1. IntroductionIn 1995, the Comdata Corporation purchased Trendar, a supplier of fuel desk point-of-sale (POS) devices specializing in sales to truck stops.1 At the time, Comdata was the dominant provider of fleet card services to the long-haul, irregular route trucking industry. Fleet cards and fuel desk POS devices are used in conjunction to facilitate the sale of diesel fuel between truck stops and truckers. Fleet cards are similar to credit cards but have additional features that enable trucking companies to protect against fraud by restricting what their drivers buy and where they buy it. Fuel desk POS devices process fleet card transactions and often provide other services to truck stops and gasoline stations (e.g., controlling the gas/diesel pumps). Soon after the merger, competitors of Trendar, such as Flying-J/ROSS, complained that they were having difficulty processing Comdata fleet card transactions. In 1999, the Federal Trade Commission signed a consent order with Comdata to allow fleet cards access to the Trendar machine and to allow other POS systems access to ComChek cards.2At first glance, the acquisition of Trendar by Comdata seems to be yet another example of a dominant firm integrating into a complementary market and foreclosing competitors in this market. With the recent antitrust trial pitting the Department of Justice against Microsoft, the Telecommunications Act of 1996, which set guidelines for local exchange carrier entry into long-distance telephony, and the many recent high-profile vertical mergers (e.g., AOL-Time Warner), there has been a renewed interest in the economic effects of vertical and complementary product integration. A number of recent articles have investigated the incentive of a dominant firm to integrate into a complementary market and foreclose rivals and the associated welfare effects of this foreclosure (e.g., Economides 1998; Riordan 1998; Sibley and Weisman 1998; McAfee 1999). While the results of these studies are mixed, the general message of the recent literature is that vertical integration can reduce welfare if the integrating firm is dominant in its original market.3 This contrasts with the traditional view that vertical integration, with some exceptions (e.g., regulated industries and variable proportions production), is most likely beneficial if it has any welfare effect at all.4Despite the wide array of results in the literature, all of the articles analyzing vertical or complementary product integration have one assumption in common--an assumption that does not hold in the case of Comdata and Trendar. They all assume that both complementary products are purchased and used in conjunction by a particular consumer (just as a vertical relationship concerns the inputs and outputs of a particular firm). In some cases, such as fleet cards and fuel desk POS devices, complementary products are sold to different consumers or firms and are used in conjunction to aid transactions between them. This is sometimes referred to as joint consumption. While these cases are somewhat unusual, they are certainly not rare. Other examples of joint consumption include credit cards and retail POS devices, ATMs and their associated card networks, and photographic film and film processing equipment, which are used in conjunction to produce photographs. In this last example, film-processing equipment is sold to retail firms that develop film (e.g., Wal-Mart, Eckerd, etc.), while film is sold to consumers through a variety of outlets.In what cases does a dominant firm have an incentive to merge with the maker of a complementary product as Comdata did with Trendar? If an incentive exists, would the merger lead to foreclosure of competitors and, if so, would it increase or reduce social welfare? As with traditional vertical and complementary product mergers, there are many factors that can determine the answers to these questions, but there are two factors unique to joint consumption markets that can provide an increased incentive for a dominant firm to integrate and foreclose. …
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