An Antitrust Trifecta

Josh Wright —  1 August 2006

From Hanno Kaiser at the excellent Antitrust Review on a wide range of antitrust issues and events. Here is a brief tour through the trio and some initial reactions:

1. Hanno on Peggy Zwisler’s article in 20 Antitrust 40-43 (2006): Volvo Trucks v. Reeder-Simco: Judicial Activism at the Supreme Court. Hanno takes some issue with the characterization of the Robinson-Patman Act as being aimed exclusively at protecting competitors, rather than competition, as many of its critics (like me) would have it. Hanno notes:

“That view, however, is not universally shared. While the legislative history clearly shows that the Act was intended to protect small businesses from chain stores, there is also ample evidence that only equally efficient disfavored purchasers should be protected from price discrimination. That doesn’t cure the many ills of the Robinson-Patman Act, but it goes a long way toward harmonizing the Act with the goals of antitrust as we understand them today. Andrew Gavil provides an excellent summary of the legislative history supporting the “equally efficientâ€? reading in “Secondary Line Price Discrimination and the Fate of Morton Salt: To Save it Let it Go,â€? 48 Emory L.J. 1057 (1999).”

Hanno might be right about the legislative history. And such a reading might even make up some of the rather expansive gap between modern antitrust enforcement and that debacle that has been Robinson-Patman enforcement in terms of protecting competition. It is my view, however, the judicial acrobatics necessary to to square these two are too substantial, which is why I favor a repeal of the Act.

2. Some SCOTUS news. Northwest Airlines v. Spirit Airlines, Inc. has been removed from the SCOTUS docket because the petition was filed five days late (assuming that Northwest’s last ditch, hail mary effort to get back on the docket fails). SCOTUS Blog has the full scoop. This would have been an antitrust case of major importance as it would have provided SCOTUS would a very timely opportunity to chime in on Section 2 jurisprudence while revisiting the Brooke Group standard.

3. Hanno on “The Short Run, Humility, and Conservatism in Modern Antitrust Economics.” Here’s a taste:

“[T]he epistemological humility of post-1970s microeconomics has a decidedly conservative bent in the strict sense of the word: It ennobles the status quo. Take as an example the law of predatory pricing. Successful predation proceeds in two steps. In the investment phase, the predator undersells the competition at a loss. Once the competitors have been vanquished, the predator raises prices above competitive pre-predation levels. That’s the harvest phase, in which consumer exploitation follows competitor exclusion. A focus on the short run makes predatory pricing seem irrational, as the only certain outcome is a short run windfall for the consumer, while the long run harvest is disregarded as speculative. Herein lies one of the more fundamental philosophical differences between US and European antitrust. We, in the US, have confined the time horizon for antitrust analysis to the past and to a minimally extrapolated short run future. The European Commission, in contrast, exhibits much greater confidence in its ability to predict the future and is thus much more willing to trade off short run consumer benefits against long run welfare losses. In the ideological battle between the past and the future, the past usually wins: better the devil you know than the devil you don’t.”

I think I get what Hanno is getting at here, but I’m not sure. There are a couple of different potential explanations for the divergent approaches to predatory pricing:

(1) US antitrust truncates the analysis at a point in the “minimally extrapolated short run future” beyond which anticompetitive effects might occur. By doing so, the US misses some instances of anticompetitive predatory pricing because they refuse to predict market outcomes beyond this point;

(2) One might reasonably believe that US antitrust does not truncate its inquiry into possible anticompetitive effects, and both US and EU antitrust have equally long time horizons, but that US courts place very small weights on antitrust harms beyond the relatively short run. This might be because any they have less confidence in these estimates, or because they are aware that intervening competitive consequences might render these estimates less useful.

(3) A third explanation is that US courts do not have a different time horizon, but attach a different probabilistic assessment of the success of predatory pricing.

Of course, there could be others. I think Hanno means the first of these three, or something close thereto. If so, I disagree that these differences in the time horizon are the proximate cause of the different approaches to predatory pricing. US courts and regulators look at barriers to entry, and require a fact intensive inquiry in the recoupment stage of a predatory pricing claim. My own view is that (3) is the most likely explanation. Whether this is a good or bad thing depends on whether the estimates of that predatory pricing strategies can create anticompetitive effects in the long run in the US, and incorporated into US doctrine, are too low relative to empirical reality, the EU’s are too high, and the relative costs of Type I and II error in terms of consumer welfare.

3 responses to An Antitrust Trifecta

  1. 

    Thanks for the comments, guys.

    I still don’t necessarily agree that there is anything in US doctrine itself which prevents an analysis of long run competitive harms. But the distinction between (3) and (2) where US authorities place a ZERO weight on long run harms is without much difference. In any event, your point that there may be several factors contributing to the diverengence is well taken.

  2. 

    Josh – Your points (1) and (2) capture what I was getting at. Today, we are generally less confident in long run predictions than, say, in the 1960s, which is why antitrust got out the business of “stemming rising tides of economic concentration.” We’re also less sanguine about predicting the future than the European Commission. The law of predatory pricing is a nice illustration of that. I don’t mean to imply that the focus on the short run is the only difference, and I agree with your point (3), but I think that different time horizons contribute significantly to the divergent assessment of situations in which future harms are traded off against present gains.

  3. 

    Regarding Hanno’s point about the short run. I think it is obvious as a general proposition that our normative assumptions about market behavior and market structure will determine antitrust policy. If the markets are generally presumed to be self-correcting, it makes sense to restrict predatory pricing claims to case that suggest that markets will not self-correct, or that interim harm is too great. If our focus is on the short run, we limit the range of market effects that we will potentially consider as interim harm. I like your differentiation of approaches, though, because (1) and (3) highlight a point about the nature of competive harm. A probabilistic assessment of the success of predatory pricing looks to the potential of self-correction of the markets (entry will prevent recoupment), but does not ask the long-range question: Even after entry during the harvest phase, will there be competitive harm as a residue of the intervening predatory pricing? I am not sure that this is a question that should be asked, but I agree with Hanno that our current doctrinal focus in the U.S. prevents us from asking it.