Richard S. Markovits discusses the tests of illegality promulgated by United States antitrust law and their moral desirability. He also considers whether there have been any recent shifts in the paradigmatic approaches that are taken to these and other antitrust law/policy issues.
This article is part of a symposium studying the “paradigm shift” in antitrust scholarship and policy. Inspired by philosopher Thomas Kuhn’s work on progress in science, this symposium asks if and how the tenures of Federal Trade Commission Chair Lina Khan, Department of Justice Assistant Attorney General Jonathan Kanter, and scholarship associated with the antimonopoly or Neo-Brandeisian movement has changed how we understand the priorities of antitrust enforcement, evidence of anticompetitive harm, and the study and enforcement of antitrust more broadly. Over the next few days, we will publish contributions from Tim Brennan, Eleanor Fox, Daniel Francis, Andrew Gavil, Richard Markovits, John Mayo, Steven Salop, and Randy Stutz. You can read the previously published articles here. ProMarket encourages our readers to respond to the symposium and the ideas these scholars put forth with their own. Responses can be sent to ProMarket@chicagobooth.edu.
In my judgment, there have been no significant recent changes in antitrust-analysis paradigms, though some scholarly and government publications manifest their authors’ awareness of the need for change. This article illustrates this conclusion by (1) delineating the tests of antitrust illegality that United States antitrust law, correctly interpreted as a matter of law, would be read to promulgate, (2) articulating the moral norms that should be used in the U.S. to evaluate such tests, (3) applying those norms to evaluate the tests of illegality U.S. antitrust law does and does not promulgate, and (4) arguing that the standard treatment of these issues have been and continues to be inadequate The conclusion identifies other unsatisfactory paradigmatic components of antitrust analysis and comments on whether current work is correcting these deficiencies.
The U.S. antitrust laws’ three tests of illegality
One such test is the Sherman Act “specific anticompetitive intent” test of illegality, which prohibits covered conduct if its perpetrator’s/perpetrators’ ex ante perception that the conduct would be at least normally profitable was critically affected by its/their perception that the conduct would or might reduce the absolute attractiveness of the best offers against which the perpetrator(s) would have to compete in one or more ways that would render the conduct profitable although it would be economically inefficient in an otherwise-Pareto-perfect economy. (There are seven types of Pareto imperfections: imperfections in seller competition, imperfections in buyer competition, real externalities taxes on the margin of income, imperfections in the information possessed by resource allocators, resource-allocator non-maximization, and buyer surplus) A second such test is the Clayton Act “lessening competition” test of illegality, which prohibits covered conduct if it is sufficiently likely to impose a (significant) net dollar loss on the potential and actual customers of the perpetrator(s) and its (their) product rivals by reducing the absolute attractiveness of the best offers they respectively receive from any supplier that is not privately-best-placed to supply them. The third such test is the Federal Trade Commission Act “unfair competition” test of illegality, which prohibits conduct that gives its perpetrator(s) a private competitive advantage without tending to make it (them) more economically efficient suppliers of the buyer(s) in question than are their disadvantaged rivals.
I base the preceding interpretation of the Sherman Act on the way in which the “restraints of trade” referenced in its Section 1 were understood in nineteenth-century state common-law opinions, on the fact that the relevant legislators did not believe that the Act prohibits as monopolizing conduct the charging of supra-competitive prices, and on the fact that the relevant legislators perceived the conduct that led them to pass the Sherman Act to be motivated by what I call specific anticompetitive intent. I base my interpretation of the Clayton Act on the fact that its promulgators were responding to the fact that exemplars of covered conduct that were not motivated by specific anticompetitive intent could still impose net dollar-losses on relevant buyers by reducing the attractiveness of the best offers they respectively received from any worse-than-privately-best-placed potential supplier (say, in the case of mergers and acquisitions, by freeing the participants from each other’s competition).
The relevant moral norms
In the U.S., it is appropriate to evaluate antitrust-policy-coverable conduct and antitrust policies morally from the perspectives of (1) liberalism, (2) the equal-utility-focused, equal-resource-focused, and equal-opportunity-focused egalitarian norms, (3) the total-utility-focused and average-utility-focused utilitarian egalitarian norms, or (4) some mixed egalitarian norm that values two or more of the egalitarian desiderata just referenced. I will now give brief accounts of each of these norms and explain their respective implications for the moral desirability of the U.S. antitrust laws’ tests of illegality.
I begin with liberalism. Space constraints limit me to making 6 points. First, I believe that the U.S. is constitutionally committed to instantiating liberalism as a conception of justice whose moral rights/duties conclusions have lexical priority over the conclusions favored by the morally defensible egalitarian norms just referenced (which in my vocabulary constitute conceptions of “the moral good”). Second, liberalism gives lexical priority to all those human and (possibly) those other creatures that possess the non-experience-generated neurological prerequisites for leading a life of moral integrity by fulfilling their moral obligations and conforming their conduct to a personally chosen, morally defensible conception of the moral good having and seizing a meaningful opportunity to do so. Third, liberalism implies that all governments in polities that are constitutionally committed to instantiating the liberal conception of justice and all businesses in such polities have a moral duty to treat all the creatures referenced in the second item in this list with appropriate, equal respect and to show appropriate, equal concern for all such creatures’ welfare. Fourth, except in some situations in which a moral-rights bearer has a need to be rescued from a situation in which its opportunity to lead a life of moral integrity is imperiled, liberalism does not imply that any business has a moral duty to benefit its potential customers or anyone else. Fifth, liberalism implies that business conduct that is motivated by specific anticompetitive intent or that constitutes unfair competition is moral-rights-violative in that it fails to show the obligatory respect and concern for the business’ potential customers and/or its disadvantaged rivals. Sixth, liberalism does not imply that businesses have a moral right to engage in profitable conduct that does not manifest specific anticompetitive intent and is not unfairly competitive but that does reduce the buyer surplus its potential customers obtain.
The list of egalitarian norms includes the moral norms that value positively and exclusively a choice’s positive impact on (1) the total or average utility of all creatures whose utility counts, (2) the equality of the distribution of utility, of resources (where a resource is valued by the net dollar benefits its use would have generated had it not been allocated to the creature that got it), or of some non-liberal opportunity that is not valued exclusively for the utility the receipt or seizure of the opportunity gives the creature who receives or seizes it among all creatures who count (where the relevant-distributive equalities are appropriately defined), and (3) two or more of the previously-identified egalitarian desiderata.
I will examine first the implications of the egalitarian norms that focus exclusively on the impact of any choice on the equality of the distribution of utility, resources, or relevant opportunities. I suspect that (1) in the vast majority of cases, conduct that imposes losses on Clayton-Act-relevant buyers will reduce the equality of those distributions and be valued unfavorably from these perspectives and (2) although analyses of the moral desirability of antitrust policies from these perspectives are more complicated, the overwhelming majority of policies that effectively prohibit conduct that violates the Clayton Act’s “lessening competition” test of illegality will increase the equality of those distributions and be valued positively from these perspectives. There will be exceptions when the weighted-average disadvantaged buyer is better-off than the weighted-average advantaged manager/shareholder/employee of the perpetrator(s) (where the weight assigned to each individual’s income/wealth position is proportionate to his or her share of the relevant group’s dollar loss or gain) because the good involved is an expensive product or service whose units are sold to individual final consumers and/or when the formulation, promulgation, and enforcement of the policy at issue have transaction-cost-related and public-finance-related distributive impacts that critically reduce the equality of the distribution of a relevant desideratum.
The analysis of the implications of the two utilitarian norms for the moral desirability of exemplars of antitrust-policy-coverable conduct that lessens competition or for any antitrust policy that effectively prohibits such conduct is far more complex (1) because it involves not only (A) the consideration of the relative income/wealth positions of the conduct’s or policy’s winners and losers—the relative magnitudes of the average marginal-utility value of the dollars gained and the average marginal-utility value of the dollars lost—but also (B) the relationship between the total dollar-gains and the total dollar-losses the choice will generate—that is, the economic efficiency of the business choice or antitrust policy in question—and (2) because the relevant economic-efficiency analysis is complicated and may yield conclusions that make it far more difficult to assess the desirability of any choice from either the total-utility or the average-utility utilitarian perspective or from any mixed egalitarian perspective in which increases in on total or average utility are positively valued.
The protocol that should be used to analyze the economic efficiency of choices is complicated—it must take account of (1) the fact that the (Pareto) imperfections whose individual exemplars would cause economic inefficiency if they were respectively the only imperfection in the system can counteract each other’s misallocative tendencies and (2) the realities that resources can be used in a variety of ways and that a wide variety of categories of resource allocations (from one or more uses to another use) must be distinguished and analyzed separately. I will simply assert here that the protocol for economic-efficiency analysis I deem ex ante economically efficient strongly favors the conclusions that poverty causes economic inefficiency and that developed economies devote an economically-inefficiently-large amount of resources to the creation of new products, distributive outlets, and capacity and inventory (to the creation of quality-or-variety-increasing [QV] investments). Since in the vast majority of cases the number of buyers who are disadvantaged by competition-lessening conduct who are poor is higher than the number of perpetrator-managers/shareholders/employees who gain from such conduct who are poor, my poverty-focused economic-efficiency claim almost always strengthens the utilitarian case for the Clayton Act test of illegality.
However, the implications of my conclusion that developed economies create an economically-inefficiently-large amount of QV investment for the utilitarian desirability of the Clayton Act test of illegality is far less certain because, at the same time that increases/decreases in QV-investment competition benefit/harm Clayton-Act-relevant buyers, they decrease/increase economic efficiency by increasing/decreasing equilibrium QV investment in the relevant economy. My concern that the enforcement of the Clayton Act “lessening competition” test of illegality will lessen total and average utility in many cases is enhanced by the difference between the impacts that the efficiencies a horizontal (merger or acquisition) generates will have respectively on Clayton-Act-relevant buyers and on economic efficiency.
These differences will be far more problematic from either utilitarian perspective if the Clayton Act is not interpreted to permit defendants whose conduct would otherwise violate it to exonerate themselves by demonstrating that their conduct would not have imposed a net dollar loss on Clayton-Act-relevant buyers by reducing the most attractive offers they respectively received from any worse-than-privately-best-placed potential supplier had the conduct in question not led one or more rivals of the perpetrator(s) to exit by yielding efficiencies that worsened the exiting rivals’ arrays of competitive positions sufficiently to make it profitable for them to exit.
The associated antitrust-analysis paradigms and any recent shifts in them
What is the relationship between the analyses just executed and their paradigmatic antitrust analogues? Historically, both industrial organization economists and antitrust law professors assumed without argument that every U.S. antitrust law authorized the courts and the Department of Justice and Federal Trade Commission to respond to the conduct the law covered in the public interest, assumed that the public interest would best be served by choices that maximized total utility, made various fallacious arguments that purported to demonstrate that antitrust policies that increased economic efficiency would always increase total utility, and assumed that antitrust policies that increased competition would increase total utility (unless the allocative cost of implementing the policy made its implementation economically inefficient). All of these positions are mistaken. The current DOJ and FTC have never articulated the tests of illegality they believe the Sherman and Clayton Acts respectively promulgate and, when analyzing horizontal mergers and acquisitions, completely ignore the Sherman Act test (which the DOJ but not the FTC is authorized to apply). Industrial organization economists, antitrust law professors, and government officials have also not considered the moral norms that antitrust policies could effectuate, the possibility that conduct that decreases competition might be desirable from the perspective of one or more of those moral norms, or the possibility that vertical conduct (for example, uses of particular pricing techniques) that are not prohibited by any of the three U.S. tests of antitrust illegality might be undesirable from the perspective of one or more of these moral norms and therefore morally should be prohibited.
Admittedly, a significant number of economists (who are not interested in antitrust policy in particular) (1) have recently recognized that utilitarianism is not the only defensible moral norm and that one cannot base predictions of the effect of a choice on total utility solely on its impact on economic efficiency and (2) have articulated a number of other moral desiderata and recognized that choices that increase economic efficiency will not always increase the extent to which they are secured. However, this valuable work is far from perfect—does not consider the possibility that in our society it may not be morally permissible to maximize their maximand by making choices that violate (liberal) moral rights and have given only partial accounts of the decision criteria that are morally defensible. In any event, antitrust-policy analysts have largely been oblivious to this work and its implications for the moral desirability of the tests of antitrust legality that have been and could be promulgated.
Conclusion
I will close by listing a number of other paradigmatic deficiencies of current antitrust analysis: (1) a failure to realize that any protocol for antitrust analysis that makes any conclusion depend on the magnitude of any market-aggregate parameter cannot be morally desirable because market definitions are comprehensively arbitrary, (2) a failure to analyze the impact of choices on investment competition, (3) a failure to consider many of the categories of economic inefficiency whose magnitudes relevant choices affect (for example, the economic inefficiency that results when resources are misallocated among uses in which they produce units of existing products, create QV investments, or execute production-process research), (4) a failure to predict the impact that choices have on the magnitudes of the categories of economic inefficiency they do consider through a protocol that takes ex ante economically efficient account of the fact that the Pareto imperfections whose individual exemplars would cause economic inefficiency in an otherwise-Pareto-perfect economy can counteract each other’s misallocative tendences. The 2010 DOJ/FTC Horizontal Merger Guidelines do suggest their authors’ awareness of the dubiousness of market-oriented protocols both by reducing the legal significance of the magnitudes of market-aggregated parameters (of HHI-oriented numbers) and by stating that if their market-oriented General Standards favor a conclusion the DOJ/FTC think is wrong (for some unexplained reason) the “agencies” will cook their market definition to create HHI numbers that favor the conclusion the agencies think is right (a protocol whose use is unconstitutional in that it deprives the law’s addressees of the fair notice to which they are morally and Constitutionally entitled). But with that minor and problematic exception, which is not combined with any account of the appropriate non-market-oriented protocol for predicting the competitive impact of a merger or acquisition, I do not think that these historic deficiencies of antitrust analysis are being reduced by paradigm shifts.
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Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
