Raising rivals' costs is a concept or theory in United States antitrust law describing a tactic or device to gain market share or exclude competitors. The origin of the concept has been attributed to Professors Aaron Director and Edward H. Levi of the University of Chicago Law School, who wrote briefly in 1956 that a firm with monopoly power can decide to impose additional costs on others in an industry for exclusionary purposes. They stated that such a tactic "might be valuable if the effect of it would be to impose greater costs on possible competitors."[1]
For example, a capital-intensive firm might agree with a union to impose higher wages in the industry, to the disadvantage of labor-intensive rivals.[2] The concept of raising rivals' costs was developed more thoroughly in the 1980s in a series of articles by Jaunusz A. Ordover, Garth Saloner, Steven C. Salop, David T. Scheffman[3]
The concept of raising rivals' costs has been the basis for finding an antitrust violation in such rebate-bundling cases as LePage's, Inc. v. 3M[4] and SmithKline Corp. v. Eli Lilly & Co.[5] In those cases, the defendants adopted rebate systems over their broad range of products such that, to match the net dollar value of the rebates to purchasers, the plaintiffs' competitors with narrower product ranges had either to provide a much greater unit rebate on their sales or else exit the business.
- ^ Aaron Director and Edward H. Levi, Law and the Future: Trade Regulation, 51 Nw. U.L. Rev. 181, 290 (1956); see also Richard R. Nelson, Increased Rents From Increased Costs: A Paradox of Value Theory, 65 J. Pol. Econ. 287 (Oct. 1957).
- ^ See Oliver Williamson, Wage Rates as a Barrier to Entry: The Pennington Case, 85 Q.J. Econ. 16 (Feb. 1968). This appears to have occurred in United Mine Workers v. Pennington, 381 U.S. 657, 665-66 (1965), described below.
- ^ See. e.g., Thomas G. Krattenmaker and Steven C. Salop,Anticompetitive Exclusion: Raising Rivals' Costs To Achieve Power Over Price," 96 Yale L.J. 209 (1986); Jaunsz A. Ordover, Garth Saloner, and Steven C. Salop, Equilibrium Vertical Foreclosure," 80 Am. Econ. Rev. 127 (March 1990); Steven C. Salop and David T. Scheffman, Raising Rivals’ Costs: Recent Advances in the Theory of Industrial Structure, 73 Am. Econ. Rev. 267 (1983); Steven C. Salop and David T. Scheffman, Cost-raising Strategies, 36 J. Indus. Econ. 19 (1987).
- ^ 324 F.3d 241 (2003) (en banc).
- ^ 575 F.2d 1056 (3d Cir. 1978).