Rethinking Antitrust in the Presence of Transaction Costs: Coasian Implications

This article analyzes how transaction costs influence the ability to charge nonlinear prices and how market structure and industry behavior affect those transaction costs. The failure to recognize that nonlinear pricing produces a different equilibrium than linear pricing together with a recognition that the pricing mechanism can be altered by conduct under antitrust review explains why the usual antitrust analysis can be misleading. The paper illustrates its points using merger simulations with nonlinear pricing. Finally, the paper analyzes how to identify situations where market power might arise and applies the analysis to exclusive dealing, credit cards and FRAND royalties.