United States versus United Shoe Machinery Corporation: On the Merits

Two developments have stimulated renewed interest in the merits of US v. United Shoe Machinery Corp. (1953), perhaps the most famous antitrust case. The first is the realization that the duration of United's leases was inconsistent with the durable-goods-monopoly argument. Whereas short-term leasing facilitates monopoly pricing of durable goods by curbing the monopolist's temptation to cut prices to successive customers, United's leases were originally 17 years in duration. Second, new theoretical models have overcome the logical hurdle to exclusionary claims by demonstrating that exclusion may indeed be profitable despite the need to compensate customers or suppliers for the resulting loss of competition. A tenable efficiency defense of United's practices against the charge of anticompetitive exclusion is developed. It is argued that leasing served as an alternative to contractual warranties for assuring the quality of machines and as a way to foster the provision of a range of manufacturer services and information in support of the productive use of that equipment.