EI Senior Economist Su Sun publishes an article entitled “The Protected Profits Benchmark: Precision Versus Administrability” in the Antitrust Law Journal.

In a previous article published on the Antitrust Law Journal, Professor Steve Salop proposed the Protected Profit Benchmark (PPB) as a screen for evaluating price squeeze and refusal to deal claims against a vertically integrated firm (VIF).  An important shortcoming of the PPB is its lack of administrability because the diversion ratio has to be estimated.  In his comment, Dr. Sun proposes the Efficient Component Pricing Rule (ECPR) be used as an alternative screen, which is based on information readily available to the VIF.  He argues that the ECPR is a good approximation of the VIF’s profit maximizing input price, and it is easy for the VIF to comply with and for the court to use in adjudicating such cases.  Read Full Article.