How Conservative Economics Has Influenced Antitrust

Harvard University, John F. Kennedy School of Government, Working Paper Series 01/2007;
Source: RePEc

ABSTRACT This paper, written for a Georgetown University Law School conference in April 2007, addresses the allegation that "conservative" economic analyses have had a disproportionate influence on the substance and vigor of U.S. antitrust enforcement and adjudication. It acknowledges the significant impact of research associated with the University of Chicago and its satellites, much of it inspired by the critical suggestions of Aaron Director. It argues that the "Chicago" efforts have for the most part been beneficial, helping to illuminate weaknesses in accepted antitrust doctrines. Thus, a vigorous academic debate has been stimulated. To the extent that biases have resulted, they stem more from one-sided judicial interpretations of the extent theories and evidence and from the appointment of antitrust enforcement officials who take a one-sided view of the academic debate and/or who believe that "government is the problem, not the solution."

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    ABSTRACT: John McGee's 1958 paper, “Predatory Price Cutting: The Standard Oil (NJ) Case,” has had an astonishing influence on both antitrust policy in the United States and economic lore. McGee argued that predatory pricing is irrational and his analysis of the Standard Oil Company Matter, decided in 1911, led him to conclude that the Record in this case does not show that Standard Oil engaged in predatory pricing. This single publication appears to serve as a foundation of the U.S. Supreme Court's position on the issue of predatory pricing, as well as the assertion by many economists that predatory pricing is irrational and rarely occurs.Numerous arguments have been advanced during the past 25 years that predatory pricing can be a rational strategy. As to McGee's empirical findings, there has been no re-examination of the Record of the Standard Oil case to determine the validity of his finding that the trial “Record” does not support the claim that Standard Oil engaged in predatory pricing.We examined this Record and have found that the trial Record contains considerable evidence of predatory pricing by Standard Oil. Therefore, the Record does not support McGee's conclusion that Standard Oil did not engage in predatory pricing.Thus, the decisions of the Supreme Court in recent years, as well as the opinions of many economists, concerning predatory pricing are not consistent with either current theory or the empirical record.
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    ABSTRACT: This classic 1954 article broke with the then-current economic orthodoxy and set monopoly research on a path that would lead to a strong shift toward empiricism and the development of a more cautious approach for antitrust enforcement.


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