Use and Abuse of Bargaining Models in Antitrust


Bargaining is all around us. Bargaining is how prices are set across a range of economic activities such as between licensors and licensees of intellectual property, employees and employers, content providers and distributors, health insurers and hospitals, and in many intermediate product markets. Recently, bargaining has played a central role in a number of high-profile antitrust matters. In 2018, the U.S. Department of Justice challenged AT&T’s acquisition of Time Warner — largely on the basis of a bargaining model. Also, in 2018, the U.S. Federal Trade Commission argued that Qualcomm’s market position in cellular chipsets allowed it to leverage higher royalty rates for its standard essential patents (“SEPs”), in violation of its commitment to license its SEPs on fair, reasonable, and non-discriminatory (“FRAND”) terms. In this article, we assess the value of economic bargaining models to predict outcomes for both horizontal and vertical mergers and for unilateral conduct. To that end, we first provide an overview of the economics of bargaining models and their primary features, including the vertical GUPPI variant. We then discuss these models in the context of recent antitrust cases and detail the uneven judicial adoption of bargaining models. Next, we examine whether the current judicial reticence is justified. We review a body of emerging scholarship that suggest some caution on the use of methodologies to predict harm based on bargaining models. This suggests that a healthy degree of judicial skepticism is warranted — whether coherently articulated in opinions or not. In conclusion, we offer some policy recommendations for the use of bargaining models, which we believe will lead to a more balanced approach regarding their use in antitrust matters.