Bakke Betrayed

While it seems that a President who disagrees with the Supreme Court\u27s account of the Constitution faces only two choices--to enforce the Court\u27s decision or defy the Court and take his case to a skeptical populace--there is a third way in which the President can publicly embrace the doctrine in question, while at the same time refusing to follow it. Pres Clinton\u27s Administration has followed just such a third way approach to Regents of the University of California v. Bakke

A Careful Examination of the Live Nation-Ticketmaster Merger

As great admirers of The Boss and as fans of live entertainment, we share in the popular dismay over rising ticket prices for live performances. But we have been asked as antitrust scholars to examine the proposed merger of Live Nation and Ticketmaster, and we do so with the objectivity and honesty called for by The Boss’s quotes above. The proposed merger has been the target of aggressive attacks from several industry commentators and popular figures, but the legal and policy question is whether the transaction is at odds with the nation’s antitrust laws. One primary source of concern to critics is that Ticketmaster and Live Nation are two leading providers of ticket distribution services, and these critics argue that the merged entity would have a combined market share that is presumptively anticompetitive. We observe, however, that this transaction is taking place within a rapidly changing industry. The spread of Internet technologies has transformed the entertainment industry, and along with it the ticket distribution business such that a reliance on market shares based on historical sales is misleading. A growing number of venues, aided by a competitive bidding process that creates moments of focused competition, can now acquire the requisite capabilities to distribute tickets to their own events and can thus easily forgo reliance upon providers of outsourced distribution services. If self-distribution is an available and attractive option for venues, as it appears to be, then it is unlikely that even a monopolist provider of fully outsourced ticketing services could exercise market power. Ultimately, a proper assessment of the horizontal effects of this merger would have to weigh heavily the emerging role of Internet technologies in this dynamic business and the industry-wide trend towards self-distribution. The second category of arguments by critics opposing the merger rests on claims that vertical aspects of the transaction would produce anticompetitive effects. Indeed, Ticketmaster’s and Live Nation’s core businesses are in successive markets, and thus the proposed transaction is primarily a vertical merger, but there is broad agreement among economists and antitrust authorities that vertical mergers rarely introduce competitive concerns and are usually driven by efficiency motivations. This wealth of academic scholarship, which is reflected in current antitrust law, has not - from our vantage point - been properly incorporated into the public dialogue concerning the proposed merger. To the contrary, critics articulate concerns, including the fears that the merger would lead to the leveraging of market power and the foreclosure of downstream competition, that are refuted by accepted scholarship. Moreover, there are a number of specific efficiencies that, consistent with economic and organizational theory, are likely to emerge from a Live Nation-Ticketmaster merger and would be unlikely but for the companies’ integration. For these reasons, we submit this analysis in an effort to inform the debate with current economic and legal scholarship

Reframing the (False?) Choice Between Purchaser Welfare and Total Welfare

This Article critiques the role that the partial equilibrium trade-off paradigm plays in the debate over the definition of “consumer welfare” that courts should employ when developing and applying antitrust doctrine. The Article contends that common reliance on the paradigm distorts the debate between those who would equate “consumer welfare” with “total welfare” and those who equate consumer welfare with “purchaser welfare.” In particular, the model excludes, by fiat, the fact that new efficiencies free up resources that flow to other markets, increasing output and thus the welfare of purchasers in those markets. Moreover, the model also assumes that both the positive and negative impacts of a transaction are permanent and occur immediately and simultaneously. As a result, the model excludes the (very real) possibility that subsequent entry will undermine or mitigate any market power, leaving only efficiencies that benefit purchasers in the original market. Removal of these unrealistic assumptions requires the antitrust community to reframe the debate about the appropriate welfare standard for antitrust and could require adjustment of the standards applied to practices that both raise prices and create efficiencies in the relevant market. For instance, recognition that efficiencies generated in one market cause resource flows to other markets and higher output in such markets undermines claims that producers “pocket” efficiencies whenever a practice results in higher prices. Thus, instead of involving a conflict between “producers” and “purchasers” in a single market, transactions that both raise prices and create efficiencies require antitrust policy to resolve a conflict between purchasers in the original market, on the one hand, and those in other markets, on the other. In the same way, the realization that the trade-off model ignores the passage of time requires antitrust policy to resolve a conflict between current and future purchasers in the original market

Section 2 Enforcement and the Great Recession: Why Less (Enforcement) Might Mean More (GDP)

The Great Recession has provoked calls for more vigorous regulation in all sectors, including antitrust enforcement. After President Obama took office, the Antitrust Division of the Department of Justice abandoned the Bush Administration’s standard of liability under section 2 of the Sherman Act, which forbids unlawful monopolization, as insufficiently interventionist. Based on the premise that similarly lax antitrust enforcement caused and deepened the Great Depression, the Obama Administration outlined a more intrusive and consumer-focused approach to section 2 enforcement as part of a larger national strategy to combat the “extreme” economic crisis the nation was then facing. This Essay draws on macroeconomic theory and the New Deal experience to examine the relationship between section 2 standards and macroeconomic stability. In particular, this Essay evaluates the claim that more aggressive section 2 enforcement focused on maximizing the welfare of consumers who purchase from monopolists would help forestall and ameliorate economic downturns. While empirical evidence confirms the Obama Administration’s claims that New Deal efforts to cartelize prices and wages exacerbated the Depression, this Essay argues that substitution of this novel and more intrusive “consumer welfare effects” test for the Bush Administration’s “disproportionality” standard would not stimulate aggregate demand, and may even reduce national output at the margins. Given the ambiguity in the aggregate impact of such enforcement, this Essay concludes that antitrust regulation should abandon any pretensions of being a tool for macroeconomic stabilization, and focus solely on identifying and condemning conduct that on balance results in a misallocation of resources and a reduction in total economic surplus. By keeping its microeconomic focus, antitrust regulation can help maximize the potential value of the gross domestic product, while monetary and fiscal policy produce sufficient aggregate demand to ensure full employment of society’s resources and to achieve that potential value

Regulation of Franchisor Opportunism and Production of the Institutional Framework: Federal Monopoly or Competition Between the States?

Most scholars would agree that a merger between General Motors and Ford should not be judged solely by Delaware corporate law, even if both firms are incorporated in Delaware. Leaving the standards governing such mergers to state law would assuredly produce a race to the bottom that would result in unduly permissive treatment of such transactions. Similarly, if the two firms agreed to divide markets, most would agree that some regulatory authority other than Michigan or Delaware should have the final word on the agreement. Thus, in order to forestall monopoly or its equivalent, the national government must itself exercise a monopoly-currently through the Sherman Act-over the production of rules governing such transactions. This is not to say that the national government should exercise a monopoly with respect to all commercial transactions with some interstate nexus. Assume, for instance, that a contractor from North Carolina promises to build an addition to my house in Virginia before the winter and completes ninety percent of the project-all except the roof-by November 15. Assume further that the contractor threatens not to complete the project, knowing that I cannot find satisfactory substitute performance, and thus secures my agreement to an increase in the contract price. Most scholars would agree that state contract law should govern my claims for relief, and that competition between the states regarding the standards governing such conduct would not result in a race to the bottom. Therefore, no federal monopoly is necessary. This essay examines a class of cases that stands somewhere between the merger of Ford and General Motors, on the one hand, and the threatened breach by the contractor on the other: franchisor opportunism. These cases are similar to the hypothetical merger or cartel involving Ford and General Motors in that the offending parties are large, often multinational corporations that do business in all fifty states. However, they are also like the threatened breach by the contractor in that they involve opportunism in two-party, buyer-seller relationships, opportunism that seems redressable under traditional contract law doctrines. The hybrid nature of such cases presents a puzzle for courts and policymakers who must decide which institution-federal monopoly or competition between the states - should generate the rules governing these transactions. This essay suggests that the federal government should not, under the aegis of the Sherman Act, displace competition among the states for the production of rules governing purported franchisor opportunism. As shown below, the case for Sherman Act intervention to combat franchisor opportunism turns on the existence of transaction costs, costs that would prevent franchisees from protecting themselves in advance by contract or exit. Indeed, the treble-damage remedy of the Sherman Act can be characterized as a liability rule that obviates the market failure that transaction costs would otherwise engender. Those who have advocated Sherman Act regulation in this context have treated transaction costs as a given - exogenous to the legal system. However, as shown below, these costs are in fact a function of the institutional framework, which is constructed in part by various rules of contract law. By adjusting these common law rules by judicial decision or statute, states can alter the institutional framework, reduce the cost of transactions, and thus undermine the case for Sherman Act intervention. The mere fact that state courts and legislatures could generate rules that deter franchisor opportunism does not mean that they will. Delaware, after all, could produce corporate law that deterred all wealth-destroying mergers, though one doubts it would do SO. Still, given state law\u27s potential for preventing franchisor opportunism, advocates of federal intervention in this area must demonstrate that competition between states to produce the institutional framework governing such behavior is beset by a market failure that will produce a race to the bottom. No such demonstration has been made, and preliminary analysis suggests that competition between the states will not, in fact, produce a race to the bottom in this context

Debunking the Purchaser Welfare Account of Section 2 of the Sherman Act: How Harvard Brought Us a Total Welfare Standard and Why We Should Keep It

The last several years have seen a vigorous debate among antitrust scholars and practitionersa bout the appropriates tandardf or evaluating the conduct of monopolists under section 2 of the Sherman Act. While most of the debate over possible standards has focused on the empirical question of each standard\u27s economic utility, this Article undertakes a somewhat different task: It examines the normative benchmark that courts have actually chosen when adjudicating section 2 cases. This Article explores three possible benchmarks-producer welfare, purchaser welfare, and total welfare-and concludes that courts have opted for a total welfare normative approach to section 2 since the formative era of antitrust law. Moreover, this Article will show that the commitment to maximizing total social wealth is not a recent phenomenon associated with Robert Bork and the Chicago School of antitrust analysis. Instead, it was the Harvard School that led the charge for a total welfare approach to antitrust generally and under section 2 in particular. The normative consensus between Chicago and Harvard and parallel case law is by no means an accident; rather, it reflects a deeply rooted desire to protect practicesparticularly competition on the merits -that produce significant benefits in the form of enhanced resource allocation, without regard to the ultimate impact on purchasers in the monopolized market. Those who advocate repudiation of the longstanding scholarly and judicial consensus reflected in the total welfare approach to section 2 analysis bear the heavy burden of explaining why courts should, despite considerations of stare decisis, suddenly reverse themselves and adopt such a different approach for the very first time, over a century after passage of the Act