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.

Cross-Market Mergers with Common Customers:
When (and Why) Do They Increase Negotiated Prices?

Last update:  March 2023

The effects of cross-market mergers of upstream suppliers in the presence of common customers are very controversial. Some argue that products will be substitutes for intermediaries. Others say that because products are complements to customers, they must also be complements for intermediaries. I contribute to this debate by showing that two products can be complements for customers but substitutes in profits for intermediaries. The reason is that they can be substitutable in the traffic generated for other items in intermediaries’ lineups. This result leads to novel antitrust recommendations and can explain why cross-market mergers of hospitals have increased insurers’ prices.

Monopolization with Must-Haves

with Juan-Pablo Montero
Last update:  January 2023

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.

Dual Moral Hazard and the Tyranny of Success (R&R AEJ:Micro)

Last update:  November 2022

I explain why current success can undermine an organization’s ability to innovate. I consider a standard two-armed bandit problem with two modifications. First, a principal allocates resources. Second, an agent must exert upfront effort to install the risky arm. With incomplete contracts, a dual moral hazard problem emerges. Its severity increases with the payoffs of the safe arm. As a result, a more profitable status quo can decrease the organization’s net present value. The model predicts which innovations will be more difficult for successful firms to adopt and supports the idea that independent business units can help firms innovate.