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4 Sedona Conf. J. 21 (2003)
Predation against Dangerous Complements

handle is hein.journals/sedona4 and id is 27 raw text is: THE SEDONA CONFERENCE JOURNAL PREDATION AGAINST DANGEROUS COMPLEMENTS Kevin J. Arquit & Arman Y Oruc' Simpson Thacher 6 Bartlett LLP New York, NY I. INTRODuCTION Competition among firms is not confined to play out within the antitrust construct of a relevant product market. Firms often compete across multiple product lines that may be 'complements to one another. Similarly, competition within a relevant product market is often impacted by the dynamics in related product markets. For example, . decreasing prices through competition in one- product market may increase the demand for a complementary product by making the bundle of the two products cheaper. The law also recognizes supply-side efficiencies across complementary or functionally related products. Firms may achieve manufacturing, marketing or technical efficiencies by integrating their efforts in complementary product markets. Whereas the antitrust laws acknowledge the predicted effects of vertical integration or cross-elasticities of demand, it is virtually impossible to have a fixed rule of thumb on the impact innovation in one product market may have on the competition in complementary or unrelated product markets. Nevertheless, innovations in one market may have significant impacts in other markets. For example, advances in telecommunications and software technologies have made it considerably easier to operate a retail business on the Internet selling commodity goods, such as books or music recordings. Moreover, incumbents in a particular market may indeed be powerless to impede waves of technological improvements that drastically alter the cost structure in their industry and facilitate easier entry. Using the same example, a successful brick and mortar bookstore operator, even if it were a monopolist, likely would be incapable of restricting entry into the business of retail sale of books on the Internet. The odds 'of maintaining a monopoly are significantly higher, however, when the technological change that impacts the cost structure in a monopoly product market comes from a complementary product market that requires finctional interdependence with the monopoly product. Indeed, a monopolist can successfully eliminate the impact such technological change could have on its monopoly power by strategically entering related product markets and -engaging in predatory conduct in complement product markets. United States v. Microsoft Corp. presented just such an example. 253 F.3d 34 (D.C.Cir.), cert. denied 122 S. Ct. 350 (2001) (Microsoft III. Below' we outline the theory of predation reflected in controlling Supreme Court precedent and explain how Microsoft III is consistent with this authority. Microsoft imposed on competitors costs that they would not have faced but for the predatory J KrnJ. Arquit is a p art at Smpson, Thadicr & Bank-tt LLP A-sun Y. Ocuc is an, assocatre at the sarme fir,,, 2003 21

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