Class 13 Whiteboard Antitrust, Fall, 2012 Individual Refusals to Deal & Attempted Monopolization Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago Copyright © Randal C. Picker. All Rights Reserved.

November 18, 2015Copyright © Randal C. Picker2 Pricing the Mountains n Simple Hypo u Two Mountains, A and B w A is private w B is public and free u Weekend Skiing: Two Days: Consumer Values n What price should A set for one-day access? Mtn AMtn B 1 st Day nd Day3010

November 18, 2015Copyright © Randal C. Picker3 Best Single-Strategy for A n A Sets Single-Day Pass of $39.99 u Consumer spends first day on B, second day on A u Revs to A: u Consumer surplus: u Social Welfare: 70 (against max social welfare of 80)

November 18, 2015Copyright © Randal C. Picker4 A’s Weekend Pass Strategy n A Sells Bundle for Both Days at $49.99 u Consumer could get 30 skiing B both days, skiing A u Consumer skis A u Revs to A: 49.99, Consumer surplus: 30.01, social welfare: 80 n Bundled weekend pass improves social welfare

November 18, 2015Copyright © Randal C. Picker5 Bottom Line n Here: Weekend Pass (Bundling) Increases Profits and Social Welfare u A has monopoly power: how is it exercised? u Like the results we saw on the tying day

November 18, 2015Copyright © Randal C. Picker6 Skiing Competition n Aspen and Utah compete for 100 skiers. Demand set by the number of mountains in Aspen

November 18, 2015Copyright © Randal C. Picker7 Skiing Competition n Results u Once at a destination, absent bundling tickets, skiers split evenly among the mountains. u So this gives a result for Aspen of 5; 15 and 15; 17, 17 and 17; and 13, 13, 13 and 13. u How should we divide revenues in Aspen?

November 18, 2015Copyright © Randal C. Picker8 Entry Incentives n How Do the Sharing Rules Change Entry? n Evolve Hypo u No Utah u A skier represents a present value of $1mm u Costs $5mm to develop mountain Aspen 1$5mm 2$30mm 3$51mm 4$52mm

November 18, 2015Copyright © Randal C. Picker9 Entry Incentives n Suppose We Have Three Mountains Built u Do we want to build the fourth mountain? u Will an entrant build it? u How does that depend on the sharing rules for the All-Aspen ticket? Aspen 1$5mm 2$30mm 3$51mm 4$52mm

November 18, 2015Copyright © Randal C. Picker10 Analysis n With Pro-Rata Allocation u If skiers split up evenly among the mountains in equilibrium, entrant can get $13mm at cost of $5mm and will enter u Social net though is $1mm in additional skier value against $5mm in costs u Too much entry (driven by “business- stealing”)

November 18, 2015Copyright © Randal C. Picker11 Analysis n Pass Structure May Change This u By blocking access to pro rata share incumbent could reduce entry incentive and that could be socially useful here n But u No reason to think incumbent will just block socially-inefficient entry, will try to block any entry not privately useful to it