This review looks at the antitrust volume, edited by Boston University law professor Keith Hylton. The volume is an unusual, and positive, contribution to the antitrust literature. Separate articles, each by different authors, provide a survey of basic topics in antitrust. Thus, we have a shorter, multi-author alternative to the long-extant antitrust textbooks.
For example, the chapters cover most of the same topics covered in Herbert Hovenkamp’s 2005 one-volume Federal Antitrust Policy: The Law of Competition and Its Practice (one of several different antitrust texts of which Hovenkamp is an author). That book has 841 pages, as compared to Hylton’s 298. (On the other hand, Hovenkamp costs $85 new on Amazon.com, while Hylton costs $172.) Clearly, the Elgar volume seeks to provide terse treatments from varied sources. Thus, those readers unwilling to wade through a massive text and those looking for alternative views will benefit most from this offering.
The volume’s contributors differ greatly in outlook, ranging from noted skeptics about much of antitrust to Jonathan Baker, an advocate of continued strong enforcement. With the exception of Baker — a believer in University of Chicago overreach — and Michael Meurer, the tone is post-post-Chicago: contributors generally reject efforts to undermine University of Chicago–generated criticisms on much of antitrust.
A look inside | Daniel Crane’s opening chapter tersely navigates the morass that is antitrust enforcement. Initiative is divided among two federal agencies, the 50 states, and aggrieved private parties. Civil and criminal charges are possible.
Crane raises a theme that pervades the book. In a classic 1984 Texas Law Review article on antitrust, Frank Easterbrook presented the proposition that incorrect guilty verdicts were more problematic than incorrect acquittals; market forces can counteract the inefficiencies that were upheld, but erroneous court successes are irreversible. Crane also endorses the principle that economic efficiency is the proper goal of antitrust. In turning to the specifics, he does well at balancing views on the many problems of divided authority. Predictably, the most extensively treated issue is the nature and control of private initiatives.
Six of the remaining chapters cover different concepts of supposedly undesirable antitrust practices. Overall, the writers conclude that the last three decades have produced a desirable skepticism in the courts about the dangers those practices pose. The difficulty of determining how, if at all, those tactics differ is left tacit.
In his chapter, William Page treats deciding whether industry practices illegally facilitate monopolization. As Page somewhat opaquely indicates, the problem is distinguishing efforts to collude on price from beneficial behavior. He correctly considers the prevailing state of law unsatisfactory because it does not clearly articulate how to evaluate practices. Improper practices involve agreeing to and complying with adoption of techniques such as forbidding discounts. Page feels that the law should more clearly require that communications among firms produce the practices.
Jeffrey Harrison covers the related topic of boycotts. His stress is on rules of organizations such as sports leagues and trade associations. However, examples are made of dealings between a single seller and its buyers and a buyer with its supplier. Again, the problem arises of correctly assessing the effects.
Roger Blair and Celeste Carruthers present the first of two chapters dealing with defining and identifying monopoly. The bulk of the discussion treats the relevant economics. This includes the economics of perfect competition, pure monopoly, and a dominant firm with a fringe of competitors, as well as the classic 1934 index of monopoly power devised by Abba Lerner. They conclude with a sketch of the considerations that courts use in antitrust cases, such as market definition, market shares, and ease of entry. The biggest problems with the chapter are its terseness and relegation of mention of the key literature to the notes and references.
Hylton extends the analysis with a review of the history of how courts treated the issue. He reports various appraisals of these practices, presents and appraises formulas that embody proposed approaches, and then presents an integrated review of these principles. He argues that the Supreme Court in the 1911 Standard Oil decision introduced the principle that illegality arose only if the acquisition of monopoly was intentional, but the court’s 1945 Alcoa decision lessened that requirement, though the court would restore it in later cases. He distinguishes several criteria for determining monopolization that subdivide between those stressing effects and those focusing on whether the intent was to limit competition. He ends up saying the choice among them depends on the type of case involved.
Predation | Bruce Kobayashi ably and thoroughly reviews the curious literature on predation and its legal impact. He appropriately divides his literature review into two parts.
The first part treats the enormous theoretic and empirical literature inspired by John McGee’s 1958 article in the Journal of Law and Economics rethinking the theory and facts of Standard Oil. McGee argued economic theory suggested predation was not a viable technique and Standard Oil did not engage in the tactic. An enormous literature ensued arguing that circumstances arose in theory in which predation worked and further examining the empirical evidence. Kobayashi correctly observes that the new theories on predation have two severe drawbacks: First, while predation as formerly defined was always inefficient, successful use of these new concepts of aggressive competition might or might not be inefficient. Secondly, the information needed to evaluate these practices exceeds what is practically available in antitrust litigation. The empirical work is a mixed bag, with some papers extending McGee’s conclusions to other cases, other papers refuting McGee, and still others finding no predation.
The second part of Kobayashi’s chapter concerns a 1975 Harvard Law Review article by Phillip Areeda and Donald Turner (the latter of whom served as the assistant attorney general for antitrust). Areeda and Tuner started with the basic point that the economic criterion of predation is selling below marginal cost, to which they argue that, given the difficulty of measuring marginal costs, average variable costs should be used instead. Many other observers, mostly academic economists, tried with questionable success to improve on this suggestion by Areeda and Turner. Kobayashi notes that in two critical cases on predation — one involving a charge against Japanese television manufacturers by their American rivals and the other involving discounts given by a producer of private-brand cigarettes — the Supreme Court adopted the case for skepticism about predation. Kobayashi shows that this skepticism should be extended to other practices, such as aggressive bidding for resources. (Disappointingly, he fails to discuss the true defect of Areeda and Turner, which is that when their unrealistic assumption that a firm produces only one product is dropped, the average cost of any product is a nonsense concept.)
Thomas Cotter grapples with the essential-facilities concept. He notes the wide disagreement about whether this idea has content. He observes that the cases are few and ambiguous and cover various problems in purchasing an essential commodity. Cotter nicely reports the ambiguities of the legal precedents and the literature expressing skepticism about the reality of the problem and the ability of courts to intervene sensibly. His literature citations are thin, unfortunately; in particular, the writing on the morass that is local-network access in telecommunication is neglected.
Alden Abbott and Joshua Wright nicely show why in neither theory nor practice is tying and exclusive dealing likely to be anticompetitive. In contrast, Shubha Ghosh advocates an approach to restraints that suppliers place on retailers that recognizes both the quality assurance benefits and the possibility of undermining price competition.
Return of antitrust? | Jonathan Baker’s contribution is effectively a last-ditch post-Chicago effort to rekindle classic antitrust ideas. Its essence is that increasing market shares among already-large firms makes cooperative behavior among firms more likely. This is virtually tautological and Baker’s way of making the case is unsatisfactory. He trots out a standard game theory model of long-term competition that indicates the likelihood of cooperation rather than defection increases with higher market shares. Baker dutifully notes that other influences matter, but does not deign to cite, let alone to discuss, classic criticisms of market-share arguments by such writers as Harold Demsetz, John McGee, and William Landes and Richard Posner.
Baker’s choice to condemn a decision not to challenge the Whirlpool–Maytag merger is one I attacked in a review of a contribution Baker coauthored to an earlier anthology. Here he worsens his argument by claiming that Whirlpool and Maytag focus on a unique market, low-end top-loading washers, while foreign competitors concentrate on high-end front-loaders. After double-checking that my Maytag washing machine is front-loading, I visited the Internet sites of two leading chain stores that sell top-loading washing machines and found that General Electric remains in the market, at least four foreign-owned companies participate, and the price ranges overlap.
Michael Meurer’s effort to cover intellectual property is the book’s outlier: where all of the other papers are useful discussions of real-world antitrust issues, Meurer’s treats what seems to be a purely hypothetical problem. He chooses to develop an abstract model of optimum regulation under the assumption that the inventor, the assumed single rival, and the government all know the odds of success at invention. Reference to practice is sketchy. While this might be a good article for one of the many journals devoted to abstract economics, its practical relevance is not discussed and seems nonexistent.
Final thoughts | The book largely supports the view that misuse of antitrust has prevailed but can be overcome. The treatment is readable, but readers will differ on whether a short anthology is an improvement on the extensive literature covering the area.
