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By Dan Mogin and Jonathan Rubin. A consumer welfare standard that emasculates the antitrust laws in the name of protecting consumers and competition — but which does neither — is an absurdity, inconsistency, or oddity.
This antitrust paradox has led to some ambitious pot-stirring by a new wave of antitrust reformers. Here we attempt to put the pieces together with a simplified explanation and suggest a realistic guideline for reformers: go back to the future. United States , U. In other words, as a matter of policy the antitrust laws should protect the competitive process or the marketplace as a whole instead of individual competitors.
Brunswick Corp. Pueblo Bowl-O-Mat, Inc. Practical textualism applied in a narrow context. Brunswick held the antitrust violation must have caused the injury. OK, fine, a little bit of practical textualism applied in a narrow factual context. But expansion of the Brunswick rule and related judicial interpretations lie at the heart of the current discontent or—dare we say it— inefficiency in the antitrust laws. The Chicago School holds that markets are self-correcting and therefore antitrust enforcement should be minimal.
To Bork, the paradox of antitrust law was that it often protected less efficient competitors from competition, leading to allocative inefficiency and higher prices. The Antitrust Paradox was hugely influential and its Chicago School thinking became dominant.
For the next 30 years or more the Supreme Court adopted Paradox -thinking in numerous cases and the lower courts followed. It is certainly not part of the text. The short-term, effects-based legal analysis has become embedded in the rule-of-reason and in monopolization, non-price concerted action, and merger cases. But, because short-term effects have become the be-all-and-end-all, there is no backstop to protect competition or consumers.
If short-run effects cannot be proven, the conduct or transaction is likely to pass muster with the antitrust enforcement agencies and the courts, even if the result is a tight oligopoly or near-monopoly. In mergers between firms in related but not overlapping markets, the longer-run dynamic competitive implications are practically undetectable by conventional merger analysis.
Antitrust Paradox 2. This enables the firm to exclude rivals and entrench itself as the dominant platform. Restrictive sales policies, strategic alliances, and acquisitions in related but not overlapping markets all may be found lawful if they cannot be shown to harm Borkian consumer welfare — short-term price and output. Unfortunately, the only provable effects that remain after a short-term price and output analysis in such cases is the adverse effect on rivals and potential rivals who find it more difficult to compete.
Under the Borkian interpretation of Brunswick , antitrust liability fails. How does one protect competition if there are few or no competitors or only weak ones? The presumed economic harm from protecting competitors is the economic drag from propping up inefficient firms.
If consumers reward efficient firms with market share, that is a pro-competitive outcome that should not be punished by antitrust law. See Bork. But this critique of a structural approach only makes sense up to a point. When the ultimate result of an act or transaction means the survival or emergence of fewer than three or four competitors in a market, the effects-based approach loses its ability to detect the anticompetitive outcomes.
At the edge of a tight oligopoly, antitrust must consider more than the short-term effects of the challenged conduct. To reconcile the two truths—that antitrust ought to not prop up less efficient competitors but should prevent the formation of tight oligopolies—antitrust should go back to the future and pay more attention to market structures. In concentrated markets, antitrust should turn from short-term effects to more modern economic theories rooted in imperfect competition and external effects.
Because such considerations are obscured or undetected using the current short-run standard, a structural backstop may mean sacrificing strict ideas of efficiency. But sacrifices in short-term efficiency to preserve longer-run dynamic competition is a reasonable trade-off.
Paradoxically, we have been there before. In cases involving few competitors, dominant firms, and a few dominant platforms the consumer welfare standard should incorporate a structural backstop skeptical of oligopoly and mindful of the medium- and long-run consequences of the challenged act or transaction. A structural backstop would offer a temporary safe harbor to market participants, or to firms considering entering the market, where the likely alternative is the long-run entrenchment of one or two dominant providers.
How did we get here? Time for Equilibrium In concentrated markets, antitrust should turn from short-term effects to more modern economic theories rooted in imperfect competition and external effects. These include: Blending the effects test with the structural standard like the Supreme Court did before the Bork Paradox took root; Recognizing that promoting consumer welfare often also means protecting competitors when it protects competition; Rolling back the oligopoly deference rule of evidence in summary judgment proceedings of Matsushita Electric Industrial Co.
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Antitrust Paradox: A Policy at War with Itself
The Antitrust Paradox is a book by Robert Bork that criticized the state of United States antitrust law in the s. A second edition, updated to reflect substantial changes in the law, was published in It is claimed that the work is the most cited book on antitrust. Bork argues that the original intent of antitrust laws as well as economic efficiency makes consumer welfare and the protection of competition, rather than competitors, the only goals of antitrust law. The paradox of antitrust enforcement was that legal intervention artificially raised prices by protecting inefficient enterprises from competition.
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