Parallel Exclusion

By Hemphill, C. Scott; Wu, Tim | The Yale Law Journal, March 2013 | Go to article overview

Parallel Exclusion


Hemphill, C. Scott, Wu, Tim, The Yale Law Journal


2. The Superior Stability of Parallel Exclusion

To this point, we have identified a similar tendency toward defection in parallel pricing and parallel exclusion. We now suggest reasons that exclusion schemes may be less likely to collapse.

Two important challenges for achieving coordination are identifying the coordination point and observing compliance. (174) Both are easier for parallel exclusion than for parallel pricing.

Identifying the coordination point in oligopolistic price elevation is complex. At its simplest, there is a continuum of prices that could be chosen, and the parties have to find some way, often through communication, to choose one of them. Moreover, that optimal price will change as supply or demand conditions change, requiring the parties, who may vary in their perceptions of what if anything has changed, to select a new elevated price. If the product is differentiated, there may be many different prices that must be coordinated. Figuring out how to allocate the gains from price elevation makes the problem even more complex, (175) because direct payments between the firms are obviously disfavored, and alternative mechanisms-taking turns in supplying a customer, or agreeing on the quantity to be sold by each producer-are likely to require forbidden communication. These allocations will also require rebalancing if supply or demand conditions change, or if the parties miscalculate. The need to rebalance increases the fragility of the arrangement.

By contrast, the implementation of parallel exclusion is often simpler. (176) In theory, the action is often binary: each firm either deals or refuses to deal with a new entrant; or either engages or does not engage in tying or exclusive dealing. For example, in Allied Tube, whether a steel manufacturer had voted to exclude plastic pipes from the Code was clear, as the vote was conducted by open ballot. Without a continuum, there is little need for delicate calibration. Moreover, changes in economic conditions are less likely to change the optimal selection. Gains are difficult to reallocate with such a blunt instrument, providing an incentive to stick with the initial allocation. As a result, readjustments in the sharing rule are also unnecessary.

Here, the comparison to predatory pricing conducted by oligopolists is instructive. In Brooke Group, a major predatory pricing case, the Court discussed the significant barriers to successful coordination. The "anticompetitive minuet" that the Court thought was so "difficult to compose and to perform" in the context of oligopolistic predatory pricing (177) is much simpler in the realm of parallel exclusion.

With price-fixing, observing compliance with the elevated price level is difficult. Rivals may secretly extend price cuts to particular customers. This is particularly true for differentiated products, for which comparisons are more difficult. It is also true when demand or supply conditions are uncertain, in which case it is unclear whether an unexpected drop in profits is attributable to a rival's secret price cut or instead to a change in conditions. With parallel exclusion, observing compliance is much easier. It is hard to secretly cut a deal with an innovative entrant or drop out of an industry-wide exclusive dealing arrangement unnoticed.

Beyond these two advantages, there is a third factor, which is that the permanence of the change resulting from accommodation makes parallel exclusion easier to sustain as compared to parallel pricing. Price cuts are reversible. Firms engage in price wars and then stop, raising their price to the old levels. Where the consequences of defection are temporary, firms are tempted to defect. (178) For parallel exclusion, permitting entry is comparatively permanent and thus severe. Once a firm allows an innovative new entrant, the market structure changes permanently. Consumers become used to and come to rely on the new arrangement. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Parallel Exclusion
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.