ParfumGigi@aol.com ParfumGigi@aol.com

A few weeks back, Josh had a nice post(on Ideoblog) regarding Judge Alito’s antitrust record. He was pretty optimistic, dismissing Judge Alito’s antitrust critics and concluding that "what little Judge Alito has written on antitrust issues is properly described as fastidious analysis complemented by strict application of doctrine."

Some of Judge Alito’s comments in last week’s hearings cause me to be similarly optimistic. I was particularly pleased with the following exchange between Senator Dewine and Judge Alito regarding LePage’s v. 3M, a terrible en banc decision involving "bundled discounts" (i.e., discounts granted in exchange for purchasing products from multiple product lines):

It was, of course, the 3M v. LePage’s case. In that case, 3M, which sells Scotch tape, was selling it as part of a bundle with other products. The result was that LePage’s, which was offering a cheaper, competing tape, was having a hard time getting stores to sell its tape because if the stores did, they would have to give up the chance to save money on all the other 3M products that they carry.

The en banc Third Circuit agreed with LePage’s that 3M’s consumer-friendly discounts could be anticompetitive. Even though LePage’s acknowledged that 3M’s discounted prices were not predatory (i.e., below cost), produced no evidence that it had tried to compete with 3M by crafting a similar bundled discount with other sellers, and (here’s the kicker) admitted that it was a less efficient tape producer than 3M, the en banc court determined 3M’s discounts to be anticompetitive. The court concluded, in other words, that competition may require a company to forego price cuts in order to prevent the "exclusion" of a less efficient competitor that cannot meet those price cuts. Would you call a race where the fastest runner wins "anticompetitive"? Only in the Bizarro World.

Judge Alito’s comments, which hone in on the fact that 3M’s discounted prices were not below cost, suggest that he might adopt a rule of per se legality for above-cost bundled discounts. Dan Crane has argued for that very respectable position (see here). While I’ve argued for a more nuanced approach to evaluating bundled discounts (see here), the position Judge Alito alludes to would certainly represent an improvement from the LePage’s court’s reasoning.

Comments RSS Feed | TrackBack URL

Filed under: antitrust , law and economics

http://www.truthonthemarket.com/2006/01/18/alito-and-antitrust-part-ii/#more-77