A Marketer's View of Competition and Antitrust

• Author: Allan D. Shocker
• Published date: 01 March 2007
• Date: 01 March 2007
• DOI: 10.1177/0003603X0705200106
• Subject Matter: Article

THE

ANTITRUST

BULLETIN:

Vol.

52, No. IjSpring 2007 :

95

Amarketer's view of

competition

and

antitrust

By

ALLAN

D.

SHOCKER*

I. INTRODUCTION

Marketing

and

antitrust are strongly interrelated. Typically it is cer-

tain objectionable marketing practices

that

have

made

antitrust action

necessary.

And

antitrust

decisions can affect future marketing prac-

tices

and

alternative strategies. Pricing

and

promotion practices, in

particular,

have

figured

prominently

in

many

legal

actions

(e.g.,

deceptive pricing or advertising,

predatory

pricing, refusals to deal,

"unfair"

competition,

and

mergers

and

acquisitions

that

potentially

offer

marketing

efficiencies).

Aftermarket

antitrust

cases, however,

largely involve

product

interrelations;

which

is

not

to

say

that

the

other

aspects of marketing

do

not

matter,

but

it seems beneficial to

focus

on

these. Aftermarkets, for

the

most

part,

sell

products

and

*Allan D. Shocker is retired from the University of

Minnesota-Twin

Cities,

where

he

had

been the Curtis L. Carlson Professor of Marketing in its

Carlson School of Management. After retirement he served as Visiting Profes-

sor

of Marketing at San Francisco State University (COB), Carnegie Mellon

University (Tepper),

and

the University of California at Davis (GSM). Con-

tact: ashocker®sfsu.edu.

AUTHORS

NOTE: I wish to thank

Prof.

Gregory

Gundlach,

Professor

of

Marketing

at

theUniversity ofNorth

Florida,

for

his

helpful

comments

and

suggestions

to

improve

presentation

of this

article.

It

reflects

my

thoughts

and views

regarding

the

intersec-

tionof antitrust with

marketing

in the

context

of

aftermarkets.

©2007by

Federal

LegalPublications, Inc.

96 :

THE

ANTITRUST

BULLETIN:

Vol. 52, No. l/Spring 2007

services

that

complement the

product

being

sold

in the fore- or pri-

mary

market.

The

value

of

owning

the

aftermarket

product

comes

about

because

the

foremarket

product

is

already

owned,

or

being

contemplated,

and

they are

used

together.

The

aftermarket

product

is

often essential to a

buyer's

ability to gain greater value from the fore-

market

product

and

to

serve

other

buyer

requirements.

Antitrust

issues

can

arise

because

continued

use of

the

foremarket

product

sometimes creates

what

is

termed

lock-in or switching costs for

buy-

ers, forcing

them

to continue to

purchase

products

in

the

aftermarket

to benefit from

them

both. Patents

and

other

forms of

market

power

have

been

used

to

keep

buyers

tied

to

particular

sellers'

brands.

Patents

arguably

do

not,

per

se, confer

market

power,'

But,

when

combined

with

appropriate

marketing action to encourage

demand

for both products, they tie the

two

together.

Then

patents can

playa

role if they restrict

the

aftermarket product's usability

with

a

product

from

the

foremarket. A classic example is

the

razor

and

blade relation

(also printers

and

ink) where

only

certain aftermarket

brands

(blades)

are designed to function with specific foremarket

products

(razors).

Marketers also recognize this connection

and

seek

advantage

through

pricing,

product

design, warranty, packaging, distribution,

and

pro-

motion.

But

relations

between

fore-

and

aftermarket

products

are

more involved

than

these examples alone

may

suggest.

These relations are the focus of this article because they affect the

marketing practices

that

sometimes lead to

antitrust

concerns. First, I

examine some of

the

characteristics of real competitive markets

and

the factors

both

marketing

and

antitrust

need

to

understand

in

order

to create desirable courses of action

and

accurately predict

the

out-

The recent

Supreme

Court case, Illinois Tool Works Inc. v. Indep. Ink,

Inc., 126 S. Ct. 1281 (2006), cited several legal precedents to reach this conclu-

sion. The

Supreme

Court

ruled in favor of

the

plaintiff on a

narrow

legal

issue. This case was joined through amicus briefs by

many

other large firms

who

also sought legal protection for their ability to use

patent

protection to

exert market

power

over

the sale of a tied,

nonpatented

product. The

Court

sided

with

Illinois Tool Works, holding that, because a

patent

does not neces-

sarily confer

market

power, aplaintiff

must

prove

that

a

defendant

has

such

power

in the tying

product

before a court will conclude

that

such

an arrange-

ment is illegal. Some of the arguments

advanced

by this article could

help

with

such

proof.

A

MARKETER'S

VIEW

97

comes of actions or legal remedies being contemplated.

The

similarity

of antitrust to marketing concerns is discussed, as are

some

of their

differences. The

nature

of the general ties

that

bind

markets together

in

buyer

behaviors is examined. The role of

buyer

purpose

and

the

conceptualization

of

products

as

bundles

of benefits

and

costs are

used

to explain

the

relationships

and

assess

the

structure of competi-

tive markets. Because

buyer

decisions

often

have

antecedents

and

consequences, fore-

and

aftermarkets

become

somewhat

arbitrary

designations.

I

examine

market

structure

analysis

(MSA), a

set

of

research procedures marketers use to identify competitors from buy-

ers' viewpoints

and

assess the extent of

interproduct/brand

substi-

tutability. I

conclude

by

noting

that

marketing

and

litigation

may

sometimes be substitutes

and

discuss ways by

which

the

court

or liti-

gants can include

some

or all of these ideas

into

future

behaviors.

The economies of

the

twenty-first

century

are significantly more

complex

than

those of earlier years largely

due

to

advanced

technol-

ogy, globalization,

open

trade agreements,

and

other

forces. Recogni-

tion of this is

important

because

many

legal decisions

were

rendered

when

economies

were

simpler

and

thus

may

not

always be

adequate

as

precedents

for

today's

circumstances.

Competition

can

cross

national

boundaries

and

be subject to different regulations, jurisdic-

tions, customs,

and

precedents. Products

and

services can be created

or

disappear

via a few lines of

computer

code. Firms are more likely

today

to

market

and

sell

multiple

products

and

worry

about

their

joint profitability. They

may

partner

with

potential or actual competi-

tors to enter

new

global markets or for technical reasons. Sometimes

the products of a single seller will even

compete

with

each other. Sell-

ers

may

offer

products

in

both

fore-

and

aftermarkets to

have

control

over

the

interfaces

between

them

that

assure

they

operate

well

together. Such control

may

provide acompetitive

advantage

through

product

quality

(e.g.,

Apple's

control of

both

its

iPod

and

content

provider, iTunes,

and

the

smooth

functioning of their interface is an

important

competitive advantage).' The Internet

has

changed

the

way

sellers

market

and

increased the ability of

buyers

to influence

both

sellers

and

other

buyers. Buyers can easily

obtain

product

informa-

See Walter S. Mossberg, Microsoft's

Zune

Challenges iPod,

WALL

ST.

J.,

November 9, 2006, http://ptech.wsj.com/archive/ptech-20061109.html.