Insistence – Redefining How We Think Of Antitrust

Summary

"Consumer insistence" was a term first coined by Melvin Copeland in his article, "Relation of Consumers' Buying Habits to Marketing Methods" in the Harvard Business Review in 1923.1 In the article, Copeland describes consumer insistence as an extreme form of brand loyalty and demand manifestation such that when a "consumer approaches the purchase of an article in this attitude of mind, he accepts no substitute unless it is an emergency."2

The importance here is that insistence limits consumer switching because consumers vehemently insist on certain brands. Such brand owners have significant market power3 because of the unlikelihood that these brand owners will lose customers to competing brands. In such cases, this market power can lead the brand owners (or their distributors) to restrain trade and raise prices well above competitive levels.4 Therefore, the implications of insistence are far-reaching in terms of the economics and how we think about antitrust matters.5

Case Law

The term "insistence" has been cited in case law involving antitrust allegations. We observe the term in Borger v. Yamaha International, a refusal to deal case from 1980 whereby Yamaha was noted as "a specialty brand that had achieved a significant level of brand insistence among consumers."6 Among other allegations, Borger's - a retailer selling audio equipment who was not afforded a franchise contract to distribute Yamaha's merchandise - alleged violations of the Sherman Act, including group boycott and conspiracy to fix prices on Yamaha audio equipment.7 Borger's argued that its loss of the Yamaha line could not be offset by the sale of other brands due to consumers' insistence on access to Yamaha products.8 Ultimately, Yamaha prevailed on appeal to the U.S. Court of Appeals for the Second Circuit because a lower court issued improper instructions to jurors with regard to market definition.9 Still, it is noteworthy that Yamaha's brand insistence was a pivotal factor linked to the antitrust allegations in this case.10

More recently (and prominently), the term "insistence" has been emphasized in the US Department of Justice's case against American Express (with the term appearing in American Express's documents describing its customer base and throughout the case filings).11 The DOJ's case pertained to nondiscrimination provisions ("NDPs") required in American Express's contracts with merchants that prevented merchants from promoting competing credit cards over American Express (even if those cards presented better value to the merchant). Merchants could not steer consumers to lower cost payment methods, resulting in higher prices to both merchants and consumers.12 Because of the insistence expressed by American Express cardholders, American Express was found to have market power whereby merchants could not afford to drop American Express as a method of payment.13 The court ultimately ruled in favor of the DOJ, determining that American Express's NDPs impeded competition in the market for general purpose credit cards.14 Brand insistence, which wed consumers to their American Express cards, was a critical issue in deciding the case.

In a recent dispute between two pharmaceutical companies (Eisai and Sanofi/Aventis),15 Eisai cited the aforementioned Amex Decision alleging that the provisions in "[S]anofi's Formulary Access Clauses . . . prevented hospitals from placing rival products ahead of Lovenox [Sanofi's injectable anticoagulant product] on their formularies regardless of price,"16 noting that American Express' contracts with merchants similarly prohibited merchants from promoting other payment cards over American Express.17 Eisai argues that the "incontestable demand"18 for Lovenox due to formulary clauses is akin to the "insistence that prevents most merchants from dropping acceptance of American Express when faced with price increases or similar conduct."19 How one measures "incontestable demand" is debatable (and the Court has found thus far that Eisai could not establish that its allegedly depressed market share was attributable to anticompetitive conduct by Sanofi), but regardless the market power of Lovenox (perhaps, as Eisai alleges, akin to insistence) is a pivotal point in this case.20

Economics

Insistence can be thought of as extreme brand loyalty. This loyalty manifests as "a deeply held commitment to rebuy or repatronize a preferred product/service consistently in the future, thereby causing repetitive samebrand or same brand-set purchasing, despite situational influences and marketing efforts having the potential to...