Goals, Origin & Framework 1+2
Reasons for Antitrust (AT)
· Efficient allocation of existing resources (enough output to satisfy all demand of consumers who value product above cost of producing) – Chicago School (often maps onto consumer welfare, but not always)
· Fostering innovation and technological progress
· Dynamic efficiencies – Post-Chicago, neoclassical price theory too simple + efficiency may not be sole goal of AT
· Decentralizes & disperses power
· Income distribution effects – avoid wealth transfers to participants with market power
· Impersonal nature of market removes political element, personal control of players
· Freedom of opportunity of individuals to enter and compete by talent/skill or ability to raise capital
· Autonomy, freedom of K
· Populism – increases public confidence in fairness & equity of allocation but at tension w/ economic reasons b/c tradition favors small business
· Reduce incentive for government corruption
Role of Competition & Alternatives to Competitive Market
· AT preserves competition in a free market by decentralizing/dispersing power, keeping interactions impersonal, and providing individuals freedom of opportunity. Scherer & Ross, Industrial Market Structure & Economic Performance (1990)
· Goals fall into one of 4 categories: (1) consumer welfare; (2) fostering innovation; (3) fairness & Equity; and (4) maintaining decentralized economic power. Sullivan & Grimes, The Law of AT: An Integrated Handbook (2000).
1. Efficient allocation of society’s available goods and services. Cost of monopoly includes loss to consumers that would have purchased monopolized product at competitive price but switched to less desired substitute b/c of monopoly price. So, the monopolist’s output is limited and fewer desired goods/services distributed, aka deadweight loss. Monopolist finds those who continue to buy a monopoly price lucrative business, aka wealth transfer loss. Wealth transfer loss > Deadweight loss. Thus, 2d universal AT goal = avoid wealth transfer by sellers who use their market power to transfer wealth from consumers to themselves at levels above those possible under competitive conditions. All theorists recognize that avoiding/reducing deadweight loss caused by monopoly is a proper AT policy goal. Note: Chicago theorists dispute whether wealth transfer is a legitimate concern and suggest that it be better addressed via tax policy, etc. Dominant view, one attuned to original goals of Sherman Act, is that AT laws properly aim to avoid both deadweight and wealth transfer losses.
2. Another widely accepted goal of AT policy is to promote innovation or dynamic efficiency of economy. Where allocative efficiency refers to producing & distributing more efficiently through use of existing technology, dynamic efficiency refers to improvements in technology, i.e., improving it, producing it more efficiently, or perhaps replacing it with outperforming new product. Economists believe society benefits more from this kind of efficiency than allocative. Any market that rewards those who bring such products is fostering innovation. Thus, a diverse market with multiple players competing to be first to introduce meaningful innovation should increase pace of innovation. Cf. monopoly which seeks to suppress competition and no incentive to innovate.
3. Another goal of framers = to protect the right of any person to enter & pursue a line of work/business. However, there is disagreement among experts since competition is a dispassionate mechanism that will cause many business failures. The Act protects competition, not competitors. See Brown Shoe Co. v. US, 370 US 294, 344 (1962). Although displaced competitor can’t claim displacement as grounds for AT relief, evidence of allocative or wealth transfer injury may weigh in favor of finding an AT violation.
4. Finally, the populist goal of preventing the growth of big business motivated supporters of the Sherman Act and as allocative efficiency became a dominant goal, the goal of maintaining a decentralized economy lost force. Internationalization of markets reinforced this change, so that as US firms lost ground to foreign companies, efficiency/specializat
forcement, is fluidity in meaning and application AND uncertainty about its effects.
2. AT deals with the economic phenomena of monopoly (includes collusion btw competing firms aimed at jacking up market price above competitive level) and practices that create a danger of monopoly.
3. Economic theory provides basis for belief that monopoly pricing is presumptively inefficient. Since efficiency has important social value, this conclusion establishes pf case for having AT policy. However, limitations to policy is implied: if efficiency is goal of AT enforcement, then no justification for carrying enforcement into areas where competition less efficient than monopoly b/c costs of monopoly pricing outweighed by economies of centralizing production in one/few firms. Nor is there any justification for using AT laws to attain goals unrelated or antithetical to efficiency.
· Pitofsky, The Political Content of AT (1979)
1. The issue is whether non-economic considerations should have any role to play at all, and, if so, how they should be defined and measured.
Certain political values have not been considered or tested in interpreting the AT laws: (1) a fear that excessive concentration of economic power will breed antidemocratic political pressure; (2) a desire to enhance individual and business freedom by reducing the range within which private discretion by a few in the economic sphere controls the welfare of all; and (3) if the free-market sector of the economy is allowed to develop under AT rules that are blind to all but economic concerns, the likely result will be an economy so dominated by giants that it will be impossible for state not to play a more intrusive role in affairs.