This paper surveys the contributions that economists have made to understanding standards-setting processes and their consequences for industry structure and economic welfare. Standardization processes of four kinds are examined, namely: (1) market competition involving products embodying unsponsored standards, (2) market competition among sponsored (proprietary) standards, (3) agreements within voluntary standards-writing organizations, a18d (4) direct governmental promulgation. The major trajectories along which research has been moving are described and related to both the positive and the normative issues concerning compatibility standards that remain to be studied.

The Economics Of Compatibility Standards: An Introduction To Recent Research 1

Tied sales have a long history of scrutiny under the antitrust laws of the United States The primary basis for the condemnation of this practice has been the court's belief in what has come to be known as the "leverage theory" of tying: that is, that tying provides a mechanism whereby a firm with monopoly power in one market can use the leverage provided by this power to foreclose sales in, and thereby monopolize, a second market In recent years, however, the leverage theory has come under heavy attack In this paper, I reconsider the leverage hypothesis I argue that, in an important sense, the models used by the critics of the leverage theory which all assume that the tied good market has a competitive, constant returns-to-scale structure- are incapable of addressing the central concern of the leverage theory, that tying can be profitably used to change the market structure of the tied good market I then demonstrate that when the tied good market has an oligopolistic structure, tying can indeed serve as a mechanism for leveraging market power through the foreclosure of tied market rivals sales The mechanism through which this foreclosure occurs, its profitability for the monopolist, and its welfare implications are discussed in detail

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Tying, Foreclosure, and Exclusion

This chapter analyzes the private rationale and the social costs and benefits of market foreclosure, here defined as a firm's restriction of output in one market through the use of market power in another market. The chapter first focuses on vertical foreclosure (in which full access to a bottleneck input is denied to competitors) and provides an overview of the theory of access to an essential facility in an unregulated environment. It considers a wide array of contexts: possibility of bypass of the bottleneck facility, upstream vs downstream location of this facility, and various exclusionary activities such as vertical integration and exclusive dealing. It identifies a number of robust conclusions as to the social and private costs and benefits of foreclosure. The chapter then turns to horizontal foreclosure, where the monopoly good is sold directly to the end-users, and analyzes recent theories of anti-competitive bundling aimed at reducing competition in the adjacent markets or at protecting the monopoly market. Finally, the chapter tackles exclusive customer contracts and discusses potential efficiency defenses for exclusionary behavior.

A Primer on Foreclosure

Students of the regulated industries often assume that regulation is designed either to approximate the results of competition or to protect the regulated firms from competition. But neither view explains adequately a number of important phenomena of regulation and regulated industries. Foremost among them is the prevalence of "internal subsidies," whereby unremunerative services are provided, sometimes indefinitely, out of the profits from other services. To understand this phenomena, we must assign another important purpose to regulation: we can call it "taxation by regulation." The purpose of this paper is to explore the dimension of the regulatory process, to demonstrate that it explains some otherwise perplexing features of the process and the industries subject to it, and to compare it with other methods of public finance.

Taxation by Regulation

This paper investigates how the tying of complementary products can be used to preserve and extend monopoly positions. We first show how a firm that is a monopolist of a product in the current period can use tying to preserve its monopoly position in future periods. We then show using related arguments how a monopolist in one market can employ tying to extend its monopoly position into a newly emerging market. The analysis focuses on the importance of entry costs and network externalities. The paper includes a discussion of antitrust implications.

The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries

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Bowman

Papers

Tying Arrangements and the Leverage Problem

Book Review: United States v. United Shoe Machinery Corporation, An Economic Analysis of an Antitrust Case