Moving Beyond Naive Foreclosure Analysis
- Author(s): Joshua Wright
- Date Posted: September 2012
- Law & Economics #: 12-61
- Availability: Full text (most recent) on SSRN
Over the past several decades, antitrust law has shifted from predation to exclusion as the predominant competitive risk associated with single-firm conduct. This shift is attributable to the rise of Raising Rivals’ Costs (“RRC”) as the modern economic paradigm for understanding the potential anticompetitive concerns associated with exclusionary contracts. Courts in exclusion cases have long analyzed the extent to which a defendant’s distribution contracts foreclose rivals from a critical input by calculating the percentage of the input market contractually committed to the defendant and therefore presumptively foreclosed from rival suppliers. I describe this measure as the “naïve foreclosure” rate. RRC provided a more economically sophisticated approach to assessing the competitive risks associated with exclusion, while also embracing possible efficiencies of such arrangements. However, while RRC replaced the discredited foreclosure theories within economics, the naïve foreclosure requirement embraced by the law has barely changed over the last half century. What is left is a mismatch between new economic theories and obsolete doctrine. The primary purpose of this Article is to highlight this conflict and its importance and to propose the beginnings of a solution consistent with the modern approach focusing upon identifying the direct competitive impact of the restraint rather than unreliable proxies detached from economic theory. This Article proposes abandonment of the naïve foreclosure measure in favor of a “but-for foreclosure” approach that assesses the net impact of the restraint at issue and isolates out other factors influencing the availability of distribution to rivals.