1. Law and Economics-Charles W. Upton The Basic Test

2. Brunswick Bowling At height of bowling craze, Brunswick Bowling (BB) installed a number of automatic pinsetters on credit.

3. The Basic Test Brunswick Bowling At height of bowling craze, Brunswick Bowling (BB) installed a number of automatic pinsetters on credit. Booms pass –The Bowling Alleys began to fail and BB foreclosed.

4. The Basic Test Brunswick Bowling At height of bowling craze, Brunswick Bowling (BB) installed a number of automatic pinsetters on credit. Booms pass –The Bowling Alleys began to fail and BB foreclosed. –In some cases, BB sold the machines. –In others, it continued to operate the alleys

5. The Basic Test Brunswick Bowling At height of bowling craze, Brunswick Bowling (BB) installed a number of automatic pinsetters on credit. Booms pass –The Bowling Alleys began to fail and BB foreclosed. –In some cases, BB sold the machines. –In others, it continued to operate the alleys Why? No market for the pinsetters and BB could make more money operating the alleys than it could with the machines sitting in a warehouse.

6. The Basic Test Brunswick Bowling At height of bowling craze, Brunswick Bowling (BB) installed a number of automatic pinsetters on credit. Booms pass –The Bowling Alleys began to fail and BB foreclosed. –In some cases, BB sold the machines. –In others, it continued to operate the alleys Why? No market for the pinsetters and BB could make more money operating the alleys than it could with the machines sitting in a warehouse. Competing bowling alleys sued on grounds of restraint of trade. The Supreme Court (Thurgood Marshall) ruled the act protects competition, not competitors.

7. The Basic Test D Bowling S No BB S BB

8. The Basic Test D Bowling S No BB S BB P No BB P BB

9. The Basic Test D Bowling S No BB S BB P No BB P BB The Competitors were surely hurt by BB

10. The Basic Test D Bowling S No BB S BB P No BB P BB But Consumer Plus Producer Surplus was increased

11. The Basic Test D Bowling S No BB S BB P No BB P BB But Consumer Plus Producer Surplus was increased This suggests the modern test: is consumer plus producer surplus increased by allowing the practice? If so, it is OK. If not, then we have an antitrust issue

12. The Basic Test

13. Why this part? Our objective is to prevent inefficient monopoly practices. If there is no monopoly, we have no business analyzing the practice.

14. The Basic Test Many things firms do – even monopolies – hurt competitors but also make the consumer better off. We don’t want to prohibit them.

15. The Basic Test But not all firm behavior is angelic.

16. The Basic Test End ©2004 Charles W. Upton