The Efficiency Paradox

Competition Policy and Antitrust

Article Snapshot

Author(s)

Eleanor Fox

Source

How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust, Robert Pitofsky, ed., Oxford University Press, pp. 77-88, 2008

Summary

This article analyzes antitrust law’s current focus on efficiency as opposed to its previous focus on competition.

Policy Relevance

In order to maximize market efficiency, it is necessary for antitrust law to find the appropriate balance between interfering in the market and preventing harmful conduct. At present, antitrust law focuses on efficiency principles for striking this balance, but this may be inadequate going forward, requiring action by policy makers.

Main Points

  • In 1978, Robert Bork wrote the book The Antitrust Paradox, asserting that, while the goal of antitrust law was to promote competition, it actually inhibited competition by overly favoring small companies. Thus, antitrust law functioned to inhibit the free market competition it was supposed to protect.
     
  • In response, both regulators and judges changed the way antitrust law was enforced, choosing to focus on market efficiency. In essence, if a market participant’s behavior is efficient, then it is allowed.
     
  • Many supporters of the efficiency doctrine of antitrust presume that business activity is naturally efficient, while regulatory efforts are naturally inefficient. This results in the majority of antitrust cases being decided in favor of the defending corporation and in the enactment of minimal new antitrust regulations.
     
  • However, not all corporate activity is efficient, and the assumption is that it serves to hide inefficient and detrimental conduct from antitrust oversight. Thus, overall efficiency is actually hindered by the assumptions made by efficiency proponents, creating an efficiency paradox.
     
  • Instead, a proper balance of antitrust law needs to be maintained between encouraging market efficiency and also promoting competition. While the additional regulation promoting competition may have adverse short term efficiency effect, the long term efficiency is increased.
     
  • This kind of holistic approach is already in use by the European Union which has limited conduct by Microsoft which, while possibly efficient on the short term, hindered competition in the long run. Such an approach could serve the U.S. beneficially by helping to limit monopolies and oligarchies and increasing competition.
     

 

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