‘Market Power in Antitrust: Economic Analysis After Kodak,’ by Benjamin Klein

Key Takeaways

• Kodak’s aftermarket tie‑in reflects price discrimination, not monopoly power
• Hold‑up describes surplus redistribution, not output restriction
• Individual pricing discretion is common and benign in competitive markets
• Courts must assess market power at contract formation, not during exploitation
• Epic v. Apple adopts Klein’s lock‑in test, focusing on ex‑ante buyer knowledge

Pulse Analysis

The Supreme Court’s Kodak ruling introduced a powerful framework for evaluating single‑brand aftermarkets, emphasizing switching costs, lock‑in, and information asymmetries. Yet Benjamin Klein’s seminal 1993 critique reveals a critical misstep: the Court treated the presence of hold‑up—a legitimate economic phenomenon—as evidence of antitrust market power. Hold‑up, which arises when a buyer’s investment creates bargaining leverage for the seller, merely reallocates surplus; it does not inherently restrict output or raise market‑wide prices. Klein’s insight forces scholars and practitioners to separate the economics of contract enforcement from the legal definition of monopoly power, a nuance that has profound implications for antitrust litigation.

Klein further argues that Kodak’s strategy was better explained by sophisticated price discrimination rather than by an attempt to dominate the aftermarket. By bundling service with parts and carving out a self‑service segment, Kodak could extract higher rents from customers who valued bundled accountability while avoiding distortion of the parts‑labor margin. This “metering” approach mirrors the Director‑Levi model of efficient tying, where firms use bundles to segment markets without necessarily leveraging fore‑market dominance. Recognizing this distinction helps courts avoid over‑penalizing ordinary competitive behavior and focuses enforcement on conduct that truly suppresses competition across the broader market.

The practical fallout of Klein’s analysis is evident in recent cases such as Epic Games v. Apple, where the Ninth Circuit adopted a four‑part test that mirrors Kodak’s lock‑in factors but insists on ex‑ante buyer awareness. By anchoring the inquiry to the point of contract formation, courts can better differentiate legitimate hold‑up from unlawful market power. Klein’s work thus serves as a roadmap for aligning economic theory with the appropriate legal question, ensuring that antitrust doctrine remains both analytically sound and practically enforceable.