Limits of Antitrust, The

Competition Policy and Antitrust

Article Snapshot

Author(s)

Frank H. Easterbrook

Source

Texas Law Review, Vol. 63, No. 1, 1984

Summary

This classic paper reviews the problems judges face in deciding antitrust cases.

Policy Relevance

Judges in antitrust cases too often condemn business acts that help consumers. Screening cases to reduce false convictions would help consumers overall.

Main Points

  • Every business must reach agreements (internal or external) to cooperate with some (suppliers, employees, venture partners) in order to compete with others. Antitrust law fails to describe harmful agreements. Judges face a hard task of line drawing.

  • Economics texts model competition as a set of sales to many perfectly informed consumers by many identical firms. Expecting the real world to conform will have bad results most of the time.

  • Judges fill the gap with legal presumptions (“per se rules"). Complex new behaviors are assumed to be bad, meaning that acts that help consumers will too often be penalized.

  • Mistakenly penalizing helpful acts ("false conviction") hurts consumers more than letting firms off for harmful acts ("false acquittal"). A conviction deters all firms for decades. But consumers and rival firms devise ways to avoid harms allowed by an acquittal.

  • Screening antitrust cases using five filters would reduce the total costs of enforcement, false convictions, and false acquittals. Judges should look for:
    • Market power;
    • Evidence the firm profits by harming consumers;
    • Whether the practice is uniform in the industry;
    • Whether the practice allows the firm to reduce output (and/or whether  the practice has survived over time without the firm’s losing market share);
    • Whether the suit was brought by a business rival: these should be disallowed, as rivals complain to restrain competition that benefits consumers.

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