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| Title: | Vertical Leverage and the Sacrifice Principle: Why the Supreme Court Got
Trinko Wrong |
| Authors: | Economides, Nicholas |
| Issue Date: | 2005 |
| Series/Report no.: | EC-05-13 |
| Abstract: | Trinko, a local telecommunications services customer of AT&T, sued
Verizon for anti-competitively raising the costs of AT&T, Verizon's
rival in the market for local telecommunications services. Pursuant to
the rules of the Telecommunications Act of 1996, AT&T was leasing
parts of the local telecommunications network (unbundled network
elements, 'UNEs') from Verizon at 'cost plus reasonable profit' prices.
The Supreme Court held that Trinko's complaint failed to state a claim
under § 2 of the Sherman Act, and dismissed the complaint. I argue
that the Court drew incorrect inferences from its AsPen Skiing decision.
The Court also missed a key vertical leveraging issue in Trinko. The
opening of competition mandated by the Telecommunications Act of 1996
challenged Verizon's traditional monopoly in the local
telecommunications services market. By raising the cost and/or
decreasing the quality of the service of rivals in the retailing
services market, Verizon aimed to preserve that monopoly. As a result of
these efforts, rivals suffered a disadvantage. Yet Verizon also caused
retailing rivals to lease a lower number of unbundled network elements
and thus incurred a revenue sacrifice. Therefore the actions of Verizon
in raising the costs of retailing telecommunications services rivals are
an indication of. liability according to the 'sacrifice principle'
proposed in the Government's brief in Trinko, according to which a
defendant is liable if its conduct "involves a sacrifice of
short-term profits or goodwill that makes sense only insofar as it helps
the defendant maintain or obtain monopoly power," even though the
sacrifice principle defines a stringent condition for a finding of liability. |
| URI: | http://hdl.handle.net/2451/26106 |
| Appears in Collections: | Economics Working Papers
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