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Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged
Abstract
The Sherman Antitrust Law is the principal federal statute regulating anti-competitive conduct. This volume examines the rich legislative history and political economy of the Act and the current debates which surround it. The contributors include: Robert Bork, Richard Posner, Charles Rule, Louis Kaplow, and Eleanor Fox.
... Striking a balance between incentivizing innovation through patent protection and ensuring access to life-saving medicines poses a complex challenge (Barton, 2001;Easterbrook & Fischel, 1983;B. Klein, Crawford, & Alchian, 1978;Lande, 2017;Posner, 1993;Rubin, 1977). Neoclassical economic models might prioritize patent protection for efficiency in promoting innovation, but legal considerations in India have sought to address broader public health concerns, emphasizing the right to access essential medicines. ...
This research paper delves into the intricate realm of the economic analysis of law, traversing its historical evolution, foundational principles, key figures, global impact, and responses to criticisms. Originating from the musings of classical economists such as Adam Smith, David Ricardo, and Frédéric Bastiat in the 18th century, the economic analysis of law gained formalization in the mid-20th century, primarily through the influential work of scholars from the Chicago school of economics. The pivotal role of figures like Aaron Director, George Stigler, and Ronald Coase shaped the field, leading to institutionalization, the establishment of The Journal of Law & Economics, and seminal works like Coase’s “The Problem of Social Cost.” The methodological foundations of the economic analysis of law, exemplified by Richard Posner’s approach to criminal methodology, undergo scrutiny, with methodological critiques prompting dynamic responses. Adaptations include the integration of game theory, behavioral economics, and empirical methods, expanding the analytical toolkit of the field. This research explores the normative and positive dimensions of law and economics, unraveling its dual role in predicting the effects of legal rules and making policy recommendations based on economic consequences. Efficiency, particularly Pareto efficiency, emerges as a guiding principle, influencing policy formulations and legal doctrines. Global examples showcase the adaptability of law and economics to diverse legal traditions, from the United States to Germany, India, and Africa. Criticisms, both external and internal, are scrutinized, revealing challenges to neoclassical assumptions and methodological frameworks. The theory of the second best questions unambiguous outcomes, while “internal” analytical criticisms emphasize the need for flexible models that gracefully degrade to reflect real-world complexities. In conclusion, this research paper provides a holistic understanding of the economic analysis of law, emphasizing its dynamic nature, adaptability, and influence across legal traditions.
Industrial concentration has increased in recent years with large companies consolidating their dominant positions. Concentrated markets are thought to benefit large firms as they earn elevated profits and gain political influence. Antitrust law is the main policy tool to reduce concentration. Calls to strengthen antitrust have come from the political left and the right, yet we know little about public support for such policies. We test how economic, moral, and democratic concerns influence support for antitrust. We find that the public does not respond to the consumer price benefits of antitrust but is moved by arguments invoking concerns for fairness and the importance of maintaining democratic institutions. We find that Republicans and Democrats often respond in divergent ways, with Republicans being less supportive of antitrust when informed that it could punish successful companies, whereas Democrats are more concerned about using antitrust to curb corporate influence. The findings accord with a general concern on the left for limiting business influence in politics and a concern on the right for maintaining business growth.
China, the European Union, and the United States are the three largest digital economies in the world. This article compares the antitrust regulation of the digital economy in the three regions after the 2000s. It argues that over time, the antitrust regulation of the digital economy in the three regions tends to converge along three dimensions: growing separation of the antitrust regulation of the digital economy from that of the other economic sectors, convergence of regulatory objectives, and convergence of regulatory methods. In combination with the geopoliticization of the platform economy, this article argues that four factors have contributed to shape such convergence: (1) historical factors, (2) globalization of the digital economy, (3) increasing policy imitation and policy competition among the major digital powers of the world, (4) support from the civil society.
Contemporary critics of American antitrust law lament a supposed misinterpretation by modern, welfare-driven enforcers of the true meaning of the competition principle. This essay contributes to the debate by reconstructing the principle's historical origin. While it did not feature in the Sherman Act, the competition principle was introduced by the Supreme Court during the early years of antitrust law. The court formulated alternative versions of the principle; the one that eventually prevailed was neither populist nor neoclassical, as it was based on classical political economy and, in particular, on freedom of contract and “natural” values. This historical circumstance may pave the way for a new approach to antitrust law.
Recent years have seen the dominance of neoclassical, marginalist and welfarist schools of Competition Law and Economics being challenged more vigor- ously than ever [See two major collecting works in: Fennell and McAdams (2013) and Cappelen and Tungodden (2019)]. Although the core assumptions of the neoclas- sical school regarding overt reliance on rationality and efficiency ever since the inception of the school have been target of much criticism [Flynn (December 1988), pp. 713–43 and Dworkin (1980), pp. 191–226], the latest decades of both research and real life developments have reinvigorated the criticim [An indication is the title of the latest Global Competition Forum, themed “Time for a Reset?”, see here: http://www.oecd.org/competition/globalforum/GFC-2020-agenda-en.pdf, accessed 2020-12-07]. Nowhere is the influence of neoclassical and marginalist economic approaches, in turn underscored by Legal Realism and Legal Positivist approaches, more prevalent, than laws governing economic activities, chief among them antitrust law and policy. The famous “Antitrust Revolution” in the late 70s by the likes of Robert Bork (1978) and Richard Posner (2014) still today dominates mainstream law and economics of not only US Antitrust law, but also of Euro- pean [Bartalevich (2016), pp. 267–83] and global competition law [Stiglitz (2017)]. Leaving behind decades long (and one would say, centuries long) fairness-related approaches to law and economics [Watkins (1922)] (which in this article will be dubbed Kantian although the core philosophy predates Kant by eons), we now also note insights in bounded rationality [Piron and Fernandez (1995)], which further underscore the previous theoretical and philosophical approaches. Using the legal prohibition against “unfair pricing” as an optimal proxy [See e.g. Treaty on the Func- tioning of the European Union Article 102a, prohibiting unfair pricing imposed by a dominant undertaking capable of affecting trade between member states or in substan- tial part of the Union; See also Kianzad and Minssen (2018), pp. 133–48], the present article juxtaposes the neoclassical and marginalist approaches to this area of political economy, by way of using Kantian ethics and Kantian legal philosophy to demon- strate the inaptness of the so-called mainstream Law and Economics approaches to the matter “fairness in law and economics”. A return to Kantian philosophy of law [White (2019), pp. 53–76] and a balanced approach between law and economics disci- plines, more so regarding laws governing economic activity, is forwarded, making the case that whether one is Kantian or Utilitarian in the normative will invariably affect the substantive positive legal and economic analysis. This fact is independent of the claims to “rationality”, “objectivity” or “humanity” and “divinity” made by either approach. Following the introduction framing the “paradox” regarding the return of Kantian, fairness-based approaches to law and economics, the second section depicts the Posnerian attack on Kant construed alongside Wealth Maximisation as an optimal goal of law and economics. The third section describes the supposed division between fairness and welfare, or efficiency, as an optimal goal of law and economics. The fourth section in turn constructs the Kantian comeback. The fifth section concludes.
The idealism of the nation and state is often reduced by political behavior that does not reflect maturity and statesmanship. Both by politicians and officials as well as by the community and the people. This can be seen in people's lives when approaching general elections that consider there is no problem with the practice of Money Politics. This study aims to determine the concept of constitutional political education from an Islamic perspective, its implementation in Formal, Informal and Non-formal Education that applies the Tadabbur Methodology and Thematic Interpretation of Constitutional Political Education from an Islamic Perspective. The results of the research that the author finds are the concept of political education, constitutional education in an Islamic perspective associated with Bloom's theory, that education can be felt and produced cognitively, affectively and psychomotorly. If political education can be realized in this picture, the success of political education can affect the world of education, both formal, informal and non-formal. In conclusion, the idealism of nation and state is often threatened by political behavior that does not reflect maturity and statesmanship, both on the part of politicians and officials as well as the community and the people.
Nuno Castro Marques presents the Portuguese competition law framework. Portugal was one of those European countries opting to introduce a misdemeanour law, inspired by the German Ordnungswidrigkeit law, but this has now evolved a long way. EU and Portuguese competition laws establish the same potential sanction for all competition infringements: a fine up to 10% of the undertaking turnover. Not only companies but also natural persons may be liable for competition law infringements, and fines applicable to natural persons can go up to 10% of their annual income. Portuguese competition law is fully aligned with the European framework, with the Portuguese Competition Authority (PCA) armed with strong investigation powers, an experienced leniency regime and the full set of mechanisms for speeding up enforcement, such as the settlement or commitment procedures. The results are visible, with general deterrence also making an important contribution, and whenever the PCA adopts a sanctioning decision, especially in cartel cases, it makes front-page news. That was recently the case with a banking cartel, where fourteen banks were fined for exchanging sensitive business information and even the Parliament felt the need to openly condemn the situation in public hearings.
This handbook brings together an international roster of competition law scholars and practitioners to address the issue of sanctions in competition law from all angles. Covering nineteen jurisdictions around the world, the book analyzes the theoretical foundations and practice of sanctioning competition law infringements and, most importantly, cartels. Contributors include a range of experts drawing on criminal law, company law, labor law, human rights, and law and economics, to determine what sanctions are available as a matter of positive law against corporations and individuals, including fines and other criminal, administrative, and civil law sanctions; whether law enforcers are using these sanctions effectively; and if new sanctions – including individual sanctions – should be introduced.
Price gouging of essential items, and the global debate on pricing of vaccines and treatments during the COVID-19 crisis, provide an optimal proxy to revisit the law and economics discourse on excessive pricing as an abuse of dominant position. Beyond a normative soul-searching of the efficiency v fairness debate, this chapter analyses excessive pricing cases during the COVID-19 pandemic in the EU, US, and South Africa. The assertion is made that neoclassical, marginalist, and welfarist law and economics schools will forever be in direct conflict with the black letter law of European Competition Law, which prohibits unfair, excessive pricing, and thus, other law and economics schools such as Keynesian, Behavioural, and Neuro-economics offer far better congruence with the legislative intent and history of Article 102a TFEU.
Equity concerns in antitrust could justify market power in return for a fairer allocation by weighing the consumer welfare of certain disadvantaged groups more heavily. A simple example of an equity-justified agreement illustrates how seeking distributive justice through relaxed antitrust enforcement is ineffective and inefficient. Permitting competitors to jointly set prices gives them the power to price discriminate, which they could use to redistribute wealth by overcharging the rich and giving lower than competitive prices to the poor. Provided society values redistribution enough, such a ‘Robin Hood cartel’ is profitable, despite losing money on the poor and creating deadweight losses. Yet the poor will be given only what is minimally required in return for permission to take from the rich. Without conditions, the joint-profit maximizing wealth redistribution is nothing more than alms for the poor. They receive more under a full-payout plan, but total deadweight losses remain high. In essence, assigning a larger relative consumer welfare weight to the poor discounts the inefficiencies on the rich.
Classical approaches to the law, even statutory law, teach that its purpose is to codify behavioral rules creating clear expectations about the consequences of human interactions. Stability and predictability are the rule of law’s hallmarks. The present essay explores those principles within the context of the origins and development of antitrust (competition) policy in the United States, with special attention to mergers and acquisitions. The old antitrust question was whether size alone offends the law. The burden of the argument is that the discretion granted to the law enforcement agencies and the courts in identifying and sanctioning impermissible accumulations of economic market power creates climates of uncertainty for the owners of private business enterprises, thereby undermining the rule of law. Moreover, if the laws have not been applied consistently in ordinary economic markets, enforcers can be expected to err even more frequently in responding to undesirable accumulations of political power or social influence in modern digital information markets.
In 2005, the European Commission advocated for a more economic approach to enforcing competition laws. The sole criterion for assessing the lawfulness of a market practice should be the appraisal of its net effect on consumer welfare. The Court of Justice was reluctant to adopt such an approach until its 2017 Intel Judgment. Its endorsement—which is debatable insofar as the judgment may give rise to different interpretations—may appear paradoxical in that it is concomitant with a sharp challenge to the consumer welfare criterion in the United States. The purpose of this article is to retrace the history of this criterion, particularly its adoption in the context of EU competition law. We aim to show that the criticisms of the effects-based approach can be addressed not by moving away from the consumer welfare criterion but by integrating it into a broader perspective that also takes into account the protection of the competition process itself.
Since well before the time of Hobbes, it has been accepted that one of the major functions of government is to protect the general society from abuses by predators, whether they be common criminals or the more well dressed users and abusers of monopoly power. The typical response of the predators to the imposition of government controls on their activities is to claim that the government is infringing on their fundamental free enterprise right to prey on their neighbors. With the great changes in the American economy arising in the period from the end of the Civil War to the present, the issue has become more pressing. The increase in the size of industrial, commercial, banking, and utility markets has led to the organization of combinations for the very purpose of extracting monopoly rents from competitors, property owners and consumers. The management of these enterprises justify their behavior on the grounds of natural law, Social Darwinism, laissez faire, and Neoclassical and Chicago School economics.
An initial reading of EU competition law jurisprudence and literature may suggest that there might be a competition-related freedom in the EU, expressed along the lines of ‘freedom of competition’ or ‘freedom to compete’. If competition is to be protected as a ‘freedom’ rather than merely as a ‘policy’, what this freedom involves should be established. It is important to establish the role of ‘freedom’, since it has been argued that EU competition law is a product of or has been significantly influenced by ‘ordoliberalism’. Under ordoliberalism, protecting the ‘economic freedom’ of market actors is the aim of competition policy. This paper examines the entire jurisprudence of the EU Courts to establish the role of ‘freedom’ in EU competition law as perceived by the EU Courts. This inquiry establishes whether ordoliberalism has so fundamentally influenced the jurisprudence that welfare-based objectives cannot be adopted as an/the objective of EU competition law. This is the first such comprehensive study regarding ‘freedom’ in EU competition law. The paper demonstrates that there is little quantitative or qualitative support for the ordoliberal argument when one considers the relevant jurisprudence. A quantitative analysis of the case-law and in particular the historical trend raises serious doubts concerning the validity of the conventional ordoliberal-influence thesis.
The election of 1912 retains its hold on the imagination of students of American political development. Long interpreted as a conflict between tradition and modernity, Martin Sklar has recently argued that the old order had passed by 1912. In law and economy, competitive-proprietary capitalism had been eclipsed by administration. The political conflict was now over who would administer prices and investment, the corporation of the state?
In theory, public policies toward business—the regulation of prices and conditions of entry into specific industries, and the enforcement of antitrust laws that circumscribe the conduct of firms more broadly—serve as bulwarks of a freely functioning market economy. Without such public-sector controls, profit-seeking firms, it is commonly thought, inevitably would acquire market power and exploit it by restricting output and raising price, benefiting themselves at consumers’ expense. Government agents must therefore vigilantly stand guard, intervening when necessary to limit the potential abuses of monopoly. Such intervention supposedly is guided by the goals of ensuring that prices are kept in line with costs, that scarce productive resources remain fully employed, that technological progress is rapid, and that economic growth is vigorous.
From this point of view, regulation and antitrust are thrust upon unwilling producers in order to channel and redirect their behavior away from privately rational, but socially harmful ends. Business decisions motivated solely by the quest for profit are displaced by those of public policymakers who pursue broader objectives. Assigning greater weight to the interests of society as a whole, the antitrust and regulatory authorities act quickly and appropriately to correct the failures that seem to flourish in unfettered markets, thereby redistributing wealth back to consumers and enhancing economic efficiency.
An important tenet of the Chicago School of antitrust asserts that the Sherman Act's framers sought to foster consumer welfare. This article challenges that interpretation by re-examining the legislative history. That history suggests that a consumer-welfare standard did not survive the legislative process and that, if anything, Congress focused on the behavior of producers.
Judge Robert Bork holds two opposing attitudes towards perfect competition. It is a highly useful economic model for illustrating allocative efficiency, but it is a defective policy model because it deliberately omits productive efficiency. He reconciles these attitudes by combining perfectly competitive allocative efficiency with dynamically competitive productive efficiency in his analysis.
However, these two kinds of competition do not readily mix. One is a static equilibrium concept, the other a dynamic disequilibrium concept. One assumes perfect knowledge and the absence of change; the other assumes imperfect knowledge, learning, and continual flux. Each kind of competition is built on assumptions which, if true, would preclude the existence of the other.
Bork's policy conclusions require the simultaneous existence of both kinds of competition. If he drops dynamic competition from the analysis, a much more stringent antitrust policy is called for. If he drops static competition, economic theory does not justify even his strictures against mergers and cartels.
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