet to
  viably deconcentrate the industry
• Divestiture must include relevant IP, effective
  managers/salesmen, minimum (or better) scale
  facilities, fair access to inputs
• E.g. Microsoft ( 20) Ford Motor 405 US 562

4
U.S. v. Griffith

• Overstates limitations on legitimate monopolists
  actions
• Its leveraging theory is somewhat discredited
  (see Hovenkamp, Federal Antitrust Policy, sec
  9.4)
• Compare California Computer Products v. IBM (Book
  p. 685) Transamercia Computer v. IBM (Book p.
  766)

5
Microsofts Alleged Abusive Behavior

• Attempted product mkt division
• Exclusive dealing with distributors/ISPs
• Bundling IE with Windows 95 98
• Requirements on OEM customers re no
  deinstallation of IE, desktop icon
• When free can be arguably coercive
• More in Lesson 20

6
Specific Barriers to Entry

• Patents Franchises
• Trademarks (market penetration costs)
• Skilled labor know-how
• Raw materials scarce inputs
• Scale economies
• Vertical integration efficiencies
• Capital intensive start-ups
• But do capital markets adjust therisk? MBEs?

7
Exit Limitations as Barriers

• If necessary equipment is highly customized
• If bought by new entrant at fire sale
• If bought by market incumbent

8
Strategic Behavior

• Deliberate internalization of PCPs in California
  Computing
• What was the pricing consequence in California
  Computing?
• How couldve IBM gotten into trouble price-wise?
• What were the Plaintiffs equities?
• How tied are IBMs (Microsofts) hands?

9
Predatory Innovation

• Berkey Photos product market definition
• Cites tricky (and overstated) Grinnell
  testwillful acquisition or maintenance of
  ...monopoly power as distinguished from growth
  or development as a consequence of a superior
  product, business acumen, or historic accident
• Legit. monopolist may not wield monopoly power to
  prevent or impede competition

10
More on Berkey Photo

• Nothing wrong in making film for your own
  innovative new camera
• Defendant continued to supply conventional film
  for rivals cameras
• Defendant had no duty to disclose proprietary
  camera design in advance
• Kodacolor II only in Instamatic format mightve
  been a refusal to deal but Pl. had no evidence of
  lost camera sales