Georgetown Law Alumni Magazine - Res Ipsa Loquitur
Spring/Summer 2009 - Online Volume 1
Feature Articles
How the Chicago School Overshot the Mark
Robert Pitofsky and Steven C. Salop
Introduction: Setting the Stage
By Robert Pitofsky
The occasion for this book is a growing concern that antitrust, a system of regulation that for over a century has generally had wide professional and public support, is under attack. The recent trend appears to be toward more limited interpretation of doctrine (especially in the Supreme Court) and less aggressive federal enforcement.
A brief review of the essence of antitrust and the highs and lows of enforcement should help frame the important issues.
For most of our history, a free market and free trade have been central characteristics of the United States economy. These approaches have contributed to the efficient use of resources and the avoidance of predatory behavior by particular firms toward other businesses and consumers. Toward the end of the nineteenth century, however, people began to realize that absolute free market opportunities could be abused by giant corporations, and indirectly by the concentration of economic power, and that some limits on private sector behavior had to be established.
General suspicion of concentrated economic power led to the enactment of the Sherman Act in 1890 and the initiation of antitrust, a set of rules designed to outlaw the worst abuses by players in the private sector of the free market. The principal targets were improper exercise of monopoly power and agreements among rivals to set prices and divide markets. Over time, other forms of behavior that facilitated such abuses — mergers, distribution practices, boycotts — were incorporated into the antitrust system. Eventually basic concepts of a free market, regulated in some aspects by the government, migrated to other sectors of the economy — for example transportation and communication — and eventually to many other countries throughout the world.
Fashions in levels of enforcement have varied, including two time-outs to fight two world wars and a period of serious neglect in the 1920s. But in general, a free market approach protected by antitrust has served the country well — demonstrably better than the centralized control that produced unfortunate results in Stalinist Russia, Maoist China, North Korea and East Germany. In general, the system had wide popular support, even among people who may not have understood its arcane jargon, but knew, almost instinctively, that private interests, unchecked by some government-inspired rules, could serve the interests of corporate officers and shareholders but might abuse consumer welfare.
During the 1920s, most of the 1930s and during World War II, antitrust often appeared to be a “faded passion.” But after World War II things began to change. First, antitrust enforcers, backed by a Congress generally hostile to Big Business and an unusually liberal and indulgent Supreme Court, introduced the most aggressive enforcement program in the nation’s history — before or since. During the 1950s and 1960s, tiny mergers that could not seriously be viewed as challenges to a competitive market were consistently blocked, abbreviated (so-called per se) rules were introduced to outlaw behavior that rarely produced anticompetitive or anticonsumer effects and licensing practices were challenged, which were little more than efforts to engage in aggressive innovation. All of this was accompanied by an almost total disregard for business claims of efficiency.
The period of the 1950s and 1960s — often associated with the Warren Court — did not just result in unwise decisions that are almost impossible to defend today; more important, it offered an inviting target for conservative lawyers and scholars, subsidized by generous private sector grants to think tanks and universities, to demonstrate how much damage overenforcement of antitrust could do. Two brilliant academics, Richard Posner and Robert Bork, led a small army of academics in devastating criticism of the output of the Warren Court.
During the same period, a more subtle and in the long run more influential trend was developing. Antitrust had been fueled by a general popular mistrust of Big Business and a desire to divide, diffuse and control economic power for political reasons. But now a band of economists and economically trained lawyers and academics began to challenge that premise. Their approach was to examine business behavior from a purely economic point of view and to exclude from consideration any political or social values — for example, protection of small business for the sake of the social values inherent in smallness — and place their faith in an automatic beneficial free market system. Considerations of noneconomic factors — for example, concern that a wave of mergers among TV outlets or book publishers might have adverse effects on opportunities for free speech — were dismissed as vague and therefore irrelevant.
Those concerned about the excesses of the Warren Court and in favor of the ascendance of economics were handed an enormous political boost when President Ronald Reagan announced that “government was the problem and not the solution.” It is unlikely President Reagan had antitrust in mind, but aggressive antitrust enforcement fell squarely in the crosshairs of that approach, with the result that in the 1980s, antitrust enforcement virtually disappeared. There was a continuation of challenges to cartels and very large mergers during the decade, but virtually all the rest of antitrust — challenges to vertical mergers, boycotts, all distribution practices, price discrimination and so forth — disappeared. There was, in effect, a return to the period of neglect of the 1920s.
Post-Reagan, there occurred a decade or so — the Clinton years and the first term of President George W. Bush — when there was an effort to find a middle ground between overenforcement of the 1960s and underenforcement of the 1980s, but that came to an end with appointments during President Bush’s second term of some agency enforcement officials, lower court judges and, most important, the confirmation of two conservative justices to the Supreme Court, who produced a working majority for the skeptical view that antitrust really did more harm than good.
All of this history brings us to the occasion for this book.
Contributors to this collection of essays are Republicans and Democrats, lawyers and scholars left of center and right of center, one-time enforcers, and private sector representatives. But virtually all share the view that U.S. antitrust enforcement, as a result of conservative economic analysis, is better today than it was during the Warren years — more rigorous, more reasonable, more sophisticated in terms of economics. But virtually all also confess to a sense of unease about the direction of antitrust interpretation and enforcement. Specific concerns include current preferences for economic models over facts, the tendency to assume that the free market mechanisms will cure all market imperfections, the belief that only efficiency matters, outright mistakes in matters of doctrine, but most of all, lack of support for rigorous enforcement and willingness of enforcers to approve questionable transactions if there is even a whiff of a defense. Like the indulgent Warren Court of the 1960s, which found the government was right every time, the current Supreme Court majority, often on the basis of what is called “Modern Economic Analysis,” finds a way of insuring that the pro-antitrust position always loses.
Why should we care? Contrary to what some believe, antitrust is not only or primarily a system to insure that business rivals do not behave unfairly or in a predatory manner toward other businesses. It is rather a “consumer welfare” system of laws. If businesses grow in unfair ways to be too dominant in their sectors of the market, rivals conspire to raise prices or divide markets, use patents and other forms of intellectual property to fence out rivals in unreasonable ways, merge to monopoly or dominant positions, or engage in the scores of other practices that traditionally have been regarded on balance as anticompetitive, and are protected by less than vigorous enforcement, prices will be higher, quality of products lower, and innovation diminished.
Because extreme interpretations and misinterpretations of conservative economic theory (and constant disregard of facts) have come to dominate antitrust, there is reason to believe that the United States is headed in a profoundly wrong direction. This collection of essays is designed to examine and analyze these issues.
