Limiting Product Choice: Innovation, Market Evolution, and Antitrust

Product Strategy and Antitrust: A Consumer Choice Perspective

“…This article echoes recent proposals for augmented antitrust analysis that involve direct consideration of preserving consumer options and consumer choice among them (Averitt andLande 1997, 2007;Guiltinan 2002;Leary 2001;Petty 2002). This "consumer sovereignty" approach (Smith 1995, 91-95) has roots in marketing scholarship dating back at least to Chamberlin's (1933) concept of "monopolistic competition," which he viewed not as a market failure (possibly to be corrected) but rather as a composite of monopoly and competition that naturally occurs in differentiated markets (Hunt 2011, 75-77).…”

“…Buschken (2004) argues that firms may find locking in customers to be profitable as a product strategy since the firm is insulated from competition for those customers for the period of the lock-in. However, he has been criticized for ignoring both consumer protection and antitrust concepts that place limits on the degree of lock-in that would be legally permitted (Petty 2006).…”

“…Yet, because Folgers was owned by P&G, which was bigger than General Foods, the FTC held there was no dangerous probability of successfully exercising market power and dismissed the case (in re General Foods 1984). The presumption that a new product is a legitimate attempt at innovation causes courts to only condemn introductions in rare cases where there is strong evidence of anticompetitive intent and likely anticompetitive market effects (Petty 1988).…”

“…Antitrust law should not condemn such innovations. In contrast to this pro‐competitive restriction of consumer choice, Petty () proposes several tactics under the broad heading of “Limiting Product Choice” that involve either denial of market access or misuse of intellectual property (IP) to restrict innovation and therefore could be considered anticompetitive under appropriate market circumstances. Several of these tactics are re‐examined below.…”

“…Arguably the closest antitrust commentary has gotten to analyzing product strategy per se is the examination of antitrust and innovation, particularly so-called alleged "predatory innovation" (e.g., American Bar Association Section of Antitrust Law 1991, 26-32;Jacobson, Sher, and Holman 2010;Ordover and Willig 1981;Petty 1988). However, this analysis focuses on costs of innovation and foregone profit opportunities of the "innovating" firms.…”