Feminist Foundations for the Law of Business: One Law and Economics Scholar\u27s Survey and (Re)view

The purpose of this Essay is to suggest frameworks and modes of inquiry for applying feminist legal analysis to business law and the related theory of law and economics. It does so in two ways. One is to assess works already written by feminist scholars in the business law arena, highlighting how those contributions have begun to pave the way towards enriching the scope of business law analysis. The other is to offer two new roles for feminist jurisprudence. One role is to define just (that is, fair) distributions of rights and the other role is to define social judgments of value, both within the context of law and economics\u27 efficiency criteria for efficient allocation and cost benefit analyses. As a result, this Essay demonstrates that feminist jurisprudence can find fruitful roles consistent with its moral goals through interaction with law and economics, particularly with regard to analyzing business law issues

Coase and the Courts: Economics for the Common Man

The arguments collectively known as the Coase Theorem criticize the judicial policy of requiring businesses to ‘internalize’ their external costs of production, i.e., pay for the social costs their production incurs such as environmental or noise pollution. Coase argues that the policy of internalization often leads to economic inefficiency rather than efficiency maximization, contrary to what Pigouvian economic analysis asserts. The right to be free of the external costs of production ought to be based, instead, on Coase’s total product rule: Courts should allocate rights according to what maximizes overall total production and thereby maximize social welfare. Coasian analysis has been the bedrock of the Chicago Law and Economics school of thought pretty much since Coase’s paper, The Problem of Social Costs, was published in the Journal of Law and Economics in 1960. Though since its inception, there have been debates both as to the Coase Theorem’s validity and its meaning (in part because it invariably leads to a redistribution of wealth to the more advantaged), no one has evaluated the Coase Theorem for its economic correctness, that is, is it correct economic analysis per se? In this Article, I demonstrate with economic analysis, especially with the economic “theory of the 2nd best,” that Coase’s total product rule does not promote economic efficiency any more or less than judicial policies that focus on traditional principles of fairness and equity. In fact I show, from an economic analysis perspective, that Coase\u27s total product rule serves primarily as a mechanism for redistributing wealth (as surmised by Coase’s political critics) and not to maximize total product as he claims. Although Coase implicitly claims that his approach does not contain value choices, an analysis of his economic methodology indicates that his theory does indeed mask one

Risk-Utility Analysis and the Learned Hand Formula: A Hand That Helps or a Hand That Hides?

Judicial inconsistencies in balancing costs against benefits in legal determinations, sometimes referred to as the Learned Hand Formula, indicate that the implications are not fully understood. The incorporation of more formal economic cost-benefit analysis by some courts has only served to increase the confusion and wariness about fostering such guidelines for social behavior. This article\u27s purpose is threefold. One is to demonstrate how the use of cost-benefit analysis necessarily imparts the moral and/or political values of the user into his or her decisions. While the cost-benefit technique is itself value-neutral, its application, as will be shown, requires that some moral choice be made for the cost-benefit implementation. Though the very existence of an underlying value-choice is often obscured by scholars\u27 and judges\u27 presentations of “objective” cost-benefit conclusions (whether deliberately or naively so), the value choices are in fact there and should be elucidated and discussed. The second goal of this article, therefore, is to shed sufficient light on the dimensions of using cost-benefit reasoning so that the reader, whether or not in support of a particular application, can venture knowledgeably into a debate of the value choices attending any cost-benefit argument that might arise. The third purpose of this article is to demonstrate that cost-benefit reasoning as an adjudicatory process is one that grows naturally out of legal jurisprudence and is not merely an intrusion by another social discipline. Because of the furor created by a particular brand of cost-benefit reasoning (primarily by the adherents of the Chicago School), cost-benefit analysis is often viewed as a callous derivative of economic theory insensitive to our notions of fairness and equity, rather than the tool it can be for facilitating existing constitutional values and mores. Parts II and III cover a more detailed history of negligence standards showing the evolution from the avoidable accident approach to one of weighing and balancing, thereby demonstrating that cost-benefit reasoning is, in fact, organic legal doctrine and not the foreign construct of another discipline. However, these sections can easily by skipped without loss of continuity, if the reader should so desire

Business Lawyer, Woman Warrior: An Allegory of Feminine and Masculine Theories

The first part of this essay is a discourse on how two of the last half century’s most influential contributions to legal thinking: Law and Economics Jurisprudence and Feminist Legal Theory, whose adherents are normally adversaries, can function synergistically to create a greater analytic power. Using business law issues as an example - historically law and economics’ terrain but recently explored by feminism - I comment on how each can unravel different knots but each standing alone leave other conundrums unresolved. Expanding on the feminist concept of “masculine thinking,” I discuss how, just as law and economics’ analytic style (i.e., “masculine thinking”) by itself with regard to business law concerns is both enlightening but also limiting, so is feminism (i.e., “feminine thinking.”) A collaboration of the two would create a greater whole then either of the individual parts. This essay is a contribution to an international anthology in honor of Yvette Merchiers, who in addition to being the first woman law professor and first woman dean of the Law Faculty at Ghent University, Belgium, was also one of the leading business law scholars in Europe in her time. As Professor Merchiers entered the all-male world of law academia in a heretofore all male field of business law to great success, it seems appropriate to examine the development of her career and her scholarly contributions with the conjoined lens of “masculine” and “feminine” thinking. Not surprisingly, though Professor Merchiers’ career began well before the prominence of the 2nd wave of feminism, we find that she intuitively adopted both “masculine” and “feminine” thinking in her writings, her professional development and her personal style

Black and White Thinking in the Gray Areas of Antitrust: The Dismantling of Vertical Restraints Regulation

In this Article I present a two-pronged analysis of vertical restraints, one in law and one in economics. By tracing the checkered legal history of vertical restraints, I show the marked changes recent antitrust decisions have wrought, in particular, by comparing the legal standards expressed by the Supreme Court in Monsanto Co. v. Spray-Rite Service Corp. with those in Business Electronics Corp. v. Sharp Electronics Corp and Atlantic Richfield Co. (ARCO) v. USA Petroleum Co. If through the latter two cases the Court has, for all practical purposes, created a category of per se legality for vertical price restraints, which I believe to be the case, then it would not be unreasonable to expect the Court to proceed in the same fashion with respect to vertical non-price restraints in the future. After assessing the current legal status of vertical restraints through market analyses, I demonstrate that the economic reasoning justifying their per se legal treatment is not as compelling as previously believed. I show this in two respects. One evaluation stems from recent advances in economic theory exploring the dynamics underlying the manufacturer\u27s decision process when selecting a method of product distribution. By drawing on those developments, I identify market scenarios not previously considered, in which the anticompetitive effects of vertical price restraints on certain distribution strategies raise new and legitimate antitrust concerns. A second inquiry reexamines the economic issue that initially gave rise to arguments in favor of the legalization of vertical price restraints, that is, the phenomenon of price-discounting retailers who are also free riders. Some commentators have argued that manufacturers should be able to impose vertical price restraints to protect against the dealer erosion that free-riding precipitates. Reaching a different conclusion, this Article demonstrates that either the manufacturer can achieve those same ends through less trade-restrictive business methods that may, in addition, enhance consumers\u27 satisfaction, or, that the strategies themselves, from an economics perspective, are not worthy of protection. Together, both economic analyses, that of the manufacturer\u27s distribution choices and that of the free rider phenomenon, signify that unfettered freedom for manufacturers to impose whatever vertical arrangements they choose actually can foster lower efficiency levels and consumer welfare, the primary economic measures used to evaluate antitrust policy. These results are at variance with those of the Chicago School and indicate the need for more subtle, yet well-defined, antitrust treatment of vertical restraints than per se legal rules offer. Moreover, the conclusions of this Article\u27s market evaluations also demonstrate that the rigidity created by per se illegal treatment of vertical price restraints lowers consumer welfare as well, when applied to certain commonly occurring manufacturer-retailer relationships. Given that neither per se illegal nor per se legal rules for vertical price restraints have the flexibility to make the crucial distinctions between a manufacturer\u27s pro- and anticompetitive conduct, this Article argues for the application of a rule of reason standard that incorporates those features of market structure that economic reasoning indicates will ensure procompetitive impact

Black and White Thinking in the Gray Areas of Antitrust: The Dismantling of Vertical Restraints Regulation

In this Article I present a two-pronged analysis of vertical restraints, one in law and one in economics. By tracing the checkered legal history of vertical restraints, I show the marked changes recent antitrust decisions have wrought, in particular, by comparing the legal standards expressed by the Supreme Court in Monsanto Co. v. Spray-Rite Service Corp. with those in Business Electronics Corp. v. Sharp Electronics Corp and Atlantic Richfield Co. (ARCO) v. USA Petroleum Co. If through the latter two cases the Court has, for all practical purposes, created a category of per se legality for vertical price restraints, which I believe to be the case, then it would not be unreasonable to expect the Court to proceed in the same fashion with respect to vertical non-price restraints in the future. After assessing the current legal status of vertical restraints through market analyses, I demonstrate that the economic reasoning justifying their per se legal treatment is not as compelling as previously believed. I show this in two respects. One evaluation stems from recent advances in economic theory exploring the dynamics underlying the manufacturer\u27s decision process when selecting a method of product distribution. By drawing on those developments, I identify market scenarios not previously considered, in which the anticompetitive effects of vertical price restraints on certain distribution strategies raise new and legitimate antitrust concerns. A second inquiry reexamines the economic issue that initially gave rise to arguments in favor of the legalization of vertical price restraints, that is, the phenomenon of price-discounting retailers who are also free riders. Some commentators have argued that manufacturers should be able to impose vertical price restraints to protect against the dealer erosion that free-riding precipitates. Reaching a different conclusion, this Article demonstrates that either the manufacturer can achieve those same ends through less trade-restrictive business methods that may, in addition, enhance consumers\u27 satisfaction, or, that the strategies themselves, from an economics perspective, are not worthy of protection. Together, both economic analyses, that of the manufacturer\u27s distribution choices and that of the free rider phenomenon, signify that unfettered freedom for manufacturers to impose whatever vertical arrangements they choose actually can foster lower efficiency levels and consumer welfare, the primary economic measures used to evaluate antitrust policy. These results are at variance with those of the Chicago School and indicate the need for more subtle, yet well-defined, antitrust treatment of vertical restraints than per se legal rules offer. Moreover, the conclusions of this Article\u27s market evaluations also demonstrate that the rigidity created by per se illegal treatment of vertical price restraints lowers consumer welfare as well, when applied to certain commonly occurring manufacturer-retailer relationships. Given that neither per se illegal nor per se legal rules for vertical price restraints have the flexibility to make the crucial distinctions between a manufacturer\u27s pro- and anticompetitive conduct, this Article argues for the application of a rule of reason standard that incorporates those features of market structure that economic reasoning indicates will ensure procompetitive impact

Who Determines the Optimal Trade-off between Quality and Price?

The question of the optimal trade-off between quality and price has become increasingly important as well as complex in recent times, as the advances of modern technology permit a far more refined range of choices. These subtleties among choices allow an individual, a group, or a society to titrate more precisely degrees of quality with almost any product or service, coupled, of course, with counterbalancing price consequences. In 2002, as Program Chair of the Antitrust Section of the Association of American Law Schools, I organized a panel entitled “Guilds at the Millennium: Antitrust and the Professions” and served as one of its commentators. The focus of this comment is not on the typical antitrust questions regarding regulating professionals in the face of asymmetric information or, in particular, how to cope with the potential anticompetitive effects of allowing the professions to regulate themselves. That issue is explicated quite cogently and extensively by the other commentator on this panel. Rather, the purpose here is to draw attention to another problem submerged within and yet intertwined with these discussions — the determination of the socially optimal trade-off between quality and price in the context of professional regulation. Co-extensively, this comment raises the question as to what antitrust\u27s role should be in making such important price-quality trade-off decisions

Choosing among Antitrust Liability Standards under Incomplete Information: Assessments of and Aversions to the Risk of Being Wrong

This essay analyzes the three papers presented on a panel I organized as chair of the AALS Antitrust Section entitled Evolving Antitrust Treatment of Dominant Firms for the 2005 Annual Meetings. Steve Salop’s and Doug Melamed’s papers recommend standards for government intervention while David McGowan argues why the government should not. I create a framework within which to understand the three papers’ relationship to each other, by building on McGowan’s characterization of courts’ antitrust decisions. Since antitrust decisions are based on inherently incomplete real world information, they are subject to “error costs”: Courts are at risk of “false positives” (finding a violation when the behavior is not anticompetitive) and “false negatives” (finding no violation when the behavior is anticompetitive.) In light of these error costs, McGowan acknowledges that whether the court chooses to intervene or not depends on its ideology. He, himself, advocates that courts avoid false positives by not intervening and allow the marketplace to correct antitrust problems. This “market corrections approach” also alleviates concerns for false negatives. Taking a more interventionist view, Melamed recommends a “profit sacrifice test” to determine whether the exit of rivals is essential to exclusionary conduct’s profitability, thereby capturing more of the “false negatives” with little increase in “false positives.” Salop, taking an interventionist view as well, recommends a more comprehensive evaluation to determine the conduct’s impact on consumer welfare – thereby expanding greatly the capture of false negatives. I believe, however, that differences in viewpoints are affected not only by which correction tool a scholar or court finds more effective (the market or the government), but also by the differences in their evaluation of the consequences of the false positives versus the false negatives in the specific instance under consideration. Inherent in any real-world antitrust decision are not just error costs but also a trade-off between the risk of a false positive and the risk of a false negative. Differences in valuation of those consequences may lead scholars and courts to differ in their reluctance to undertake particular outcomes when they choose to guard against one error as opposed to the other in a particular case. Therefore, I suggest that one\u27s antitrust position is not only informed by one\u27s belief in the ability of the marketplace relative to the government to correct anticompetitive problems, but also to the degree, in any particular circumstance, one is more risk-averse to the consequences of one error cost over the other. As a result, we can see a continuum of antitrust approaches rather than a stark categorization into two camps. This allows for a distinction between Melamed\u27s and Salop\u27s interventionist papers. Thus, I would place McGowan\u27s market-place reliance toward one end; Salop\u27s broad and more fine-tuned government evaluation of conduct, toward the other; and Melamed\u27s perspective of specific finite criteria somewhere in the middle

Economic Efficiency and the Parameters of Fairness: A Marriage of Marketplace Morals and the Ethic of Care

This article provides resolutions to a number of conundrums that have vexed policy-makers and scholars for some decades. The most significant conclusion is that efficiency and fairness concerns do not conflict but rather mutually support each other in the goal of maximizing social welfare. This is contrary to the more widely-held view by both advocates of law and economic reasoning and those favoring deontological concerns that a trade-off between fairness and efficiency is inevitable. This article demonstrates how the coalescence of the two frameworks, the cultivation of fairness with law and economics\u27 efficiency maximization, yields greater enhancements of social welfare than efficiency alone, by simultaneously satisfying the criteria of both. The analysis also points out that more than one state of the world likely exists that satisfies both sets of criteria and the selection is political, not determined by any objective criteria, but chosen by the subjective criteria of the decision-maker. This article also discusses Kaplow and Shavell’s noted and contrary assertion that a rigourous demonstration (with mathematical formality) shows that fairness concerns should never enter as an independent factor when policy makers seek to maximize social welfare. I show, however, that Kaplow and Shavell\u27s conclusion rests on a mathematical construction of fairness that essentially strips it of all social-welfare enhancing properties, which does not comport with usual notions and purposes of fairness. It is this faulty mathematical construction that leads them to the conclusions they reach. The indeterminacy inherent in the Pareto efficiency criteria leading to multiple efficient states not only characterizes efficiency analysis\u27s limitations but also delineates the scope for deontological choices. This article shows that a decision regarding efficient states necessarily requires deontological decisions; deontological decisions do not substitute for efficiency but compliment it. Finally, the concept of “parameters of fairness” is introduced as a means to circumscribe the maximum efficient states that are also maximum fairness states. Considering excessive corporate harm by way of example, a matter mainstream economic analysis has failed to resolve, I employ feminist legal theory as the deontological construct to yield a range of satisfactory efficient and fair resolutions. Though any deontological system would do, the conflation of feminist legal theory and law and economic analysis is particularly significant because, historically, supporters in each camp have been diametrically opposed to the tenets of the other