Anti-Trust and Economic Theory: Some Observations from the US Experience

Recent developments in US anti-trust can be characterised as reflecting the uneasy interaction of two quite separate phenomena: first, the increased emphasis on economic analysis as the overriding organising principle of anti-trust policy and on economic efficiency as the primary (perhaps only) relevant goal for anti-trust; second, the long-standing reluctance of the federal judiciary to involve itself in any substantive economic analysis, and the preference, instead, for simple rules of thumb or ‘pigeon holes’ to sort out lawful from unlawful conduct. The result has been that while economics has played a major role, it has not influenced American anti-trust as thoroughly or as uniformly as might have been imagined; rather the extent and the nature of its influence have depended on the degree to which the relevant economics could be reduced to the kind of simple rules or pigeon holes that the judiciary favours. The present paper will illustrate that theme, first by reporting on the two developments separately and then by illustrating their joint influence with reference to two important areas of American anti-trust: predatory conduct and so-called vertical restraints. Finally, a contrast will be made between judicial development in those two areas and recent American merger policy which, it is argued, is carried out largely independently of the judiciary, and hence the opportunities for economics to influence the process are less inhibited by the judicial reluctance to undertake extensive economic analysis

Anti-competitive Agreements: The Meaning of “Agreement”

The trend towards convergence of substantive antitrust doctrine means that most jurisdictions now condemn agreements among competitors that fix prices. But that same convergence means that those same jurisdictions must wrestle with the problem of how to establish the existence of an agreement, especially in an oligopolistic industry where high prices could, at least in theory, be the result simply of oligopolistic interdependence. Do we condemn such interdependence? Do we ignore it and require an explicit agreement? Or is there some middle ground? This chapter explores how the U.S. and, to a lesser extent, the EU, have approached the problem of dealing with a cartel when there is no hard evidence of an explicit agreement. The first option is to try to prove the existence of an explicit agreement through circumstantial evidence; a second is to relax somewhat the requirement that there be an explicit agreement. The effort to find the perfect solution continues

The FTC and Pricing: Of Predation and Signaling

This paper summarizes and comments on two recent FTC cases. The first case involved accusations of predatory pricing against Borden, the manufacturer of ReaLemon, the dominant brand of reconstituted lemon juice. The second involved price-signaling and other so-called facilitating practices by the four makers of lead-based antiknock compounds

Adjustment Costs and the Flexible Accelerator

The flexible accelerator concept has provided the rationale for the regression equations used in several recent econometric studies of inventory behavior. In such a model a desired (or equilibrium) level of inventories is defined, but because of costs involved in changing the level of stocks only a partial adjustment of inventories to their desired level is achieved in any time period. This leads to the familiar decision rule in which current inventory is a linear function of the previous period\u27s stock plus a variable or set of variables representing current demand. The purpose of this note is to question whether there are any significant costs specifically associated with changing the level of inventories other than those directly associated with changes in the level of production which may (or may not) be required to bring about the necessary stock adjustment. If none exist, it is shown that a given time pattern of demand can lead a firm which acts according to the flexible accelerator to behave irrationally and incur unnecessary costs. Finally, an amended version of the flexible accelerator is presented, and the resulting equation for inventories is compared with that derived from the original model

The FTC and Pricing: Of Predation and Signaling

This paper summarizes and comments on two recent FTC cases. The first case involved accusations of predatory pricing against Borden, the manufacturer of ReaLemon, the dominant brand of reconstituted lemon juice. The second involved price-signaling and other so-called facilitating practices by the four makers of lead-based antiknock compounds

Horizontal Agreements: Concept and Proof

It is well established that, absent some very special circumstances, agreements on price or certain other terms of trade by otherwise competing entities (i.e., horizontal agreements ) are unlawful per se under the Sherman Act. In practical effect, once the fact of the horizontal agreement has been established, an adverse impact on competition is presumed, and therefore that the plaintiff is spared the burden of proving such an impact. The principal task for plaintiffs in such cases, therefore, is establishing the existence of an agreement. In the ideal world (from plaintiffs\u27 perspective), there would be hard evidence of a formal agreement. By formal agreement, I mean that the parties actually met or otherwise explicitly communicated agreement on a course of action, and by hard evidence, I mean that there is testimony from a live witness present when the communication occurred, a video or audio recording of the communication, or a document created by one of more of the parties that documents the fact of the agreement. Of course, the world is not always ideal and most of the litigated cases involve situations in which there is no hard evidence of a formal agreement. In such cases, the plaintiff is forced to ask the court to infer an agreement from circumstantial evidence. However, as we shall see, what makes this task difficult for the plaintiff is that it may involve some complex combination of a detective story (what actually happened?), where economic analysis is often an essential ingredient, and a theoretical legal argument (does what happened constitute an unlawful agreement?). It is the possibility of this complex combination of economic evidence and legal theory that also poses challenges for the court, whether in fashioning instructions for the jury or in ruling on motions (typically by defendants) for summary judgment, directed verdict, judgment notwithstanding the verdict and, most recently, motions to dismiss the complaint for failure to state a claim. In what follows, I attempt to identify the challenges and to explain when and how economic analysis may be of assistance, but at the same time, identifying areas where the principal concerns are legal rather than economic, i.e., where legal creativity may be required for an effective solution. In that vein, the article will discuss the concept of facilitating practices and assess whether the concept may be useful in filling an important gap in the coverage of the Sherman Act