Competitive Price Discrimination as an Antitrust Justification for Intellectual Property Refusals to Deal

Abstract

Kodak and Xerox are two recent, celebrated, and conflicting antitrust decisions. Both cases involve defendant firms that owned intellectual property and that refused to deal with independent service organizations. The most likely explanation for these refusals to deal was that both defendants were enforcing systems of price discrimination. Antitrust law should count price discrimination as a legitimate business justification. The practice of price discrimination is common in highly competitive markets. It often has desirable economic effects. Unfortunately, some antitrust scholarship and case law view the practice of price discrimination as proof of market power. This view is mistaken. It stems from an incorrect definition of market power - one not accepted in antitrust law. Antitrust policymakers, including federal judges, should renounce price discrimination as evidence of market power and, instead, should accept price discrimination as a legitimate business justification. To do so is to facilitate sensible antitrust analysis.