How The University of Chicago and Harvard Write In Defense of Tying Arrangements

Executive Summary

  • How The University of Chicago and Harvard consistently work against the public interest.
  • We cover the overestimation of “Perfectly Competitive Markets.”

Introduction

In performing research in indirect access rules as employed by SAP, I investigated the topic of tying arrangements in tying agreements. I found it interesting to once again run into two of the least reputable universities who proposed arguments that once again seemed quite in line with what their monied interests donors would want these two universities to publish.

The University of Chicago and Harvard

“Theorists of the Chicago and Harvard Schools hold the position that the efficient and competitive tying arrangements constitute the lion’s share of all tying arrangements.78 This assumption is based on the fact that tying arrangements are very common in completely competitive markets.79 In such markets, the tying firm cannot “coerce” consumers to purchase the tied product. Therefore, presumably, the tying arrangements are efficient and beneficial for both the tying firm and the consumer public. These efficient results relate to the very tying, rather than to the market being competitive or monopolistic. Consequently, if tying arrangements in competitive markets have a significant efficiency potential, then this is also the case when the tying takes place in monopolistic markets.80” – Seattle University Law Review

The tying arrangements that UC and Harvard refer to are things like a camera being combined into a cell phone. This is a combination of technologies that literally no one has ever accused any cell phone manufacturer of engaging in a tying agreement. UC and Harvard offer a number of examples that serve as primarily diversionary tactics. This is what leads to the next big falsehood which is that tying agreements are as often a pro-competitive as they are anti-competitive. Right, they are so procompetitive that it is why we have laws, laws which UC and Harvard are attempting to dilute for the benefit of their donors, against them.

Professor Elhauge. In fact, there is no basis—either empirical or theoretical—for the two approaches presented whereby the onus of proof should be shifted. While closing a significant segment of the tied product market strengthens the anticompetitive potential of the tying arrangements, it does not diminish their pro-competitive efficiency potential.162 It can even be argued that the foreclosing of the tied product market is a prerequisite for eliminating double markup distortions, which is a pro-competitive effect.163 Applying a presumption against tying arrangements in certain scenarios assumes that their anticompetitive potential outweighs their pro-competitive potential. However, this assumption has no anchor either in theoretical writing or in empirical research.164 – Seattle University Law Review

UC and Harvard make it sound like tying arrangements that are procompetitive are frequently deemed uncompetitive by the courts or by the FTC. However, there is no history of this happening. It is a ridiculous argument presented by these two universities.

UC and Harvard’s views on tying agreements are consistent with economics generally.

They argue that the leverage theory only rarely motivates sellers to engage in tie-ins, and that even if it did, it would rarely be successful; therefore, judicial concern based on the leverage theory is misplaced. Economists suggest that, instead, several other objectives motivate sellers entering into tying arrangements which have benign effects on competition. Finally, they argue that some tie-ins are motivated by efficiency considerations, and that proscription of these would be harmful to the economy. – Vanderbilt Law Review

This flies in the fact of reality, and as economists frequently do, they appeal to some theory that has in most cases never been proven. Here is another example.

All the tying arrangement can do is reduce the price of the tying product and raise the price of the tied product, leaving the combined price no more than it would have been absent the tie. – Vanderbilt Law Review

If we take the example of the indirect access fees charged by SAP for SAP ERP licenses to companies that do not purchase complimentary SAP products, and instead go with a non-SAP application. In this case, the customer can very easily be redirected towards the purchase of SAP (non-ERP) applications as this will allow the customer to not have to pay for both a non-SAP license for non-ERP software plus the ERP licenses. This is because SAP will waive the cost of the ERP licenses if the SAP non-ERP applications is purchased.

The result is that the customer buys from SAP instead of buying from the non-SAP vendor.

Once the “objectives” of the economist become clear, then their arguments very much fall on hard times. Here is one example.

“Third, the fact that certain forms of tying arrangements might not shift any resources among competing producers, but will merely shift them between sellers and buyers, is nonetheless not irrelevant for antitrust purposes. Economic explanations are said to be value free; the distribution of resources among buyers and sellers, provided there is no increase or diminution in total societal resources, is a concern that economists need not address.2 The legal system ought not be equally value-free. 3 This Article not only proceeds onThe premise that it is not of negligible concern whether profit maximization goes to the seller or to the buyer; it makes the explicit value judgment that, all other things being equal, the buyers’ interests ought to prevail. For example, there is no need to be equivocal about tie-ins used to evade governmental price ceilings on the tying product, even if they cause no adverse impact on competition. Therefore, if it is asserted that the principal objective of tying arrangements is to achieve this shifting of resources effect, this in itself might be sufficient grounds to hold all tying arrangements unlawful.” (emphasis added) – Vanderbilt Law Review

It is almost impossible to believe that economists hold this as a goal. Therefore they consider immaterial if tying arrangements benefit the buyer or the seller, as “surplus” ends up “someplace.”

How The University of Chicago and Harvard Consistently Work Against the Public Interest

It should come as little surprise that the University of Chicago and Harvard would propose this. In fact, they consistently write in this exact manner on a wide variety of topics and their “research” is highly predictive. Time and again UC and Harvard propose policies that benefit the most powerful companies at the expense of all others.

  • Both UC and Harvard are aligned with the interests of the largest companies and oppose the interests of smaller enterprises or individuals.
  • UC states that not a single dollar is overpaid in the US and not a single dollar underpaid. And UC’s logic for this is that the labor market in the US is perfectly efficient.

The Overestimation of “Perfectly Competitive Markets”

Harvard performed research which was used to justify not regulating financial markets, and this was before 2008. Both UC and Harvard greatly exaggerate the number of industries that are perfectly competitive. They do this for the very simple reason that their donors want the markets that they operate in to be viewed as “perfectly competitive” so that they receive no oversight and they can continue to operate as unregulated entities.

Deliberate Falsehoods

Harvard and UC consistently don’t care what is true, they are about pushing forward arguments that support the interests of their donors.

UC and Harvard are writing about a public interest issue, but because UC and Harvard are so focused on the interest of monopolists they are unable to rationally discuss topics that are related to public interests.

Conclusion

Both UC and Harvard are consistently wrong on topics ranging from competition levels in various industries to what constitutes things like tying agreements. The less regulation of industries is performed, the more the donors to UC and Harvard benefit. Neither UC nor Harvard are reputable sources of information on this topic.

This is because they only represent the interests of the largest corporations that benefit from the promulgation of misinformation on how regulation is unnecessary and markets are perfectly competitive. In this way, UC and Harvard produce exactly the “research” that their donors request and their donor pay for.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

References

https://scholarship.law.nd.edu/law_faculty_scholarship/430/

https://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=2233&context=sulr