Abstract
This chapter surveys the range of objectives ascribed to US antitrust policy from its formative period through the early 1970s. Martin discusses and rejects Robert Bork’s analysis of the legislative intent behind the Sherman Act and considers the Kaldor-Hicks potential Pareto improvement principle, a central element of Bork’s argument. An elementary model shows that social preferences about aspects of market performance not captured by consumer surplus or net social welfare can be included in standard economic models. He further argues that the role of economics as a science in analyzing market performance is limited to characterizing the costs and benefits of pursuing alternative policy objectives and that economics as a science is agnostic concerning what policy goals should be.
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Notes
- 1.
Here and throughout the chapter I use the word “monopoly” in the antitrust sense of having the power “to raise price and exclude competition” (American Tobacco Co. et al. v. U.S. 328 U.S. 781 (1946), at 811), not in the economic sense of “a single firm supplying a market into which entry is costly (limited monopoly) or impossible (complete monopoly)”.
- 2.
For present purposes, we can define “competition on the merits” as profitable firm conduct that does not involve agreements with other firms (so it does not violate Section 1 of the Sherman Act) and does not depend for its profitability on denying actual or potential rivals the opportunity to compete (so it does not violate Section 2 of the Sherman Act).
- 3.
Brown Shoe Co. v. U.S. 370 U.S. 294 (1962) at 313.
- 4.
“Economic approach” is a misnomer. Hovenkamp (1985, p. 218) notes that US antitrust policy from the 1950s to the mid-1970s was fully informed by contemporary mainstream economics.
- 5.
As Arrow (1969, fn. 1) explains, “An allocation of resources through the workings of the economic system is said to be Pareto efficient if there is no other allocation which would make every individual in the economy better off”. He later remarks that (1969, pp. 49–50) “Of course, as Pareto already emphasized, the proposition provides no basis for accepting the results of the market in the absence of accepted levels of income equality”.
- 6.
Williamson (1968) famously makes this point in a partial-equilibrium framework.
- 7.
Chandler (1977) emphasizes three factors that combined to support enduring positions of market leadership by large firms: economies of continuous operation, as in distilling, flour milling, oil refining, sugar, and steel; backward and forward vertical integration; and effective management. See also Lamoreaux (1985).
- 8.
The boundaries between these disciplines were less distinct than is now the case.
- 9.
On business sector intervention in this broad public debate, see Destler (1953).
- 10.
See U.S. Library of Congress (1907) for a bibliography of publications on the trust issue.
- 11.
In the 1911 Standard Oil decision (221 U.S. 1, at 83–84), Justice Harlan portrayed the rise of trusts as threatening a kind of economic slavery.
- 12.
- 13.
- 14.
Clark (1900, p. 407, two paragraphs in the original): “[I]t is potential competition, that is, the power that holds trusts in check. The competition that is now latent, but is ready to spring into activity if very high prices are exacted, is even now efficient in preventing high prices. It is to be the permanent policy of wise and successful peoples to utilize this natural economic force for all that it is worth. At present, it is not an adequate regulator. The potential competitor encounters unnecessary obstacles when he tries to become an active competitor”.
- 15.
Tradition, idiosyncratically, exempts organized baseball from antitrust rules.
- 16.
Crane (2015) points out that these objectives were all manifest during debates on the Sherman Act and the Clayton/FTC Acts. I am indebted to Nicola Giocoli for this reference.
- 17.
See Fox (1981, fn. 72) for references.
- 18.
For a contrary view, see Peckham (1983).
- 19.
This interpretation closely tracks a well-known portion of Senate debate before passage of the Sherman Act, in which Senator Kenna asked if Section 2 would condemn a firm that had a monopoly because it was able to undersell all rivals, and Senator Edmunds replied that Section 2 would not apply to such a case (21 Cong. Rec. 3151).
- 20.
Judge Hand’s opinion was later endorsed by the Supreme Court (American Tobacco Co. et al. v. U.S. 328 at U.S. 781 (1946) at 812–815).
- 21.
See 21 Cong. Rec. 2460.
- 22.
Alcoa charged the Aluminum Company of America with monopolization in violation of the Sherman Act. The Surplus Property Act of 1944 set conditions for the federal government to dispose of aluminum plants it had constructed as part of the war effort.
- 23.
Senator Kefauver, 96 Cong. Rec. 16452, 1950.
- 24.
Curiously, speakers in congressional debate before passage of the Celler-Kefauver Act explicitly referred to the amendment as a device to avoid collectivism. See Bok (1960, fn. 51) for references.
- 25.
Fetter (1932) published a statement of support signed by 127 economists that saw the antitrust laws as an alternative to more invasive approaches, “preserving the policy of free markets for industrial products whereby individual and small corporate enterprise may be assured unhindered opportunity to demonstrate through efficiency, service and low prices to the public, its right to survival in business” and opposing “widening and extension of the realm of public price fixing in industry and commerce [which] must impose an impossible burden upon governmental agencies of control and irreparable injury to the political and social, as well as economic, interests of the whole people”. Seven of the signatories (Paul H. Douglas, S.E. Leland, H.A. Millis, S.H. Nerlove, Henry Schultz, Jacob Viner, and Chester W. Wright) were affiliated with the University of Chicago.
- 26.
- 27.
The same position was taken by the German Ordoliberal School.
- 28.
In a lecture that was probably delivered in 1954, Hicks expressed the view that he and Kaldor “had gopne wrong” in 1939. See Kanari (2006).
- 29.
“Lump sum” means that taxes are levied and subsidies granted in ways that do not alter individual behavior other than through the implied change in income. As a practical matter, it is impossible to implement lump-sum transfers.
- 30.
Winch comments on welfare measurement using the compensating variation, an alternative to consumer surplus due to Hicks.
- 31.
See similarly Slesnick (1998).
- 32.
In (10.3), b = a∕N.
- 33.
m is the inverse of the Herfindahl index, perhaps the most common measure of supply-side concentration.
- 34.
This is not essential for the results that follow. It is straightforward to modify the model so some individuals’ preferences do not involve market structure, or to allow the preference parameter β to differ across individuals. An Appendix giving details is available on request from the author.
- 35.
A consistency condition is that the discriminant on the right be nonnegative. This implies an upper bound on μ, \( \mu \le \frac{{\left(a-c\right)}^2}{4 bF} \).
- 36.
It may be that the comparison between long-run Cournot equilibrium and minimum number of firms equilibrium is not the relevant comparison. It might be that with mLR firms, tacit collusion is an equilibrium, either in a repeated game or as in Selten’s (1973) static collusion model. If a deconcentration policy destabilizes tacit collusion, it can increase welfare even if the population is indifferent toward market structure. See footnote 38.
- 37.
If tacit collusion on monopoly output is sustainable with four firms, consumer surplus (per period) is 12,500,000. If tacit collusion on monopoly output is not sustainable with six firms, a minimum-number-of-firms policy improves market performance even if there are no preferences about market structure.
- 38.
I borrow the term from Posner (1979).
- 39.
See similarly Arrow (1974, p. 17): “Rationality, after all, has to do with means and ends and their relation. It does not specify what the ends are”.
- 40.
There is more than circumstantial evidence that parts of the judiciary have not grasped the meaning Bork gives to the phrase “consumer welfare”. Ginsburg (2014, p. 945) hails the Supreme Court’s Reiter v. Sonotone decision for its embrace of the consumer welfare standard. Yet, in that decision, the court views the antitrust treble damage provision as (442 U.S. 330 at 343) “a means of protecting consumers from overcharges resulting from price fixing”, which is a remark about the welfare of purchasers. In Jefferson Parish Hospital, the Supreme Court refers to increased monopoly profit due to price discrimination as a social cost of market power (466 U.S. 2 (1984) at 14–15). But under Bork’s net surplus standard, price discrimination which tends to increase output improves market performance (Bork 1978, pp. 394–398); increased monopoly profit is merely a transfer from purchasers to the producer.
- 41.
See Ginsburg (2014, fn. 50) for citations to lower-court opinions that admit the possibility of a range of goals for the antitrust laws.
- 42.
The divergence between antitrust economics and the retreat of antitrust that is justified in the name of antitrust economics has itself become a topic of scholarly research. Among the factors that Giocoli (2015) identifies as possible explanations for the enduring charm that Chicago antitrust economics holds for the judiciary are ideology, ease of administrability, and an awkward fit between courts’ requirements for scientific rigor and the approach of modern industrial economics to tailor theoretical and empirical models to specific markets. As noted earlier, the late-1940s shift from the First Chicago School to the Second Chicago School was motivated in part, and perhaps a large part, by antipathy toward “collectivism”. Ideology certainly has had some role in the Second Chicago School. (The accounts of Manne (2005) and Priest (2005) of the early development of law and economics are instructive in this regard.) Links to the judiciary may have been forged by law and economics “summer camps” for judges, the sources of funding for which had libertarian leanings (Meyer 2016). Certainly a world-view that treats most markets as competitive, most of the time, will support easily administrable interpretations of the antitrust laws. This leads to the kind of policy that Simons (1936, p. 72) called an “open season on consumers”. But it is easy to administer. It is true that modern industrial economics is largely a library of industry-specific models. If it is the generality of Second Chicago School antitrust economics that explains its allure for US courts, then it becomes difficult to explain the disenchantment of those courts with the Structure-Conduct-Performance framework, which itself offered a general framework. There are also instances in which private plaintiffs have suffered in US courts because they did not provide sufficiently specific evidence; see Virgin Atlantic v. British Airways plc 69 F. Supp. 2d 571 (1999).
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Acknowledgements
I thank the University of Bologna for its hospitality during the sabbatical visit when this chapter was written. I am grateful for comments received during seminar presentations at the University of Bologna, at the 14th annual meeting of the Italian Association for the History of Economic Thought, “Power in the History of Economic Thought”, at the University of Salento, at the Centre for Competition Policy, University of East Anglia, from Nicola Giocoli and Herbert Hovenkamp. Responsibility for errors is my own.
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Martin, S. (2018). Dispersion of Power as an Economic Goal of Antitrust Policy. In: Mosca, M. (eds) Power in Economic Thought. Palgrave Studies in the History of Economic Thought. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-94039-7_10
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