Search Results For RPM

I’ve posted to SSRN a new essay entitled Overshot the Mark?  A Simple Explanation of the Chicago School’s Influence on Antitrust.  It is a book review of Robert Pitofsky’s recent volume How the Chicago School Overshot the Mark: The effect of Conservative Economic Analysis on U.S. Antitrust, and is forthcoming in Volume 5 of Competition Policy International.

The book review is a critical review of the Post-Chicago antitrust agenda adopted by many of the volume’s authors, and a defense of what the editors describe as conservative economics (but seem to mean Chicago School), from an empirical, evidence-based perspective.  The idea of the review is avoid the ideological component of the Chicago v. Post-Chicago debate by choosing to focus instead on the relative predictive power of the economic models.  In short, the evidence-based antitrust concept is one that requires running a horserace between the competing economic models of various forms of antitrust relevant behavior (I focus on RPM and exclusive dealing in the review) in order to identify the best available economic learning upon which antitrust policy can and should be built.  The standard requires flexibility over time but also commits policy makers to take seriously predictive power of models rather than grabbing whatever is convenient from the menu.

There are a number of other critical points about the volume, the approach to antitrust it advocates, and responses to specific essays in the review.

Here is the abstract:

Using George Stigler’s rules of intellectual engagement as a guide, and applying an evidence-based approach, this essay is a critical review of former Federal Trade Commission Chairman Robert Pitofsky’s How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust, a collection of essays devoted to challenging the Chicago School’s approach to antitrust in favor of a commitment to Post-Chicago policies. Overshot the Mark is an important book and one that will be cited as intellectual support for a new and “reinvigorated” antitrust enforcement regime based on Post-Chicago economics. Its claims about the Chicago School’s stranglehold on modern antitrust, despite the existence of a perceived superior economic model in the Post-Chicago literature, are provocative. The central task of this review is to evaluate the book’s underlying premise that Post-Chicago economics literature provides better explanatory power than the “status quo” embodied in existing theory and evidence supporting Chicago School theory. I will conclude that the premise is mistaken. The simplest explanation of the Chicago School’s continued influence of U.S. antitrust policy — that its models provide superior explanatory power and policy relevance — cannot be rejected and is consistent with the available evidence.

You can download it here.

Dan Crane and Thom (who has promised more remarks!) have now both posted their prepared remarks for the Section 2 hearings panel on bundled discounts. Both call for bright-line, administrable liability rules for all forms of unilateral exclusionary conduct, and have important things to say about designing antitrust rules for bundled discounts. Both are worth reading in their entirety. Administrable rules that sensibly balance Type I and II errors are certainly an indisputably admirable goal for antitrust analysis and bundled discounts have proven to be a particularly tricky form of conduct for Section 2 analysis. Despite all of the agreement around here between Thom, Dan and I on the design of antitrust rules in a world of costly Type I errors, I think I have found a topic upon which I can at least offer a mild dissent (or at least a different perspective) regarding the usefulness of the analogy of various anticompetitive theories of bundled discounting practices to exclusive dealing.

The overlap between exclusive dealing and bundled/ loyalty discounts is frequently addressed by commentators, and is a topic of newfound interest in what has become the quest for a “holy grail’, one size fits all standard for Section 2 analysis of exclusionary conduct. At times, I detect a tension between the analysis of bundled discounts and exclusive dealing contracts which both purport to exclude exclude by depriving rivals from the opportunity to compete for distribution sufficient to support minimum efficient scale. For example, I discuss what I perceive to be a tension in Professor Hovenkamp’s very sensible analysis of bundled discounts and exclusive dealing in this post:

Hovenkamp concludes that adminstrative costs justify a predatory pricing-type rule in the context of for bundled discounts where the anticompetitive mechanism is de facto “foreclosure” or deprivation from distribution resources (i.e. shelf space) that would prevent rivals from achieving minimum efficient scale and extend the duration of monopoly by increasing barriers to entry. One would think that it would follow from Hovenkamp’s position that a predatory pricing-type rule would also be sensible for exclusive dealing and tying arrangements where the anticompetitive mechanism is the economic equivalent. To the contrary, Hovenkamp advocates rule of reason analysis (p. 201) for exclusive dealing and tying, noting that “foreclosure concerns can be assessed meaningfully only via the rule of reason” and that “the antitrust law of exclusive dealing,” which generally requires proof of substantial foreclosure as a necessary condition of competitive harm, “seems to be on the right track.”

The basic tension here is that the anticompetitive theories underlying both forms of conduct require foreclosure of a rival sufficient to deprive the opportunity to compete for minimum efficient scale. Of course, the pro-competitive side of the ledger differs. One might sensibly believe that the standard for the two forms of exclusion should be different because lower prices are inherently pro-competitive whereas exclusive dealing may not invoke the same immediate consumer benefits. This is certainly a sensible position. But it only suggests that the standard for bundled discounts ought to be more difficult to satisfy than the exclusive dealing standard given equal administrative costs and the same anticompetitive mechanism. This point is not sufficient to render the exclusive dealing analogy fruitless. I offer below some tentative thoughts on the usefulness of the exclusive dealing analogy to bundled discounts.

Continue Reading…

Huh? This statement appears in this article by Professor Anthony D’Amato (Northwestern) on the failure of interdisciplinary scholarship in the legal academy. HT: Brian Leiter. Quite frankly, I was very surprised to see a claim like this in a paper written after 1970 or so. Even in corners of the academy hostile to economic analysis, antitrust is conventionally distinguished as a special case where economics is useful, typically along with some statement about the uniqueness of antitrust. D’Amato reserves no such special treatment for antitrust, criticizing that field in the context of a more general critique of what he describes as the “interdisciplinary turn” in the legal academy on three grounds:

First is the unlikelihood that the joint-degreed persons who join the law faculty will happen to be the ones that their colleagues will end up collaborating with. Second is the even greater unlikelihood that any given discipline can communicate usefully with another discipline. Third is the opportunity-cost factor: that the new interdisciplinary courses will crowd out an essential part of the legal discipline, namely, an understanding of the foundations and dialectical evolution of its forms of language.

Those who study antitrust might be surprised to read the claim that economics has not changed antitrust in any significant way. To give some context, this claim comes as part of D’Amato’s rebuttal case against law and economics as an example of successful interdisciplinary scholarship. D’Amato’s conclusion? Economic analysis earns a “gentlemanly C+” on its report card and claims of success are “misleading if not false.” The rebuttal case consists largely of claims that economic analysis has not been fruitful in many areas of law: contracts (see Eric Posner), torts, criminal law, and includes the statement that the Coase theorem “is hardly helpful to lawyers.” I admit that I found the argument about criminal law difficult to follow (it consists largely of a response to hypothetical examples of crimes that Richard Posner could have but apparently did not write and the obligatory mention of Posner’s comments on the potential benefits of a market in parental rights.

My disagreement is somewhat predictable, as someone engaged in law and economics. But I want to focus on D’Amato’s claim that economic analysis has not even been successful in areas that are “ideal for the division of labor between lawyer and economist,” like antitrust. D’Amato offers as support for the words in the title to this post the following analysis (p.65):

The focus on the quantitative aspects of antitrust — such as Robert Bork’s reductionism of antitrust to the goal of delivering the lowest prices to the consumer — has had a distorting effect on the field. The original impetus for antitrust legislation — combating an incipient fascist tendency of huge corporate combinations to overwhelm and run the government — seems to be an inconvenient memory for those who would like economic analysis to place a price tag on every legal value.

I respectfully dissent. I discuss an objection to D’Amato’s characterization of the antitrust endeavor and ten reasons to think that D’Amato’s claim in the title of this post are wrong below the fold.
Continue Reading…

Over the past few weeks I’ve read at least two dozen papers, mostly by legal scholars (but some by economists) employing or critiquing economic analysis of law, that use the term “Chicago School,” in a critical and misleading way.  Conventionally, use of this nomenclature comes along with a claim that “Chicago School” economics is code for a particular form of non-interventionist, politically conservative philosophy based upon only an unjustified “faith” in markets.

In the antitrust context, the “Chicago School” label is frequently use to contrast against the “Post-Chicago” literature.  For those unfamiliar with this branch of economics, the main contribution of what is known as the Post-Chicago literature, I think it is fair to say, has consisted primarily of number of possibility theorems suggesting that conduct previously thought to be universally pro-competitive could harm competition under some conditions.  Frequently, the Post-Chicago narrative goes something like: “Chicago School economists argued that X was always efficient but Post-Chicago authors have shown the Chicago view to be false by demonstrating that X may harm competition.”

Now, there is a substantial value in the Post-Chicago literature and I do not mean to imply otherwise.  It has increased our knowledge about what can and sometimes does happen in markets.  The point of this post is not to disparage what any of these economists have done.  Quite the contrary, it is to make the point that the Chicago v. Post-Chicago labels are being used in an a manner that is neither productive nor descriptive in a helpful way. 

Here are a few reasons why I think the distinction is not as useful as it once was and is generally counterproductive unless used carefully by the author.

Continue Reading…

Danny Sokol points to Professor Einer Elhauge’s (Harvard) forthcoming paper in Competition Policy International where he argues that recent Supreme Court antitrust jurisprudence reflects a choice in favor of the Harvard School rather than the Chicago School of antitrust analysis. I recommend Professor Elhauge’s analysis to our readers for at least two reasons. The first is that his work is always very thoughtful and worth reading, and this piece is no exception. The second reasons is that I will have a paper in the very same journal taking what amounts to the opposite position: that the Roberts Court’s antitrust jurisprudence reflects the adoption of Chicago School’s methodological commitments. Of course, this style of argument is really about matters of degree because the Chicago and Harvard approaches have experienced some convergence in some areas. I plan on posting a version of this paper in the next week or so after doing some fine-tuning this week. In the meantime, it is clear that Professor Elhauge and I agree on at least one point: recent Supreme Court antitrust jurisprudence has been a serious attempt to engage in analysis and not a simple “pro-defendant” attitude as some have erroneously suggested.

UPDATE: Hanno Kaiser at Antitrust Review highlights another interesting portion of Elhauge’s analysis.  Elhauge points out that under the Harvard School approach, the per se approach to RPM is inappropriate but argues that Justice Breyer’s dissent in Leegin on stare decisis grounds was likely “mixed up with abortion politics” rather than motivated by getting the economics right.   As readers of TOTM will know, Thom and I have blogged extensively about the errors in Justice Breyer’s analysis of vertical restraints.