How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust

324 Pages·2008·2.39 MB·English

by  Robert Pitofsky

How the Chicago School Overshot the Mark
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HOW THE CHICAGO SCHOOL OVERSHOT
THE MARK
The Effect of Conservative Economic Analysis
on U.S. Antitrust
Edited by Robert Pitofsky

1
2008
1
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Copyright © 2008 by Robert Pitofsky
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Library of Congress Cataloging-in-Publication Data
How the Chicago School overshot the mark : the effect of conservative economic
analysis on U.S. antitrust / edited by Robert Pitofsky.
Includes bibliographical references and index.
ISBN 978-0-19-537282-3; 978-0-19-533976-5 (pbk.)
1. Antitrust law—Economic aspects—United States. 2. Antitrust law—United States.
3. Competition—United States. 4. Industrial concentration—United States.
I. Pitofsky, Robert.
KF1649.W48 2008
343.73'0721—dc22 2008002505
9 8 7 6 5 4 3 2 1
Printed in the United States of America
on acid-free paper
Contents
Contributors vii
Introduction: Setting the Stage 3
Robert Pitofsky
1 Conservative Economic Analysis and Its Effects 7
Thoughts on the Chicago Legacy in U.S. Antitrust 11
Richard Schmalensee
Some Practical Thoughts About Entry 24
Irwin M. Stelzer
Conservative Economics and Antitrust: A Variety
of Infl uences 30
F. M. Scherer
Infl uence of Conservative Economic Analysis on the
Development of the Law of Antitrust 40
Thomas E. Kauper
On the Foundations of Antitrust Law and Economics 51
Daniel L. Rubinfeld
2 Is Effi ciency All That Counts? 75
The Effi ciency Paradox 77
Eleanor M. Fox
vi Contents
The Chicago School’s Foundation Is Flawed: Antitrust Protects
Consumers, Not Effi ciency 89
John B. Kirkwood and Robert H. Lande
3 Chicago School and Dominant Firm Behavior 107
The Harvard and Chicago Schools and the Dominant Firm 109
Herbert Hovenkamp
Comment on Herbert Hovenkamp and the Dominant Firm:
The Chicago School Has Made Us Too Cautious About False
Positives and the Use of Section 2 of the Sherman Act 123
Harvey J. Goldschmid
4 Can Vertical Arrangements Injure
Consumer Welfare? 139
Economic Analysis of Exclusionary Vertical Conduct: Where
Chicago Has Overshot the Mark 141
Steven C. Salop
Wrong Turns in Exclusive Dealing Law 156
Stephen Calkins
5 Has the Free Rider Explanation for Vertical Arrangements
Been Unrealistically Expanded? 179
The Sylvania Free Rider Justifi cation for Downstream-Power
Vertical Restraints: Truth or Invitation for Pretext? 181
Warren S. Grimes
Free Riding: An Overstated, and Unconvincing, Explanation for
Resale Price Maintenance 196
Marina Lao
6 Reinvigorating Merger Enforcement That Has
Declined as a Result of Conservative
Economic Analysis 233
Reinvigorating Horizontal Merger Enforcement 235
Jonathan B. Baker and Carl Shapiro
Appendix 289
Index 293
Contributors
Jonathan B. Baker is Professor of Law at American University’s Washington
College of Law, where he teaches courses primarily in the areas of antitrust
and economic regulation. From 1995 to 1998, Professor Baker served as
the Director of the Bureau of Economics at the Federal Trade Commission.
Previously, he worked as a senior economist at the President’s Council of
Economic Advisers, special assistant to the Deputy Assistant Attorney
General for Economics in the Antitrust Division of the Department of
Justice, an assistant professor at Dartmouth’s Amos Tuck School of Business
Administration, as attorney advisor to the Acting Chairman of the Federal
Trade Commission, and as an antitrust lawyer in private practice. Professor
Baker is a senior consultant with CRA International. He is the co-author of
an antitrust casebook, a past editorial chair of ANTITRUST LAW JOURNAL, and
a past member of the Council of the American Bar Association’s Section of
Antitrust Law. Professor Baker has published widely in the fi elds of anti-
trust law and policy and empirical industrial organization economics. In
2004 he received American University’s Faculty Award for Outstanding
Scholarship, Research, and Other Professional Accomplishments, and in
1998 he received the Federal Trade Commission’s Award for Distinguished
Service. He has a J.D. from Harvard University and a Ph.D. in economics
from Stanford University.
Stephen Calkins is Professor of Law and Director of Graduate Studies
at the Wayne State University Law School, where he teaches courses and
seminars on antitrust and trade regulation, consumer law, and torts. He
viii Contributors
has taught at the Universities of Michigan, Pennsylvania, and Utrecht
(The Netherlands), and has served as Wayne State’s interim dean. During
1995–97, Professor Calkins served as general counsel of the Federal Trade
Commission, a position to which he was nominated by FTC Chairman
Robert Pitofsky. Professor Calkins lectures widely throughout the United
States and abroad (most recently in Europe and Australia), has authored
many publications on competition, consumer law, policy, and related
subjects (including the co-authored 5th edition of the Antitrust Law and
Economics Nutshell), and is a journal editor. He is a member of the American
Law Institute, a fellow of the American Bar Foundation, and a senior fel-
low of the American Antitrust Institute. He is currently serving his third
three-year term on the Council of the American Bar Association Section of
Antitrust Law and is a former member of the Council of the ABA Section of
Administrative Law and Regulatory Practice. He is also a former chair of the
Association of American Law School’s Antitrust and Economic Regulation
Committee. He holds degrees from Yale (B.A.) and Harvard (J.D.).
Eleanor M. Fox is the Walter J. Derenberg Professor of Trade Regulation at
New York University School of Law, where she teaches antitrust, European
Union law, international and comparative competition policy, and torts.
Her scholarship is in the area of competition, trade, economic development,
and global governance. She was a partner and is of counsel at the New York
law fi rm Simpson Thacher & Bartlett. Professor Fox served as a member of
the International Competition Policy Advisory Committee to the Attorney
General and the Assistant Attorney General for Antitrust of the United States
Department of Justice (1997–2000) (President Clinton) and as a commissioner
on President Carter’s National Commission for the Review of Antitrust
Laws and Procedures (1978–79). She has served as chair of the Section of
Antitrust and Economic Regulation of the Association of American Law
Schools, chair of the New York State Bar Association’s Section on Antitrust
Law, vice president of the Association of the Bar of the City of New York, and
vice chair of the ABA Antitrust Section. Professor Fox is a frequent visitor
and lecturer at the Competition Directorate of the European Commission.
She has advised numerous younger antitrust jurisdictions, including South
Africa, Indonesia, Russia, and Central and Eastern European nations. Her
books include Antitrust Stories (co-edited with Daniel Crane, Foundation
2007); Competition Policy and the Transformation of Central Europe (with
J. Fingleton, D. Neven and P. Singleton 1996), Cases and Materials on U.S.
Antitrust in Global Context (2d ed. Thomson/West 2004) (with Lawrence
Sullivan and Rudolph Peritz), and European Union Law: Cases and Materials
(2d ed. West 2002) (with G. Bermann, R. Goebel, and W. Davey).
Harvey J. Goldschmid is Dwight Professor of Law at Columbia
University, as which he has served since 1984, and was assistant pro-
fessor (1970–71), associate professor (1971–73), and professor of Law
(1973–84) at Columbia. He is also senior counsel at the law fi rm of Weil,
Gotshal & Manges. From 2002 to 2005, Professor Goldschmid served as a
Contributors ix
commissioner of the United States Securities and Exchange Commission,
and in 1998–99 he was the SEC’s general counsel (chief legal offi cer). In
1997–98, Professor Goldschmid was a consultant on antitrust policy to
the Federal Trade Commission, and in 1995–96 was a member of the FTC’s
Task Force on High Tech/Innovation Issues. He now serves as chair of the
Board of Directors of the Greenwall Foundation, as a public governor of
the Financial Industry Regulatory Authority, as a director of the National
Center on Philanthropy and the Law, as a director of Transparency
International-USA, and on the governing board of the Center for Audit
Quality. He is the author of numerous publications on corporate, securi-
ties, and antitrust law, and is a co-author, with Robert Pitofsky and Diane
P. Wood, of Cases and Materials on Trade Regulation (5th ed. 2003 and 2007
Supplement).
Warren S. Grimes is a law professor at Southwestern Law School in Los
Angeles. He is co-author (with Lawrence A. Sullivan) of a well-known anti-
trust treatise: The Law of Antitrust, An Integrated Handbook (2d ed. 2006).
Professor Grimes is a graduate of the University of Michigan Law School.
He worked for the FTC and served as chief counsel of the House Judiciary
Committee’s Monopolies Subcommittee before turning to full-time teach-
ing in 1988. He has authored numerous articles on antitrust, including a
number that address issues involving distribution restraints. His most
recent publications include Illinois Tool Works, Inc. v. Independent Ink,
Inc., Requirements Tie-Ins and Intellectual Property (with Lawrence
A. Sullivan), 13 SW. J. L. & TRADE IN AMERICAS 335 (2007); From Schwinn to
Sylvania to Where? Historical Roots of Modern Vertical Restraints Policy, in
Antitrust As History, D. Crane & E. Fox, eds. 146–170 (2007); The Future of
Distribution Restraints Law: Will the New Learning Take Hold? UTAH L. REV.
829 (2006).
Herbert Hovenkamp is the Ben V. & Dorothy Willie Professor of Law and
History at the University of Iowa, where his principal areas of teaching and
scholarship are federal antitrust law and American legal history. He also
teaches property law, torts, and IP/Antitrust. He is the surviving author of
Antitrust Law (Aspen, 18 vols & Supp., 1980–2007, formerly with the late
Phillip E. Areeda and the late Donald F. Turner). His other publications
include The Antitrust Enterprise: Principle and Execution (Harvard Univ.
Press, 2006); IP and Antitrust: An Analysis of Antitrust Principles Applied
to Intellectual Property Law (with Mark Janis and Mark Lemley, Aspen
2002–2007); of a standard one-volume textbook, Federal Antitrust Policy:
the Law of Competition and its Practice (West Group, 3d ed. 2005); a case-
book, Antitrust Law, Policy and Procedure (with E. Thomas Sullivan, Lexis
Press, 5th ed. 2003); Enterprise and American Law, 1836–1937 (Harvard
Univ. Press, 1991); and some 80 other books and articles. He has also con-
sulted extensively with the federal government, various state attorneys gen-
eral, and private fi rms, and is a member of the American Academy of Arts
and Sciences.