Bundled Discounts, Leverage Theory, and Downstream Competition

Under plausible circumstances, a monopolist in one market canuse its control of prices in that market to force competingdownstream buyers to sign tying contracts that will lever itsmonopoly into another market. Specifically, the monopolist ofthe tying good can place each downstream buyer in a prisoner'sdilemma by offering them more favorable pricing on the tyinggood if they sign a requirements-tying contract covering thetied good. Since a buyer benefits on receiving more favorablepricing on the tying good and the competitors do not, and suffersif the competitors receive more favorable pricing on the tyinggood and the buyer does not, buyers will sign the tying contracteven when they would earn higher profits if they all refusedto sign. This enables a monopolist in one market to inefficientlyexclude an entrant in another market.     

Justifying Imprisonment: On the Optimality of Excessively Costly Punishment

The criminal punishment literature has focused on justifyingnonmaximal punishments and the use of nonmonetary sanctions.It has not addressed why imprisonment, rather than cheaper formsof corporal punishment, should be the dominant type of nonmonetarysanctions. David Friedman (1999) recently hypothesized that,because convicts lack political influence, it is desirable tomake punishment costlier than necessary to prevent policy makersfrom excessively punishing convicts. This article explicitlymodels this hypothesis and uses simulations to determine underwhat circumstances this hypothesis justifies using imprisonmentrather than cheaper nonmonetary sanctions.     

Comment on "Aligning the Interests of Lawyers and Clients"

Polinsky and Rubinfeld (2003) propose a novel system for eliminatingthe conflict of interest between lawyers and clients over howhard the lawyer should work on a given case. In their analysisof the system, however, Polinsky and Rubinfeld implicitly assumethat the lawyer's marginal cost of effort is common knowledge.This comment shows that, when this assumption is relaxed, thoughtheir scheme does reduce the agency problem relative to thestandard contingency fee arrangement, it no longer eliminatesit.