Steven C. Salop

• Professor at Georgetown University

This article is designed to explicate the somewhat misunderstood analysis in the 2023 Merger Guidelines (MGs) and situate the MGs in the context of the legal as well as economic environment in which they operate. The MGs refine economic analyses in previous MGs, renew emphasis on certain competitive concerns and approaches, and add several emerging...

The article explains why regressions of price on HHI should not be used in merger review. Both price and HHI are equilibrium outcomes determined by demand, supply, and the factors that drive them. Thus, a regression of price on the HHI does not recover a causal effect that could inform the likely competitive effects of a merger. Nonetheless, econom...

This article explains the inherent loss of an indirect competitor and reduction in competition when a vertical merger raises input foreclosure concerns. We then calculate a measure of the effective increase in the HHI measure of concentration for the downstream market, and we refer to this “proxy” measure as the “dHHI.” We derive the dHHI measure b...

We examine the role of private information on the impact of vertical mergers. A vertical merger can improve the information that is available to an upstream monopolist because, after the merger, the monopolist can observe the cost of its downstream merger partner. In the pre-merger world, because the costs of the downstream firms are private inform...

The article is publicly available at this link, https://academic.oup.com/antitrust/article/10/2/248/6594396?searchresult=1.

This Feature summarizes why and how vertical merger enforcement should be invigorated. In our modern market system, vigorous vertical merger enforcement is a necessity. Strong enforcement is particularly important in markets where economies of scale and network effects lead to barriers to entry and durable market power. Even when there are parallel...

While the Horizontal Merger Guidelines issued by US antitrust enforcement agencies have been periodically revised since their first publication in 1968, the Vertical Merger Guidelines were last the subject of modification in 1984. Moreover, there appears to be little appetite within the agencies for revision; so interested parties are for the momen...

There are two overarching legal paradigms for analyzing exclusionary conduct in antitrust – predatory pricing and the raising rivals’ costs characterization of foreclosure. Sometimes the choice of paradigm is obvious. Other times, it may depend on the structure of the plaintiff’s allegations. Some types of conduct, notably conditional pricing pract...

We have created a listing of vertical merger enforcement actions by the Department of Justice and Federal Trade Commission during the period 1994-October 2015. This listing is an Appendix to Salop and Culley, Revising the Vertical Merger Guidelines: Policy Issues and an Interim Guide for Practitioners, Journal of Antitrust Enforcement (forthcoming)...

We propose an index for scoring coordination incentives, which we call the “coordination GUPPI” or cGUPPI. While the cGUPPI can be applied to a wide range of coordinated effects concerns, it is particularly relevant for gauging concerns of parallel accommodating conduct (PAC), a concept that received due prominence in the 2010 U.S. Horizontal Merge...

Nel corso degli ultimi anni, il tema della disuguaglianza economica ha assunto una particolare rilevanza, anche in ragione degli effetti prodotti dalla crisi economica. L'articolo esamina il modo in cui le preoccupazioni pubbliche circa la crescente disuguaglianza possono stimolare proposte di modifica dell'antitrust e della politica della concorre...

This article reviews the formulation and evolution of the Philadelphia National Bank anticompetitive presumption through the lens of decision theory and Bayes Law. It explains how the economic theory, empirical evidence and experience are used to determine a presumption and how that presumption interacts with the reliability of relevant evidence to...

The purpose of this short article is to aid practitioners in analyzing the competitive effects of vertical and complementary product mergers. It is also intended to assist the agencies if and when they undertake revision of the 1984 U.S. Vertical Merger Guidelines. Those Guidelines are out of date and do not reflect current enforcement or economic...

This article, which was prepared for an ABA Antitrust Section Panel, discusses the role of ideology and politics in antitrust enforcement and the impact of elections in the last twenty year on enforcement and policy at the federal antitrust agencies. The article explains the differences in antitrust ideologies and their impact on policy preferences...

FTC Commissioners Joshua Wright and Maureen Ohlhausen have proposed that the Commission adopt Guidelines for the application of Section 5 to Unfair Methods of Competition. This short note comments on the role of Section 5 distinct from the Sherman Act. It suggests that Section 5 be used to attack and deter certain conduct that falls into gaps of th...

This Appendix supplements the technical analysis in the Moresi and Salop Vertical GUPPI article published in the Antitrust Law Journal.The paper "vGUPPI: Scoring Unilateral Pricing Incentives in Vertical Mergers" to which these Appendices apply is available at the following URL: http://ssrn.com/abstract=2085999

Merger enforcement today relies on settlements more than litigation to resolve anti-competitive concerns. The impact of settlement policy on welfare and the proper goals of settlement policy are highly controversial. Some argue that gun-shy agencies settle for too little while others argue that agencies use their power to delay to extract over-reac...

One key concern in vertical merger cases is input foreclosure. Input foreclosure involves raising the costs of competitors in the downstream market, which could in turn increase the sales and profits of the downstream merger partner. In this article, we explain how the upward pricing pressure resulting from unilateral incentives following a vertica...

On March 20, 2011, wireless provider AT&T announced its intention to merge with T-Mobile USA, a competing wireless provider. This article reviews the economic analysis of this proposed acquisition that we carried out for Sprint and explains why the merger would have been anticompetitive. We analyze how the merger would have led to adverse unilatera...

The 2010 Merger Guidelines give greater prominence to the concept of parallel accommodating conduct. Parallel accommodating conduct (PAC) has a long history in oligopoly theory, dating back more than seventy years. It is a type of coordinated conduct that does not require an agreement. Instead, it involves a firm engaging in a certain conduct, with...

This paper formulates a rigorous rule of reason legal standard under Section 2 of the Sherman Act for refusals to deal and price squeezes undertaken by an unregulated, vertically integrated monopolist against actual or potential competitors. This rule of reason standard is administrable by the courts and the monopolist. It takes into account the di...

These comments (originally submitted to the DOJ and FTC in November 2009) make a number of comments relevant to revising the Merger Guidelines. The comments focus on the use of the GUPPI (gross upward pricing pressure index) in unilateral effects analysis. They also comment on the deterrence and incipiency standard, exclusionary effects of horizont...

We present a model of ordered bargaining between one buyer and several sellers, with Nash bargaining at each stage. We first show that the model has the property that the buyer's payoff equals the expected utility of a weighted sum of independent Bernoulli random variables. We then exploit this property to uncover further properties and implication...

This chapter presents two papers that take issue with Chicago School thinking at the most basic levels, rejecting the ideas that vertical arrangements rarely if ever can harm consumers, exclusionary vertical conduct is either benign or procompetitive, and that predatory pricing (pricing below some appropriate level of cost) "is rarely attempted and...

This article seeks an answer to a question that should be well settled: for purposes of antitrust analysis, what is 'market power' and/or 'monopoly power'? The question should be well settled because antitrust law requires proof of actual or likely market power or monopoly power to establish most types of antitrust violations. Examination of key an...

This note describes the implementation of the hypothetical monopolist ssnip test for market definition in the context of merger cases where firms produce multiple differentiated products. The test developed here represents an extension and generalization of the Katz-Shapiro and O'Brien-Wickelgren market definition test for the case of multi-product...

How should the views of individual judges on an appellate panel be combined to reach a decision in any particular case. Oddly enough, there has been coomparatively little attention paid to this very fundamental question, notwithstanding the fact that there are (at least) two very different procedures judges could use, and that the choice between th...

The central thesis of this article is that the use of the profit-sacrifice test as the sole liability standard for exclusionary conduct, or as a required prong of a multi-pronged liability standard is fundamentally flawed. The profit-sacrifice test may be useful, for example, as one type of evidence of anticompetitive purpose. In unilateral refusal...

This short article, which was submitted to the Antitrust Modernization Commission, explains why the consumer welfare standard is used by courts and is more appropriate for evaluating antitrust issues.

Two types of single-firm overbuying are analyzed in this article. Predatory overbuying consists of overbuying inputs as a predatory strategy to cause buyer-side competitors in the input market to exit from the market or permanently shrink their capacity in order to gain monopsony power in the input market. Raising Rivals' Costs (RRC) overbuying con...

This paper explores cooperation incentives in the absence of public reputation information, using an infinite-horizon Prisoners' Dilemma model of sequential relationships. We examine a strategy which we call Quit-for-Tat (QFT). In this model, individuals initially are paired randomly. In the equilibrium with identical profit-maximizing individuals,...

The standard Ricardian model of competition has a fixed number of firms, each with limited capacity and differential exogenous costs or qualities. In this paper, we introduce a real entry process by formulating a multistage Ricardian equilibrium model with free entry and stochastic product qualities and costs. The set of active firms and their qual...

In a recent article published in this journal, Jon Dubrow examines the acquisitions of passive minority equity interests. The focus of his article is the treatment of these transactions by the courts and the federal antitrust agencies, including their treatment of the investment-only exemption from Section 7 of the Clayton Act. One section of the a...

Among the proposed remedies in the Microsoft case are structural remedies that would create competition in operating systems for personal computers. One criticism that has been raised against such remedies is that they would lead to "fragmentation" of the Windows standard. According to this critique, the remedy would lead to a number of radically d...

In this essay, I reflect on an important contribution to the development of antitrust reasoning and law that arises out of the Supreme Court's decision in Eastman Kodak Co. v. Technical Services, Inc. In particular, I discuss the decision's relationship to what I have termed the "first principles" approach to market power and antitrust. In my view,...

In this article, we set up an economic framework for analyzing the competitive effects of partial ownership interests. We have three main goals. First, we conceptually derive and explain the competitive effects of partial ownership, explaining its key elements and drawing analogies to the key ideas behind the analysis of horizontal mergers. Second,...

The Competitor Collaboration Guidelines recently issued in draft form by the Federal Trade Commission do not include detailed analysis of exclusionary access agreements. This short article begins to fill this gap by formulating sample guidelines on exclusionary access agreements. These sample guidelines are preliminary and are intended to stimulate...

This short paper prepared for the Antitrust Law Journal's Symposium on Antitrust at the Millennium examines the contribution to antitrust reasoning and law of the Supreme Court's Kodak opinion. The main focus of the article involves the first principles approach to antitrust analysis. In this approach, analysis is centered on the evaluation of the...

There is ongoing controversy over the proper antitrust decision process that regulatory commissions and the courts should use to evaluate various restraints. This controversy entails the question of whether to analyze conduct under a per se rule, the classical rule of reason, the quick look, the inherently suspect standard, or some other truncated...

The Katz and Shapiro article is an ambitious and challenging paper. It sets out an economic framework for analyzing the whole range of competition issues that arise in software markets. It analyzes an array of key antitrust concerns, including mergers, standard setting, and a variety of vertical restraints. It is an important contribution that poli...

This paper examines a number of issues in the economics and law of leverage and monopolization through the lens of the Microsoft case. The paper explains how Microsoft's practices can be divided into two categories -- exclusivity and incompatibility. This exclusionary conduct has the effect of preserving its operating system monopoly from the threa...

gration is not necessary to capture the monopoly profits. Instead, a standalone (unintegrated) upstream monopolist can capture all of the monopoly profits simply by pricing the input that it sells to the downstream firms at the monopoly level. In short, the Chicago-School critics state that there is a "single" monopoly profit that can be extracted...

This paper is a conference discussion of the Katz and Shapiro article "Antitrust Analysis of Software Markets," as part of a recent Progress and Freedom Foundation Conference titled, "Competition, Convergence and the Microsoft Monopoly." The paper analyzes some aspects of exclusionary vertical conduct and applies that analysis to the Microsoft-Nets...

This paper provides a conceptual framework for analyzing the impact of imperfect information on decision making. It goes without saying that rules that economize on information must not excessively sacrifice the accuracy of the outcome. On the other hand, gathering information is never costless. Accordingly, optimal rules will depend on the value o...

In this paper, we reply to criticisms raised by Prof. John Rogers, Lewis Kornhauser, Lawrence Sager, and Maxwell Stearns in connection with the proposal we advanced in an earlier publication (see 80 Geo. L.J. 743 (1992)) regarding the proper method of cumulating votes of individual members of multi-judge panels.

We briefly review the rationale behind technological alliances and provide a snapshot of their role in global competition, especially insofar as it is based around intellectual capital. They nicely illustrate the increased importance of horizontal agreements and thus establish the relevance of the topic. We move on to discuss the organisation of in...

There is abundant empirical evidence showing that asymmetric price adjustments exist in a wide variety of markets. Prices tend to grow faster when costs rise relative to the rate at which prices drop when costs fall. The objective of this paper is to empirically test whether asymmetric price adjustments exist in a scenario where costs are increasin...

This article analyzes the competition and integration among complementary products that can be combined to create composite goods or systems. The model generalizes the Cournot duopoly complements model to the case in which there are multiple brands of compatible components. It analyzes equilibrium prices for a variety of organizational and market s...

This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection a...

It may have come as a shock to many economists, especially those in academia, to learn that the Antitrust Division of the U.S. Department of Justice (DOJ) has been investigating alleged price fixing and information exchange of financial aid among 23 prestigious east coast colleges and universities. These schools include the "Ivy overlap group"—MIT,...

The development of shared ATM networks raises important issues of competition, cooperation and standardization. Sharing necessarily involves cooperation among competing ATM owners and card issuing financial institutions. Networks adopt rules that regulate members' pricing decisions also involve issues of standardization and competition. In particul...

The authors formulate a complete, but analytically simple, equilibrium model of vertical mergers to evaluate the logic of standard vertical foreclosure claims and the criticisms made of those claims. The model includes incentives of the integrated firm and unintegrated input suppliers to exclude rivals, and the potential holdout problem. In this fu...

Consider the following problem: On the night of March 1, 1986, in Lorain, Ohio, John Doe was struck by a speeding taxi as he crossed the street. The taxi was driving the wrong way down a one-way street and did not stop. An eyewitness thought that the taxi was blue. Doe has sued the Blue Cab Company for his medical expenses in a tort claim. Lorain h...

The Journal asked three mainstream industrial organization economists to comment on both current merger enforcement and merger reform proposals: Lawrence White, Franklin Fisher, and Richard Schmalensee. The Journal of Economic Perspectives organized this symposium to provide economists who do not specialize in industrial organization and policymake...

This paper studies a variety of strategies by which firms could disadvantage rivals by raising their costs. In this paper, the authors show that strategies designed to raise r ivals' costs have a number of advantages over predatory pricing: they are credible; do not necessarily require the victim to exit; and do not necessarily require the existenc...

It is easy to contribute a chapter to a volume honouring Kenneth Arrow: there is hardly an area of concern to modern economic theory where he has not had fundamental insights. This chapter picks up on two themes on which he made early and important contributions.

A joint venture among competitors to produce output alters the parents' competitive incentives. Any joint venture involves both joint financial interest and control over the production levels of the venture entity and the parent firms. The competitive incentives of the parents and rival firms depend on the exact financial interest and control arran...

Where consumers have imperfect i nformation about specific firms' prices and lack information about the market, f irms have informational market power. In general, improving the consumers' infor mation about each firm's price will not necessarily lower the average market pri ce. The authors show however that certain types ofimprovements will lower...

Where consumers have imperfect information about specific firms' prices and lack information about the market, firms have informational market power. In general, improving the consumer's information about each firm's price will not necessarily lower average market price. We show, however, that certain types of improvements will lower price. Moreove...

A model of product differentiation which combines elements of both spatial and representative consumer formulations is used to examine the properties of single- and multiple-price equilibria. Conditions under which decreases in the intensity of consumer preferences reduce price are given. It is shown that, with certain types of demand curves, entry...

This article analyzes the effect of credible capacity limitation on the interaction between an incumbent and an entrant. The prospect of price competition deters entry by a less efficient firm with unlimited capacity. If, however, the entrant practices "judo economics" and limits its capacity sufficiently, it is in the incumbent's interest to accom...

This paper shows that firms endowed with monopoly power can utilize an optional service contract form of guarantee as an instrument for effecting a surplus extracting two-part tariff. The monopolist finds it optimal to produce, guarantee and replace defective units, even if a zero defect rate could be achieved at no additional production cost. It i...

This paper contributes with empirical findings to European co-inventorship location and geographical coincidence of co-patenting networks. Based on EPO co-patenting information for the reference period 2000-2004, we analyze the spatial con figuration of 44 technology-specific co-inventorship networks. European co-inventorship (co-patenting) activit...

It is now well established in both the economic and legal literature that successful price co-ordination (either express or tacit) is not inevitable — even in highly concentrated industries protected by insurmountable barriers to entry. The key to this insight is the recognition that even though oligopolists’ fates are interdependent, individual se...

The Netherlands introduced a new health insurance system in January 2006, a system based on managed competition. Such a system critically hinges on consumers that search. It is for this reason we think it is important to investigate the extend to which consumers search, how they search and why they search ´or don’t search. The price dispersion obse...

A framework for evaluating alternative consumer information regulations is developed by integrating economic, consumer behavior, and legal theory. This “Remedies Continuum” which classifies regulations from least to most restrictive of marketplace forces, is used to select the most appropriate regulatory approach.