The Looming Crisis in Antitrust Economics

By Herbert Hovenkamp (University of Pennsylvania)

As in so many areas of law and politics in the United States, antitrust’s center is at bay. It is besieged by a right wing that wants to limit antitrust even more than it has been limited over the last quarter century. On the left, it faces revisionists who propose significantly greater enforcement.

One thing the two extremes share, however, is denigration of the role of economics in antitrust analysis. On the right, the Supreme Court’s two most recent antitrust decisions at this writing reveal that economic analysis no longer occupies the central role that it once had. On the left, some proposals by Democratic presidential contender seem to be ignorant or at least indifferent about how their proposals will affect important participants in the economy.

The antitrust laws speak of prohibited conduct in economic terms, such as “restraint of trade,” “monopoly,” or lessening of “competition.” They do not embrace any particular economic ideology, such as the Chicago School or institutionalism. Nor do they require the use of any particular economic model, such as perfect competition or monopolistic competition. This openness gives policy makers a great deal of room, but it is not an invitation to economic nonsense. Further, economics should not be a tool for picking a winning interest group and then manipulating the doctrine to get that result.

On the right, the Supreme Court’s Apple decision slighted the economics of passed on consumer harm, a central component in the analysis of private damage actions for more than forty years. In AmEx, the Court neglected the kind of Coasean transactional analysis that would have uncovered the true injuries in that case, defined the “relevant market” in such a way as to make that term economically incoherent, rejected a superior methodology for assessing power in a vertical case in favor of an inferior one, and completely misunderstood the meaning and appropriate definition of free riding.

The progressive left fares no better, however. Although they do a much better job than the conservative Supreme Court majority of identifying the problem, the proposed solutions are calculated to make it worse. The pursuit of business concentration for its own sake will injure consumers far more than it benefits small business, the intended beneficiaries. A proposal to forbid large platforms from selling their own products in competition with the products of others will harm both consumers and small business, although it will benefit some large firms.

When used correctly and without excessive ideology, economics is a powerful, neutral tool for helping people identify injuries to competition and appropriate fixes. Indeed, that is the first and best use of antitrust economics. Both extremes in this debate have ignored the first rule of rational antitrust policy: figure out who is getting hurt, and how.

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