Discounts as a Barrier to Entry

with Juan-Pablo Montero and Nicolás Figueroa
American Economic Review, Vol. 106, No. 7, July 2016, pp. 1849-1877

To what extent can an incumbent manufacturer use discount contracts to foreclose efficient entry? We show that off-list-price rebates that do not commit buyers to unconditional transfers--like the rebates in EU Commission v. Michelin II, for instance--cannot be anticompetitive. This is true even in the presence of cost uncertainty, scale economies, or intense downstream competition, all three market settings where exclusion has been shown to emerge with exclusive dealing contracts. The difference stems from the fact that, unlike exclusive dealing provisions, rebates do not contractually commit retailers to exclusivity when signing the contract.

Monopolization with Must-Haves

Last update:  May 2022

An increasing number of monopolization cases have been constructed around “must-haves”: products that distributors need to “compete effectively.” Given the poor fit of existing theories to cases, we develop a multiproduct framework to address the following: What is a must-have? Can must-haves be used as leverage to increase prices in adjacent markets? What determines an item’s “musthavedness”? Is a monopoly product always a must-have? How important are tying and exclusives for monopolization? Does prohibiting them always benefit consumers? The answer to these questions should help the antitrust analysis of must-haves, a notion often mentioned in cases without proper economic definition.

Double-Sided Moral Hazard and the Innovator’s Dilemma

Last update: March 2021

I explain why current success might undermine an organization’s ability to innovate. I study a principal-agent relationship deciding whether to adopt an innovation. For the innovation to deliver profits, the agent must develop new capabilities, and the principal must divert resources from a profitable status quo. When contracts are incomplete and learning the innovation’s profitability takes time, a double-sided moral hazard problem arises. Its severity increases with the status quo’s profits, so more successful firms have higher innovation costs after accounting for profit cannibalization. The model provides predictions about which innovations will be more difficult for successful firms to adopt.

Vertical Mergers with Must-Have Items

with Juan-Pablo Montero

Shake-Ups

with Martino Banchio and Suraj Malladi