ANTITRUST AND REGULATION:CHICAGO’S CONTRADICTORY VIEWS

Fred S. McChesney

approach to antitrust, viewing it as public-interest government inter-vention intended to correct market failure, squarely contradicts thenow-dominant economic theory ofregulation that Chicago itselfpop-ularized. The Chicago school of antitrust regulation, that is, runscounter to the Chicago school of regulation more generally.

An iinclprivinorfhpmp e,fthi,z ~srtii-’lp i~th,~t-th~fwn h~s~si~~

‘..APUrL oplniuuus, utue iou-tiler ueau 01 tile iiuuutrust L.’iViSiUli ~I%.auper

1986) chose as his favorite aberration the Von’s Grocery decision.5

There, the government successfully blocked a merger between twogrocery firms having a combined market share of 7.5 percent, in amarket with 3,818 single-store and 150 chain-store competitors.6 Therationale against the merger was stopping incipient concentration in

~ A~ V.-....-.~... .....~i-.-.., 1.-...-. C) ‘S\.

~IIhI~i VY ciiai c s~5iiL~1ca~cuuy pi ~ p1 cv 1UU~1~uccijicu uisuc~s,

able under antitrust law (for example, vertical arrangements). And iifact, courts have moved closer and closer to Chicago positions oithese issues.8

But the Chicago victories, evident on several fronts, have by nmeans been complete. Three pockets of resistance remain. Firsi(1,..~..,,-.’,, ~ i-~-.~ ~ ~-.,-~i-~ ~ ~ ~ i-krn i~1

l1a~ sputi siiaity wuues situce Lo~u. ItS USC wneei lululs, perious 01

relaxed enforcement give way to renewed enforcement vigor, relyingin part on new antitrust theories (Baker 1985, Sims and Lande 1986).This constant change in antitrust thinking is reflected in the waxingand waning of courts’ respect for key antitrust precedents (Steuer1985).

1.-, ~ ~ ~ ti...-1,-. D,~.1.-~ i-l~i. .~i-i-, ii-..-.

;~T~~5i; ;;;~i9~~from a flawed definition of competition, but if redirected to attacl~real (government-created) monopolies would be a useful policy.

A second camp has moved on to other areas altogether. With theimportant issues of substantive liability (as they perceive themnIr~dv dis~nnst~dof this ~e’ond umiin of Chiea~oans hns h~~n

p1~Jp~.JoI~A 111ta5

t10 IILJIII L1~IIt~I Lilt. Z flititi L.4OL AJAV IOItJLL ~Ji 1.1St. 2 t.tfl..lai

Trade Commission; the Williams Act, administered by the SEC,requires a waiting period before similar corporate transactions canbe completed.

Given that antitrust is a form of regulation, one would think thatChicagoans would analyze it using the “economic theory of regula-finn” Thcit tht~nrvwiss friv~nits pC)rlipsf fnrmnl stsiti~mpnfin Sfiuli~r

,... 1Jt.t.” i ~iO~~4 t.~J11~’~1£11115 ti’t~ fl iOtitflfl (-t’ltt t.Iilt.at.)

of formal systems of regulation in the transportation, public utilityand other industries, the creation of new schemes of regulation oran ad hoc basis is a questionable expedient.”

It is interesting in itself that Posner does not refer to all of antitrusas a form of regulation, since it clearly is. Nevertheless, his admissiorthat “retnilatnrv” derrees hnve mnrle un “su sianifirnnt frnrfinn” nf~il

was Dasicaliy intenclea to increase consumer welIare is apparentlyinconsistent with his view that typically the common law is efficientwhile statutory law is not. There was, of course, a common law oftraderestraints, which the Sherman Act supplanted. Chicagoans haveresolved the inconsistency by claiming that the Sherman Act merelycodified the common ?~v.(Bork, ~ p. 20), even though the

ently nonexistent (L)iLorenzo 19~5).Ihere is considerable evidencethat interest-group pressures explain much of the Sherman Act (Ben-son et al. 1987; Hazlett, forthcoming; Libecap 1990). In its first Sher-man Act opinion, the Supreme Court found that “it would be impossi-ble to say what were the views” of the politicians voting as to themeaning of the act. As one commentator put it recently, Bork’s inter-

Uhicagoans have aJso Justified their public-interest view of anti-trust by mistake theories. Allegedly, politicians and judges havewanted to do the right thing economically, but economists havefailed toprovide the requisite guidance (e.g., Demsetz 1982, 1989). Ifeconomists were better able to define what competition truly was,and had done so, then politicians would have responded with an

uueury Lw ueai-woiiu reguiatioii wat ueviares iroiiu prouniscu puolic-interest objectives is “profoundly anti-intellectual.”22 Elsewhere

(1975a, p. 140) he writes:

Policies may ofcourse be adopted in error, anderror is an inherenttrait of the behavior of men. But errors are not what men live by oron. If an economic policy has been adopted by many communities,fir if it 11 nnrciofanfl~,n,lrchlgaal ~ ~i cnnial-i, ni/Dr a inn., Qfl/11I nfl-h-na

ii siates couiiiueuuuy usat ole iiisiuiy UI (lie n.nIelicaLl eeuiiuiiiy ill

the twentieth century testifies that a modest program of combatingmonopoly is enough toprevent any considerable decline in competi-tion.” This “fundamental empirical truth” is propounded without ashred of substantiation.

Second, the Chicago approach to empirical evidence presumesi-I.~.j- .~s. 1,.l-~.-.-. L-.~...-. ..-..-1 ~ i-I-.-. h.~.-.-1 -..~.

cally fail to achieve their su;posed welfare goals.Admittedly, each of these pieces of empirical work only disproves

the existence of certain kinds ofbenefits; the empirics cannot refutethe claim—often offered—that antitrust’s benefits lie elsewhere. So,for example, it is frequently claimed that even if enforcement isinc~ffpr1-jv~aortnrcuafs firms thCit~u~fuiC)11vw~r~not vin1C)finuth~huw th~

iii euiiurceuneuit uuugets, wrungiy ucelucu eases, auuu private stru~e

suits. The earliest work tended simply to show that, in the areasinvestigated, antitrust had not delivered any benefits. But the manystudies failing to find any antitrust benefits didnotmakean apprecia-ble impact on Chicagoans, who have continued to talk—hypotheti-cally—about antitrust’s supposed ability to deter price fixing and

‘VL..S. ..L ~ 2.L. ~ ~

iIILt.iCOL jJiJiLtiI...3. 1 LI ‘1., JJUIiLIt.1aI1~ LIiClIIOt.i V t.O i.1t.aIiy L..aIt. iuI aii~r

trust, as enforcement officials invariably learn (Baker 1985). Con-gressmen regularly exhort DOJ and FTC enforcers to bring evermore cases; the National Association of Attorneys General (NAAG)agitates for greater enforcement as well. Congress staunchly resistedReagan-era initiatives to reduce enforcement, at both the FTC andflflT t~. ~ al4a.-.-.nl-., ~ ~ umr’ ~ nfuIaao ..-i i.,.

lsiallltclIaLlt.c aic illtJ~I. ll1~Cly UlL1~iWllt ~iLJUj)~. .L)Ut LllL~uuc~ hUt hil~a1l

that one cannot identify the likely beneficiaries and victims, and testfor antitrust’s effects.

Horizontal mergers, to takeone ofthe principal areas where Chica-goans would admit a role for antitrust, are an example. Mergers area phenomenon that cuts across different industries; at first glance,~ .C.. ~ -..:.L~ ~ .~..s-k.. s-~.i-~.1

;~ C;o;iisiot;..taut committee members’ districts are more likely to be dismissedthan matters involving firms located elsewhere. The increaseddemands for such constituent service make antitrust valuable topoliticians.

In short the emnirieal evidence indicates thnt noliticinns nm-ticii-

anl~i~ignore the mounting challenges to Chicago orthodoxy. For others,there may be no perceived inconsistency. The more recent Chicagoanalysis using economics to discuss issues like antitrust standingand damages may seem unrelated to the public choice problemsoresented by the widerChicago annroach to reatilation. Trne current

ed. Chicago: Dryden Press, 1989.Baker, Donald I. “Antitrust as a Political Football.” Paper presented at tht

Nineteenth Annual New England Antitrust Conference, November 8—91985.

Baumol, William J., and Ordover, Janusz A. “Use of Antitrust to SubveriCompetition.”Journal of Law and Economics 28 (May 1985): 247—65.

Baxter, William F. “The Political Economy of Antitrust.” In The Politica

Faith, Roger L.; Leavens, Donald R.; andTollison, Robert D. “Antitrust PorkBarrel.”Journal of Law and Economics 25 (October 1982): 329—42.

Flynn, John J. “The Reagan Administration’s Antitrust Policy: OriginalIntent and the Legislative History ofthe Sherman Act.” Antitrust Bulletin33 (Summer 1988): 259—307.

Gerhart, Peter M. “The Supreme Court and Antitrust Analysis: The (Near)Triumph of the Chicano School.” In Supreme Court Review 1982,

Antitrust.” Mimeograph. 1990.Liebeler, Wesley J. “What Are the Alternatives to Chicago?” Duke Law

Journal 1987 (November 1987): 879—96.Long, William F.; Schramm, Richard; and Tollison, Robert. “The Economic

Determinants of Antitrust Activity.” Journal of Law and Economics 16(October 1973): 351—64.

Mackay, Robert J.; Miller, James C. III; and Yandle, Bruce, eds. Public

Salop, Steven C., ed. Strategy, Predation, and Antitrust. Washington: Fed-eral Trade Commission, 1981.

Shughart, William F. II, and Tollison, Robert D. “The Positive Economicsof Antitrust Policy: A Survey Article.” International Review of Law andEconomics 5 (June 1985): 39—57.

Siegfried, John J. “The Determinants of Antitrust Activity.”Journal of Lawand F,~nnnrnie.c17 (1)’toh~r1 Q75~’55Q—74