Colvin, Christopher L.

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Accounting Historians JournalVolume 39Issue 2 December 2012 Article 112012In antitrust we (do not) trustChristopher L. ColvinFollow this and additional works at: https://egrove.olemiss.edu/aah_journalPart of the Accounting Commons, and the Taxation CommonsThis Article is brought to you for free and open access by the Archival Digital Accounting Collection at eGrove. It has been accepted for inclusion inAccounting Historians Journal by an authorized editor of eGrove. For more information, please contact egrove@olemiss.edu.Recommended CitationColvin, Christopher L. (2012) "In antitrust we (do not) trust," Accounting Historians Journal: Vol. 39 : Iss. 2 , Article 11.Available at: https://egrove.olemiss.edu/aah_journal/vol39/iss2/11118 Accounting Historians Journal, December 2012IN ANTITRUST WE (DO NOT) TRUST1Christopher L. Colvin2I will be teaching industrial organization (IO) to under­graduates next year. It is a brand new course, and so I have been trawling though the websites of IO teachers around the world for inspiration. Overall, I have been quite perplexed with what I have found: undergraduates seem to be fed material that is very theoretical and computational, with little or no context or application. Perhaps this prepares students well for graduate programs in economics, but the vast majority of economics undergraduates are not going to be doing a PhD. And even those that do will require exposure to some empirical research.I want my students to use their microeconomics, to get them  to appreciate that real life is dirtier than in the models. And I want them to understand that economic ideas are not fixed in time and space, that a log-run perspective can reveal very different insights about hum an behavior. I plan to do so by limiting the use of textbooks and instead delving into academic papers and antitrust cases. I feel economic history should play center stage in an economics degree, not relegated to being an obscure field study. So, when teaching sunk costs and market structure, I will look at the decline of Europe’s film industry in the early twentieth century;3 when covering collusion, I will set them  the US sugar cartel of the 1930s;4 when explaining natural monopolies, I will examine Victorian railways;5 and when look­ing at the efficacy of patents, I will do nineteenth century alter­natives.6I am also keen to find something accessible that students can use to appreciate the origins and evolution of competition policy -  including why it differs by place, and how legal deci­sions based on economic arguments made long ago still have resonance today. I want to teach them  some history of economic1 An older version of this comment was posted on the NEP-HIS blog (http:// www.nephis.org/), a weekly blog that discusses new working papers in business, economic and financial history sourced from the RePEc digital library (http:// repec.org/).2 Affiliation: Queens University Belfast. Email: chris.colvin@qub.ac.uk.3 Bakker (2005).4 Genesove and Mullin (2001).5 Freman-Peck (1987).6 Brunt, Lerner and Nicholas (2011).1Colvin: In antitrust we (do not) trustPublished by eGrove, 2012Salmagundi 119thought. One paper that I hope to discuss in this context is Nicola Giocoli’s new working paper, entitled “British econo­mists on competition policy (1890-1920)”.7 Giocoli, an Associate Professor of Economics at the University of Pisa, looks at the reaction in the UK to the advent of antitrust in the US.8 He finds that academically and politically influential British economists Herbert S. Foxwell, David H. McGregor and Alfred Marshall were dead against US-style anti-m onopoly legislation. They believed it would be difficult to implement, run counter to the ideals of a free market, and be inappropriate in the UK indus­trial context.9 The UK had to wait until 1948 for the Monopolies and Restrictive Practices (Inquiry and Control) Act, 1965 for the Monopolies and Mergers Act, and 1998 for a fully independent competition authority.10W hat I think is particularly im portant about Giocoli's paper for my students' understanding of the evolution of IO is his description of a transform ation in what economists thought com petition entailed. For classical economists, com petition was about firm conduct; they adopted a dynamic process-based view of competition. For the neoclassical economists that fol­lowed, com petition was m ore about m arket structure, the m arket condition; this static view was more concerned with business size and the num ber of competitors. For someone teaching m odem  IO theory, this is fascinating. Over the last two (or three) decades, IO has seen a paradigm shift from the old structure-conduct-performance view of competition -  which pri­marily concerned itself with measuring market structure -  to the so-called "new industrial organization” view -  which, apparently much like the view held by the economists described by Giocoli, is far more concerned with figuring out firm conduct and does not necessarily draw a causal link between structure and perfor­m ance.11 In short, it appears we have come full circle.I like Giocoli’s paper because he tries to marry his history of economic thought with up-to-date research in economic history. Instead of seeing the US as a success and Britain as a failure -  a view associated with the work of business historian Alfred D.7 Giocoli (2012).8 The Sherman and Clayton Antitrust Acts (1890 and 1914) were introduced at a time when the UK had no codified competition policy.9 US economists too were very divided on the efficacy of antitrust at the time, see Hovenkamp (2010).10 Motta (2004), pp. 11-13.11 See Lipczynski, Wilson and Goddard (2009), Chapters 1-5, for an accessible introduction to m odem approach to IO theory.2Accounting Historians Journal, Vol. 39 [2012], Iss. 2, Art. 11https://egrove.olemiss.edu/aah_journal/vol39/iss2/11120 Accounting Historians Journal, December 2012Chandler12 -  Giocoli argues that competition law was unneces­sary because Britain was largely still a success, ahead of every­one else terms of total factor productivity -  it did not require government intervention in the form of antitrust legislation. I would encourage Giocoli to further develop this argum ent by looking at some of the work of LSE business historian Leslie Hannah, whose career has been devoted to debunking Chandler. His articles show that the “Chandlerian corporation” was actu­ally far more a thing of Europe than America.13 A monopolist like Standard Oil -  the company whose breakup must be central to any history of antitrust -  was the exception rather than the rule. US capitalism is a story of small family-run enterprise, not big business. How does this revision of the business history af­fect Giocoli's argument?REFERENCESBakker, G. (2005), “The Decline and Fall of the European Film Industry: Sunk Costs, Market Size, and Market Structure, 1890-1927,” The Economic His­tory Review, Vol. LVIII, No. 2: 310-351.Brunt, L., Lerner, J., and Nicholas, T. (2011), “Inducement Prizes and Innova­tion,” Harvard Business School Working Paper Series, No. 11-118. Forth­coming in The Journal o f Industrial Economics.Chandler, A.D. (1969), Strategy and Structure: Chapters in the History o f the Amer­ican Industrial Enterprise (Cambridge, MA: The MIT Press).Giocoli, N. (2012), “British Economists on Competition Policy (1890-1920),” MPRA Working Paper Series, No. 39245, Available at http://mpra.ub.uni­muenchen.de/39245/.Lipczynski, J., Wilson, J.O.S., and Goddard, J. (2009), Industrial Organization: Competition, Strategy, Policy (Harlow: Peason, 3rd Ed.).Foreman-Peck, J.S. (1987), "Natural Monopolies and Railway Policy in the Nine­teenth Century," Oxford Economic Papers, Vol. 39, No. 4: 699-718.Genesove, D., and Mullin, W.P. (2001), "Rules, Communication, and Collusion: Narrative Evidence from the Sugar Institute Case,” The American Economic Review, Vol. 91, No. 3: 379-398.Hannah, L. (2008), “Logistics, Market Size, and Giant Plants in the Early Twen­tieth Century: A Global View,” The Journal o f  Economic History, Vol. 68, No. 1: 46-79.Hovenkamp. H.J. (2010), "United States Competition Policy in Crisis: 1890- 1955,” University of Iowa Legal Studies Research Paper Series, No. 08-32.12 See, e.g., Chandler (1969).13 See especially Hannah (2008).3Colvin: In antitrust we (do not) trustPublished by eGrove, 2012

In antitrust we (do not) trust

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In antitrust we (do not) trust

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