Untying the Knot: The Case for Overruling Jefferson Parish

Abstract

Jefferson-Parish test for whether a tying arrangement violates the antitrust law should be abandoned. It should be replaced with a rule of reason analysis that examines whether there are adverse economic effects that outweigh potential economic benefits. There is widespread support in the modern antitrust and economics literature for adopting a rule of reason approach to tying and virtually no support for treating tying as unlawful by firms with market power. Analyzing tying under a rule of reason would help complete the economic rationalization of antitrust law that started with Sylvania and under which treatment has been narrowed mainly to hard-core cartel behavior that has no pro-competitive benefits. Such a rule of reason analysis should be structured to screen out cases in which there is no plausible basis for believing that tying could have an adverse effect on long-run consumer welfare and should require plaintiffs to demonstrate rather than assume adverse effects from tying. Supreme Court should take the next opportunity to heed the advice Justice O'Connor and three other Justices offered more than twenty years ago regarding tying doctrine: The time has therefore come to abandon the per se label and refocus the inquiry on the adverse economic effects, and the potential economic benefits, that the tie may have. enforcement agencies should support the effort to overrule Jefferson Parish and subject tying to the rule of reason. This would give the Supreme Court additional confidence in ending the treatment of tying which it has supported, despite profound reservations, because of longstanding judicial and legislative hostility towards tying. This paper explains the basis in modern economics and antitrust analysis for overruling Jefferson Parish.