Question

The Supreme Court ruled that Eastman Kodak Company must stand trial in an antitrust suit that has important implications for the ability of manufacturers to control the markets for the parts and servicing of the products they make. Independent servicing companies that sell replacement parts and service for Kodak's line of sophisticated business machines contend that Kodak was trying to force them out of business by restricting their access to replacement parts and by trying to insure that customers for its business machines either service the machines themselves or buy service directly from Kodak. The service companies' lawsuit accused Kodak of two violations of the Sherman Antitrust Act: unlawfully tying the sales of service for Kodak machines to the sale of parts, and unlawfully trying to monopolize the market for service. Kodak controls nearly the entire market for its replacement parts -- which are not interchangeable with the parts for other manufacturers' machines -- and between 80 and 95-percent of the service market. But it has only about a 20-percent share of the overall market for the machines at issue in the case: high volume copiers and equipment used for microfilm and microfiche. There is significant competition in that market with Kodak having a smaller market share than IBM and Xerox. Kodak contended that it could not be found to be exercising monopoly power in the parts and service market in the absence of market power in sales and basic equipment. It asked the Court to adopt a rule that a parts and service business cannot be considered a monopoly as long as there is competition in the sales and manufacture of the machines. Kodak also asked the Court to rule that the market for a single brand of a product or service -- such as its own replacement parts -- can never be a "market" for assessing monopoly behavior under the Sherman Act. The company said its power in the parts market should be judged not by the fact that it controlled nearly 100-percent of the market for its own parts, but by the much smaller portion it controlled of the market for parts of all the competing machines. (New York Times, June 9, 1992, p. C1)

(a) Carefully explain in what "market" Kodak has a monopoly given that it does not have a significant share of the primary market in which it sells its basic equipment. If Kodak required purchasers of its equipment to agree to purchase Kodak servicing at the time the equipment was purchased, how would your monopoly argument be affected? Note that Kodak charges more for servicing than the independent servicing companies.

(b) Assuming that the basic equipment market is competitive, explain under what conditions Kodak's restrictive policy with respect to exclusive servicing would not be a monopolizing restraint. That is, would competition in the servicing of a durable producer good imply a jointly nonoptimal outcome for the buyer and manufacturer of the durable good?

Answer 1

Ans:

1. – As per case Kotak company having smaller market share then IBM and Xerox in machine equipment that is the primary market for company and secondary portion is service that machine equipment by company because of there is no major share in primary market taken by Kotak company so we can say that monopoly is not in primary market there is many option customer having and customer not bounded to take specific from Kotak company services that not indicate any feature of monopoly marker .

If Kotak required purchasers of its equipment to agree to purchase kotak services at time the equipment was purchase then ( kotak charges more then independent services company) by that act kotak creating services monopoly in secondary market that significant connected to primary market by bounded the customer at service area only taken by kotak company, if no choice given customer- if choice is given to customer there is to select services or not by equipment so there no monopoly created as previously explanation.

2. -At the secondary market of service if kotak not bounded the service and equipment parts manufacturing or delivery manufacturing parts to third party servicing company to provided service as it’s own then its come to not be a monopolizing restraint under law.

No, if competition in servicing of durable producer good the customer take better service then restricted one in market so that optimize to outcome to buyer and it’s also indicate the manufacturer for better durable good production consistently.