Chicago and Post Chicago

As is implicit in the Allensworth paper, the Chicago School is largely responsible for the shift in antitrust. I have selected the three readings for tehse reasons: (i) Easterbrook is one of the seminal papers of the Chicago School; (ii) Fox is one of the Chicago School’s major critics; (iii) Kobayashi and Muirs appear to be in denial about this whole Chicago School business. for discussion: what is the Chicago School, why was it so influential, what are the major criticisms? what is the usefulness of using it as a paradigm for a certian approach to antitrust?

Easterbrook ‘The Limits of Antitrust’ (1984) 63 University of Texas Law Review 1

Fox ‘The Efficiency Paradox’ (2009)) New York University Law and Economics research Paper Series (Working Paper 09-26)

Kobayashi and Muirs ‘Chicago, Post-Chicago and Beyond: Time to Let go of the 20th Century’ (2012) 78 Antitrust Law Journal 147

Further Reading

(definition: further reading is not required for the seminar, it is usually a paper I’d like to have added to the list but decided to clip to avoid excessive readings.)

Bougette, Deschamps and Mart ‘When Economics Met Antitrust: The Second Chicago School and the Economization of Antitrust Law’ (2015) 16(2) Enterprise & Society 313

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13 comments on “Chicago and Post Chicago

  1. Anna Nowak says:

    I find the presumption that preserving competition is the best way to achieve efficiency more convincing than the one of Chicago School. At the end of the day, the concern is the same, the economic welfare, but the means to achieve does not really add up for me in Chicago School. Of course, Chicago changed the way of looking at antitrust law in the U.S. in a very positive way and kind of “opened minds”. However, this “both theoretical and empirical economics as the primary mode of analysis” maybe went a little too far in a sense that at one point it just failed at the application level. How is the judge supposed to carry out the refined analysis of consequences of error type I/type II in each individual case? And if they simply analyse arguments put forward by the parties and choose based on a better evidence, this doesn’t secure the solution in service of the efficiency, as an objective value, either. I don’t see how to make the efficiency test work in the court unless the judgment is based on the opinion of an independent body of economists, not parties’ submissions.

    The more “universal” approach that Fox presents as the EU one seems to me more secure, less controversial and more difficult to get warped when compared with Chicago’s “bottom-up” approach. It is better to find a formula applying to all cases than facing questions of “efficiency” with “fact-intensive determinations” in each case, increasing the risk of errors in assessments. Indeed, it may lead to a little unnatural outcome, like the one in BrookGroup or Trinko.

    I also do not find consistent the Kobayashi and Muris’ argument that the Chicago School was not pro-defendant, since a few lines above they praise it for “higher evidentiary standards in resale price maintenance cases and a hard to satisfy two-part test for plaintiffs in predatory pricing cases”.

  2. Katrine Lillerud says:

    Reaction paragraph to readings in course ‘Competition law: Conservative or Progressive’
    Katrine Lillerud 24 October 2016
    Session 4: Chicago school of antitrust

    Limit of antitrust control (Easterbrook)
    Easterbrook’s main argument seems to be that monopoly is self-destructive, in the sense that a monopoly price will always eventually attract entry of a competitor (p.2). However, the author fails to take into account or ignores the potential market entry barriers that could hinder self-corrections in this equation. That is to say, if the cost to enter an infrastructure, such as harbor, rail, telecom network etc., is too high this argument of self-correction does not hold.

    The critiques seems directed at the fact that we rarely know the right amount of competition, thus the price of controlling anti-trust in court is too high, i.e. this is in reality a promotion of the ‘lassiez-faire’ approach to antitrust. This because, in his view, a perfectly informed court will have trouble deciding what the optimal long-run structure of the industry is, because there is no “right” balance between cooperation and competition, (p. 3) and, judges are not considered adequate to assess complex economic arguments, (p. 39). Again the author fails to bring into the equation that allowing experts to assist judge in court might more easily rectify this shortcoming.

    Efficiency above all? (Fox)
    Also Fox seems to be arguing along the same lines as Easterbrook in the sense that enforcers are not necessarily in the best place to judge on what efficiency is, especially since the term in itself is not “one thing” but may be interpreted differently depending on what values are considered to result in efficiency. (pp. 81 and 86 in particular) However, Fox’s main line of argument seem to be not that one should trust that a monopoly will eventually be defined by the entry of a competitor, but rather that the “efficiency” value that needs protection is “innovation”. Thus, the main argument seems to be to have more trust in open markets and dynamic or rivalry than in the dominant firms autonomy, as it will enhance innovation. (p.88) Is this then supporting maximization of the potential of an industry rather than promoting competition for the sake and benefit of the end-consumer?

    What is the Chicago approach really? (Kobayashi and Muirs)
    According to the authors, the “Chicago school” may be summarized as the development of empirically testable hypotheses (p. 152), which is based on 1) examination of a practice through the lens of economics; (2) application of empirical evidence and facts to test the hypotheses as applied to a specific case; and (3) application of error cost analysis to the theory and facts to minimize the sum of error costs and direct costs (p. 155) But are such scientific “economic tools” always guaranteeing the neutrality of the value judgment made?

    Thus the argument seems not to be so much the Chicago fact-intensive approach is problematic, but rather that one needs to find what is the appropriate scope of the antitrust policy in antitrust control? Are economic efficiencies to improve the standard of living for the majority by fostering “growth” in general (at the cost of some) to trumps over social justice also for the weak? (p. 154)

  3. Maria de la Cuesta says:

    Today’s readings offer very different perspectives on the meaning of labels such as Chicago and post Chicago, conservative and progressive. The first one by Easterbrook is useful to realize the novelty that Chicago scholars brought to an old-fashioned way of thinking of antitrust, characterized by its little attention to economic theories and an excessive hostility towards the functioning of the market. Fox’s piece, instead, accuses the very same Chicago scholarship, before praised as the avant-garde of economic thinking applied to the law governing the market, of close-mindedness and of excessive conservatism, linked to a partial definition of efficiency. Finally, Kobayashi and Muirs, praise the uniform methodology brought to antitrust by the Chicago school, and while minimizing the impact of post-Chicago scholars, question the usefulness of keeping the labels of the 20th century antitrust scholarship to describe current trends of antitrust in the 21st century.
    I agree with Kobayashi and Muirs that labels are misguiding, and in the case of ‘conservative v. progressive’, such a differentiation could only make sense by reference to a given moment of time. In this sense, Chicago scholars were once a revolutionary movement in the face of the ‘big is bad’ kind of antitrust, and by bringing economics to the fore, were a genuinely progressive movement. In turn, a couple of decades later, they came to symbolize the most ‘conservative approach’ to antitrust. However, this label was used in a double sense: politically, they came to represent the right-wing approach to the market, as in Fox’s paper; methodologically, their approach came to be seen as outdated, as in post-Chicago terms. Maybe, as Kobayashi and Muirs suggest, these labels are no longer useful for 21st century antitrust scholarship, especially if they are often used to describe the both ideology and degree of economic sophistication of a methodological approach, which may or may not go hand in hand.
    Ultimately, this whole debate between progressives and conservatives reminds me of the rather skeptical words of an English writer who said that “the business of Progressives is to go on making mistakes. The business of conservatives is to prevent mistakes from being corrected (…) and each new blunder of the progressive or prig becomes instantly a legend of immemorial antiquity for the snob. This is called the balance, or mutual check, in our Constitution.”

  4. Magdalen Reeder says:

    Reading Easterbrook’s article was comforting, because he seemed so certain of his economic conclusions and offered such clear prescriptions for following them. Then Fox shows that the results aren’t as clear as promised, and besides, some of that strong, clear guidance might be just plain wrong, like the analysis of predatory pricing. And putting the lid on certainty, at the end of “When Economics Met Antitrust,” the authors suggest that judges may not even be using the economic approach to antitrust to make their decisions after all, but rather only to justify them.

    If judges are making decisions and then looking for justification, then on what grounds are judges actually making their decisions? Is it even possible to know? Why do judges feel the need to make decisions by one rubric and justify by another? If “protecting competition” is the goal, and economics hasn’t been an entirely effective promoter of that goal, what would be better?

    Fox writes that “[f]or nearly 100 years, U.S. antitrust law…was for competition, not centrally for efficiency….” But the Chicago School arose in part because the per se rules didn’t cover all conduct (and there were good reasons for not expanding them) and the rule of reason was hard to apply. It filled a need. Once the economic religion is dismantled, what will replace it? One suggested start from Fox is “adjusting the pendulum to put more trust in open markets and dynamic rivalry and less trust in the autonomy of dominant firms.” How do judges adjust the pendulum? Can they?

    If the EU example in the Fox article is another suggestion for the U.S. system, then it seems like U.S. antitrust law might need a more comprehensive and uniform overhaul than just the courts could give. However, I might be underestimating the power of scholarship to persuade the judiciary of a mode of analysis—after all, the Chicago School took root and changed the way cases were evaluated without rewriting the law.

    Thinking back to the other two avenues suggested in Haw’s article from last week, the legislature and agency law, I think either might create positive change. The legislature has democratic power behind it, and could write a new comprehensive antitrust law with clearer values and intent. The benefit to using agency law is that the legislature would only need to give the FTC more power to interpret and enforce the Antitrust Laws (I think—maybe that isn’t even necessary). Then, the FTC could use rulemaking to guide how the law is to be interpreted. Another advantage over legislative change is flexibility—an agency can more easily change its guidance than Congress can change its laws.

    But, whoever is creating or interpreting the law, it seems like there are two options. First, a different type of economic analysis, which seems likely to have the same pitfalls as the Chicago School. Second, some other kind of analysis—but what would that be and on what would it be based?

  5. stavros says:

    1.

    Kobayashi and Muris despite the claim that they intend to ‘bury’ the Chicago School of Antitrust the authors actually attempt to fully ‘constitutionalize’ it. By ‘burying’ they do not mean ‘abandoning’ or ‘transcending’ a school of thought but setting it as the grounds of the modern antitrust building.
    However, it is one thing to appraise the strength and the weaknesses of a scholar or a school (see Crane, the Tempting of Antitrust: Bork and the Goals of Antitrust Policy) and subsequently making normative claims and another to re-assemble a school of thought to its bare conceptual minimums so as to save and ‘constitutionalize’ it.

    To my understanding the main problem of the article is the way the authors define the Chicago School of Antitrust. Easterbrook in the ‘Limits of Antitrust’ shows in a much clearer way how the Chicago School actually worked and Posner in the ‘Chicago School of Antitrust’ provides a more comprehensive account of the historical development of the School even though he concludes, same as Kobayashi and Muris, that ‘it is no longer worth discussing about different schools of academic antitrust analysis.’ Also Bougette et al. give a much broader historical perspective (confirmed also by Ebenstein, Chicagonomics: The Evolution of Chicago Free Market Economics) and break down the Chicago School in eight principles.

    For Kobayashi and Muris, though, the Chicago School is merely defined as a bottom-up, fact-based method of analysis. Yet, what the authors describe as ‘Chicago methodology’ is actually what we call empiricism; a theory that predates the Chicago School (since the modern version of this philosophical movement is ascribed to Locke, Berkley and Hume) and it is not the School’s exclusive privilege (eg. the Harvard School also used Industrial Organization studies, while also the Ordoliberals did not deny the value of empirical studies or consequentialist thinking).

    It seems that Kobayashi and Muris do not fully grasp what ideology is. For them the existence of a school of thought entails the absence of controversies and collisions among the ideologists or the methodology could be starkly separated from the other components of the school of thought. For instance, Posner’s and Bork’s divergence of opinions regarding the appropriate legal standards for horizontal mergers suggests -according to them- that the antitrust policy prescriptions of the Chicago School do not necessarily derive from the School’s methodological confinements. This claim as an analytical claim may be correct. Yet, it underplays the role and function of the Chicago School as an ideological movement. Furthermore, I think it is more useful and accurate to distinguish between the core elements, the peripheral components and the protective belt of a paradigm, so as to be able identify when this paradigm shifts or merely adjusts to a new learning. For instance, Behrens identifies four generations of ordoliberals and effectively shows the misunderstandings produced by less nuanced interpretations of the school (see Behrens, the Ordolieberal Concept of Abuse). Also Ebenstein identifies a first (classical liberalism) and a second (libertarianism) Chicago School of Economics. This is something that Kobayashi and Muris do not do.

    Be that as it may, by providing the said minimalistic definition and by trying to ideologically neutralize the School, Kobayashi and Muris ingeniously avoid engaging in a normative discussion that necessarily affects the empirical methodology. Deciding that type-X facts are relevant in a case presupposes that we identify the criterion of relevance under a specific value, goal or standard. In this regard one of the main teachings of the Chicago School of Antitrust was that antitrust laws should discard objectives other than (allocative) efficiency. In fact, the Chicago legacy boils down to the claim that considerations of Kaldor-Hicks efficiency alone should guide antitrust policy. As noted by Bougette et al ‘competition law policy makers did not discover economics with the Chicago School; they just changed their theoretical framework for one that prescribes reliance only on economic concerns’. This normative aspiration was coupled with an error-cost framework regarding decision-making (Easterbrook p 16).

    Consequently, under the Chicago School monopoly becomes a problem only when it is not a by-product of superior efficiency and it is condemned only on the ground that a lack of price competition retards invention or generates slackness about costs and if the enforcement errors and costs are less than the monopoly costs (deadweight loss). In this framework the wealth transfer from consumers to producers is irrelevant. In addition, certain assumptions are made regarding the institutional capacities of the decision makers and the self-correcting capacities of the market (see Easterbrook ‘monopoly is self-destructive’; ‘judicial errors that tolerate baleful practices are self-correcting, while erroneous condemnations are not’; ‘no right balance between competition and cooperation’; ‘the judge knows less about the business than the lawyers and the lawyers know less than the people they represent’; ‘antitrsut aims at preserving competition as an instrument for creating efficiency…but there is no right answer’). More importantly, this approach assesses market behavior only under a specific conception of a concept. These points stand far from being uncontestable, scientific or not allowing for reasonable disagreement.

    All in all, this account may save the Chicago School yet it deprives it of its ‘revolutionary’ force. In stark contrast to Kobayashi and Muris, Easterbrook notes that a case-by-case analysis is is a price not worth to pay and develops a method of antitrust analysis with a series of simple filters (pp 19-39). In a much more clear way Easterbrook reveals that Chicago School of Antitrust is a method for deciding competition cases; a method that revives the laissez faire approach, while trying to rationalize it and hide its political nature (as Bouchette et al note).

    2.

    Fox does a great job in demonstrating the indeterminacy of the efficiency paradigm and reminds us that antitrust is the law that stands against power and aims to protect competition not merely efficient behavior. Fox shows also how the output-paradigm reduces the scope of antitrust and is misaligned to market reality. Her article is a polemic against the narrow output-paradigm of the Chicago School that transformed antitrust and led to a light weighed, hands-off approach that mainly benefits the stronger market players. She convincingly argues that whereas US antitrust law was adopted to contain private power and provide fair and free access to market actors without power the Chicago School redefined the law as aiming solely to welfare maximization.

    In this sense, the ‘efficiency paradox’ aims to the turn the ‘antitrust paradox’ against itself. Bork argued that antitrust policy is at war with itself for it defeated the very purpose it was supposed to pursue: instead of maximizing welfare antitrust, it restrained efficient competition. Fox notes, though, that under the Chicagoan influence modern US antitrust protects monopoly and oligopoly and thus it stifles efficiency. Nevertheless, she does not prove the efficiency paradox. In other words she does not prove that modern US antitrust law protects inefficient conduct. She merely shows that in certain cases the Supreme Court promotes certain variants of efficiency instead of others. More importantly, she does not deconstruct the efficiency paradigm in the normative level, nor she proposes a comprehensive antitrust theory. Be that as it may she advances our understanding of the Chicago influence in US antitrust, while she also gives as hints for a progressive antitrust theory.

    3.

    Fox’s explanation of Supreme Court’s case law could be complemented by Allensworth’s analysis. Fox shows that in several cases both possible solutions would bear certain efficiencies. Efficiency considerations did not drive the outcome of the cases because they could plausible support both solutions in each case. The catalyst towards the specific solutions given by the Court was nothing but conservative economics, which means certain economic tools, methods and facts coupled with conservative value judgments. This also explains the different approach adopted by the ECJ in Microsoft (isn’t it a sweeping claim that the US judges are conservative while the Europeans are the progressive ones). However, Fox’s approach seems to ignore a distinction between value judgments and pre-dispositions/preliminary assumptions on the one hand and patterns of thought (outcome- or process-oriented) on the other.

    For instance in Trinko, the Court does not inquire or measure whether Bell Atlantic’s refusal maximizes total or consumer welfare. Justice Scalia relying on a) the presumption of liberty (philosophical claim); b) the principle that ‘monopoly pricing attracts business acumen’ (economic claim) c) the presumption that false positives are more harmful than false negatives (institutional/political-economic claim), interpreted very narrowly the essential facility doctrine and found no antitrust violation. However, accepting that the sole purpose of Antitrust is to promote consumer welfare is hardly reconcilable with the statement ‘monopoly pricing is an important element of the free-market system.’ Hence, it is not the consumer welfare paradigm or the consequentialist pattern of thought that dictated the Trinko edifice. The Court just used the welfarist vocabulary because it just happened at the time that this vocabulary was more persuasive. And this specific use of this vocabulary crystallized as such because highly skilled scholars, government officials (the Chicago School) organized a constellation of ideas as an ideology or an antitrust paradigm of limited intervention (for instance Easterbrook uses the RRC to discredit suits based on the identity of the plaintiff, while it could be used to expand the scope of abuse of dominance, p 33).

    My point is that both process-oriented and outcome-oriented patterns of thought are not inherently conservative or progressive. Their character depends on the constellation of ideas that accompanies them, as well as on the institutional structure and personnel that materializes them. The fact that at certain periods of antitrust enforcement one of them becomes the dominant orthodoxy and produces progressive or conservative outcomes respectively is circumstantial. Conservative or progressive outcomes are not necessarily confined to a specific pattern of thought.

    By not engaging in this analytical distinction Fox ends up adjusting reality to her theoretical claim. For instance, she argues that California Dental is a conservative decision for it relies on ‘the conservative view that professionals try to operate in the public interest.’ Yet, it could be argued that the Court in California Dental recognized the ‘lemons problem’ of the market and decided to opt for fettered but functional competition instead of a free and failing market. In addition, the argument that the ban aims to pursue a public objective (limiting rivalry to safeguard consumers health) is not necessarily conservative. On the contrary arguing that such a restriction is inherently anticompetitive echoes a) either a libertarian-neoliberal understanding of the market according to which the dentist should be totally free to compete and the rational consumers know what is best or b) a public choice theory that is always suspicious about vested interests, professional groups etc.

  6. Maria Ana Barata says:

    After opening the article by saying that “A competitive market is not necessarily the one with the most rivalry moment-to-moment”, Easterbrook immediately suggests that what one can understand as being the suitable level of competition within a market, is subject to discussion. As a starting point, even if no other constraints existed (which is not true – please refer to (1) and (2)), it would be already a challenging task.
    The author also mentions the two limits of antitrust: (1) costs of action, and (2) information, as a way of introducing the different reasoning behind a practice which is considered unlawful “per se” and the practice that requires a case-by-case method (i.e. Rule of Reason method). Because lack of information might be a problem at the moment of ruling, Easterbrook clearly distinguishes that a “poorly understood practice” should not be deemed as anticompetitive: “A judge who is not persuaded by the explanation should not leap to the conclusion that whatever is poorly understood must be anticompetitive”.
    Finally, the third interesting point made by the author is the fact that “every successful competitive practice has victims” and that antitrust Court rulings – in each case – are responsible for cherry-picking the victims in each moment (immediate anticompetitive effects vs. medium-term/long-term anticompetitive effects).

    Fox’s article introduces us to the concept of “Efficiency Paradox” to explain that “efficiency” has no unique meaning, and that case-law in the US and in the EU are not always efficiency-orientated (as opposed to what the Chicago School thesis would guide us to).
    An interesting contrast between the US and the EU approaches is related with the restraints to monopolists’ actions. It seems that the European view – through the proxy of the definition included in current article 102 TFEU – adopts a more restrictive vision of what an undertaking in a monopolistic situation can and cannot do.

    Kobayashi/Muris’ article is both an approval and a denial of what the Chicago School represents. Regardless of the formalistic division of the Neo-Chicago/Chicago/Post- Chicago scholars (where overlaps occur), the authors refer more than once that within each “School”, dissent was customary towards specific practices such as “predatory pricing”, “resale price maintenance”, “tying”, “exclusive dealing”, “vertical mergers” and “horizontal mergers”.

  7. Alexandre Ruiz says:

    These three readings provide an interesting overview of the Chicago paradigm. In this sense, the piece of Kobayashi and Muris is very insightful, explaining how the Chicago label has been sometimes misunderstood.
    Easterbrook’s paper is a plea for a non-intervention policy of antitrust authorities. It is a nice example of the application of error cost analysis by the Chicago School (see p. 16 and Kobayashi and Muris’ paper, p. 155, n. 50). Essentially, Easterbrook argues that the per se rule/rule of reason approach is too costly, mainly because if the court is not persuaded of the efficiencies of the anti-competitive agreement, it will condemn it. And he says something with which I agree: ‘a business is likely to defend a lawsuit by denying that it engaged in the practice. Rarely it will say: “Yes, we did that, and here is why it is economically beneficial that we did’ (p. 7). This implies that a lot of efficiencies remain unexplored because antitrust enforcement is inherently anti-defendant; and these losses of economic efficiencies are unrecoverable. From his perspective, a legal system should minimize the costs of under-enforcement, over-enforcement and the system itself (p. 16); and for this reason he suggests a sequential filter approach (p. 17 onwards). However, I have doubts about his proposal. Basically, this is a five-step model: 1) market power; 2) profit and reduced competition; 3) widespread adoption of identical practices; 4) effect on output and survival; 5) the identity of the Plaintiff. Whether this approach works or not should be evaluated according to its effectiveness in minimizing the costs of under-enforcement, over-enforcement and the system. The question therefore is whether his model avoids more costs than any current approach. In my opinion, his suggestion (pro-defendant) could reduce over-enforcement costs, but I have doubts with regard to under-enforcement costs. It may be true that under-enforcement errors are preferable, but under-enforcement errors also diminish the deterrent effect of antitrust enforcement. Thus, I am not sure whether Easterbrook’s sequential approach is the best option.
    Nevertheless, this may serve to rethink the rule of reason structure that we saw last week, which was 1) analysis of prima facie restriction; 2) pro-competitive effects; 3) less restrictive alternative; and 4) balance. Perhaps if we invert the first and second steps, antitrust enforcement could be more efficient and less costly. Thus, if an antitrust enforcer has the suspicion that one agreement could be anti-competitive, it will save costs by analysing directly any pro-competitive effect. This would be similar to what is being doing in the UK in unilateral conduct cases: before discussing market power, the court assesses the conduct while presumes market power.
    But Easterbrook’s work is just one particular view of the Chicago School. Indeed, one lesson that we can draw from Kobayashi and Muris’ work is that the Chicago School is not a unified, perfectly structured and coordinated dogma. Conversely, also big names of Chicago defended different positions with regard to the same competition concern, such as horizontal mergers (Kobayashi and Muris, p. 167). This would mean that when one attacks the Chicagoan approach, is only addressing to one partial reading of Chicago.
    Fox, for her part, seems to suggest that there is a superior standard (the EU antitrust approach?) much better than the Chicagoan creed, because the US Supreme Court always had an inefficient position (p. 81). Through her examples, one can see that the Chicago School decides antitrust cases in the name of efficiency, but that the real driver is conservative economics. Thus, efficiency is just an empty label.

  8. Agnieszka Jabłonowska says:

    There is a striking contrast between the article of Frank H. Easterbrook “The Limit of Antitrust” and the Eleanor M. Fox’s essay “The Efficiency Paradox”.

    The author of the former represents the Chicago School – a movement in the antitrust scholarship, which has emerged in 1960s and has proven to be particularly influential in shaping the modern U.S. antitrust jurisprudence. One of the main messages of the article is that an erroneous condemnation of a practice which, in fact, does not have an anticompetitive potential, is more harmful to the society (i.e. leads to a greater welfare loss) than occasional judicial errors that tolerate wrongful practices (no elaboration on “occasional” is provided, though). According to the author, erroneous condemnations are unavoidable, because courts are not (and will never be) in position to perform a well-founded economic assessment of the contested practice. In fact, unambiguous evaluation might very well be impossible to achieve by the economists themselves, at least at the time of the dispute. The author therefore calls for a less stringent application of the antitrust law and presents an alternative approach, based on five filters. The proposed method appears to have a precisely opposite goal to the one pursued by the per se rule: not to condemn per se, but to exempt per se. While Easterbrook certainly makes some valid points (although I fail to see tangible evidence supporting his main thesis), one cannot help but notice that the author is perhaps a bit overconfident about the self-corrective power of the market (despite some assertions to the contrary, e.g. on p. 24).

    Fox, in turn, criticises the efficiency-driven “conservative” economic presumptions of the Chicago School and positions herself closer to the continental approach. Her argument is therefore more likely to appeal to the European reader such as myself. When she discusses the reasoning of the Supreme Court in four contentious U.S. cases, parallels to the Easterbrook’s argumentation are easy to draw (e.g. on predatory pricing, RPM). I agree with Fox that a strong, one-sided efficiency rhetoric and the outcome perspective are subject to criticism. One may only regret that the author chose to discuss only one European case – and, moreover, one that did not make it to the Court of Justice. While I am generally more convinced by the Fox’s “ Efficiency Paradox” than the Bork’s “Antitrust Paradox”, it would also be very interesting to hear some positive proposals from the former camp.

  9. iulian says:

    Easterbrook’s paper contains institutional design and economic theory components. He takes the theoretical components, which are explained in the first part of the article, for granted. There is the pervasive belief in a “natural” development of the free market which creates innovation, development and efficient outcomes along the way. This happens to a large extent because of a trial-and-error approach taken by business owners which leads to the discovery of new successful business practices. The article elegantly evokes how a free market leads to progress which is only later understood and explained by economists,

    According to Easterbrook markets evolve organically and naturally through (sometimes random) innovation. As such, it is impossible for a court to predict what the most efficient market outcome would be, while business owner are better placed to do so. Policing and regulating a market would thus often stifle innovation. Almost any metric of evaluation will probably be dogmatic and obsolete, as it represents the understanding of efficiency at the present moment and prevents the markets from finding new and more efficient practices. In addition to this, antitrust enforcement that prohibits innovative pro-competitive practices causes more harm than permitting anti-competitive ones. While in the former cases businesses will be wary to try new practices in the future, in the latter the market will self-correct the inefficient behaviour eventually. Over-enforcement threatens the ability of markets to produce progress.

    Furthermore, according to Chicago school economic thinking, most business practices which were traditionally considered to be anti-competitive are inefficient and will be corrected by the market in time, making intervention by the courts potentially unnecessary. Accordingly, practices like predatory pricing are often simply bad business decisions and not anti-competitive. Consumers actually profit from the lower prices and the perpetrator is not likely to recoup its losses. Only those practices which decrease output and increase prices should be condemned.

    Chicago School theory can be described as an ideology, as it makes certain assumptions about human behaviour, market outcomes and the way one can reach efficiency, which is one of the main concepts associated with the Chicago school.

    The discussion of efficiency in the judicial process plays a central role in the article of Eleanor Fox. She argues that antitrust enforcement based on Chicago school conservative economics has led to the inefficient protection of dominant undertakings in the US, to the detriment of encouraging competition in markets in which there is lively competition due to the entry of “mavericks” which challenge the status quo. She uses the concept of efficiency in a different sphere than Easterbrook. Easterbrook talks extensively about efficiency when laying out the economic theory behind his thinking, but does not use the concept at all when proposing a methodology for courts to deal with antitrust claims. He argues that courts are not able to entertain a balancing of pro- and anti-competitive considerations and thus should not seek to determine the most efficient outcome on a case by case basis. The approach he proposes is almost mechanical, as it contains hurdles or “filters” through which every claim has to pass. In summary, Easterbrook see no place for discussion of “efficiency” in the courts.

    The subsequent judicial development has not followed these proposals and still contains a rule of reason, under which judges are invited to conduct a balancing exercise. It does appear however, that they follow some of the assumptions which also guided Easterbrook when developing his method of trying anti-trust cases. As a result, it appears that the courts tend to interpret anti-trust laws restrictively, even when there is significant economic evidence pointing in different ways.

    Fox therefore rightly highlights that cases such as Brooke Group and Leegin are not decided on efficiency grounds, but rather following conservative economic theory. At the same time, I would argue that conservative economic theory has in-build assumptions about efficiency, which guide judges to lean the balance in favour of less intervention. Such an approach is not transparent and leads to strange ways of arguing cases. Both sides can show can generally show some efficiency gains and can cite some economic theory or study to support their case, but it is often impossible for a court to establish under the rule of reason, which side’s action would lead to more efficiency.
    This is exactly the situation described by Easterbrook, when he argues that the courts are not in the position to determine the correct future balance in a particular market. It is also the reason why he did not consider the rule of reason to be useful in such cases..

    If Fox now argues for a more interventionist approach, she implicitly rejects the claim that courts are unable to improve a particular market better than the market can improve itself. This has deeper implications than just the belief that vigorous competition with many market players is more efficient than deference given to the dominant undertaking. It is also a rejection of the idea that markets naturally evolve towards the most efficient outcomes.
    It is not the case that conservative economic thinking naturally favours dominant undertakings. However, it seems to favour dominant undertakings due to inertia and because it does not believe it is appropriate to intervene in the market.

    In order to decide whether a particular market needs more competitors to be efficient and innovative, the courts would have to undertake very difficult inquiries, which require a large amount of economic knowledge. I believe that such a determination would be very controversial, as it does contain also elements of policy making. A strong public enforcer such as the European Commission might be better suited to bring such a case, as it has both expertise and the required legitimacy to make such determinations.

    I was not convinced by some of the arguments put forward in the Kobayashi/Muris article, if I understood them correctly. They argue that Chicago school theory was entirely backed up by empirical studies, meaning that only those “proven” aspects were implemented into enforcement practice. What the Chicago school did not prove however, is that markets will eventually correct themselves. This is merely an underlying presumption. As a result of Chicago school thinking, there is a free market in which only a few anti-competitive practices are forbidden (such as price fixing), while many potentially anti-competitive practices are allowed, because there is as of yet no empirical way to prove their harm. How competitive will this market be? Depending on to what extent one believes in the self-healing forces of the market, the answer will vary.

  10. Alice says:

    I think Fox has a point by stating that efficiency is a multifaceted concept, that it cannot determine the outcome of cases and that enforcers and judges know little about how to reach efficiency. She shows by taking example of US and EU cases that efficiency can be understood in different manners and lead to many different outcomes. She stands in opposition to the classical Chicagoan view that efficiency goal should drive the outcome of antitrust cases and limit the scope of antitrust. She considers that the European “process driven” approach corresponds more to the market reality.
    However, Easterbrook is also right in highlighting that it is impossible for a judge and even for a firm to know the right balance between rivalry and cooperation. Cooperation is susceptible to enhance competition in the long term. The antitrust laws do not supply the time horizon for analysis and there is no right answer, therefore it is not possible to define competition as the state of maximum rivalry.
    This two diverging views about what antitrust should protect (the process driven approach vs. the outcome driven approach) have both strengths and pitfalls. In the end, the adoption of a certain competition law system is a pure political choice.

  11. Elena says:

    The ‘Efficiency Paradox’ introduced by Fox assumes that modern antitrust is flawed because, by means of relying on dominant firms in order to maximize efficiency, it drifts to monopolies and oligopolies. This situation is ultimately detrimental to societal welfare as far as it suppresses innovation. Fox criticizes the indeterminacy of the efficiency dictum in which the ‘more economic approach’ is anchored. She contingently accuses such an approach of being reductive as far as it is mainly based upon measuring the outcome of an prima facie anticompetitive practice. Given that, in order to determine the efficiency/inefficiency of such outcome, there should primarily be an agreement on what efficiency is and how one can measure it (which, as Allensworth’s commesurability myth theory states, it is rather a chimera), she advocates for an antitrust legal framework capable bringing along a rivalry structure that encompasses fairness values and sets aside efficiency claims.

    On the opposite end of the line (or the circumference, supposing that attracting opposites will curve the line), Easterbrook, pleas for very little intervention on the market structure. He assumes that the decision to intervene/not to intervene in the market practice, of incurring of false negatives or false positives, is a policy-driven decision: we cannot do it on the sake of aseptic efficiency given that such concept belongs to a Platonic theory of ideas. Such assumption is notable when he asserts that ‘If we assembled twelve economists and gave them all the available data about a business practice, plus an unlimited computer budget, we would not get agreement about whether the practice promoted consumers’ welfare or economic efficiency more broadly defined’ (page 11). Drawing from such intangibility, he maintains that as a matter of principle the system should allow firms to cooperate under every circumstance. His claim is that rules should err in this direction given that most forms of cooperation between firms are beneficial and is quite costly for the judicial system to refute this premise. However, he admits that this should be a rebuttable presumption and that the plaintiff has to be given the opportunity overthrow it by undergoing a number of filters. In my opinion, these filters seem rather put out there in order make it impossible to arrive to the final step (the judgement) or at least in order to discourage plaintiffs to bring a complaint.

    In my opinion, Easterbrook’s reasoning is underpinned by a disjunctive syllogism fallacy (or fallacious modus tollendo ponens) which goes as follows. A practice can either be efficient or inefficient. We cannot demonstrate that it is inefficient, ergo the societal cost of allowing such practice is more efficient than the cost of banning it. The same fallacious disjunctive syllogism can be found on Muris and Kobayashi’s plead for false negatives. In the framework of the error cost analysis, they admit that there is not (or there is just weak) empirical evidence that type II errors (false negatives) are less costly than their type I counterparts (false positives) but they in any case advocate for type II errors.

    I align with Fox. Modern microeconomic models are inexact, and they will continue being inexact until they will not be capable of overcoming the limits of the rational choice theory in which they are substantiated. In the meanwhile, it seems to me that it makes very little sense to base our competition law system on an unattainable efficiency goal.

  12. galyna says:

    Easterbrook uses many presumptions in his article. He takes for granted many things without even trying to prove them. Or, his argument becomes “it is like that because courts are constantly mistaken”.
    First of all, he argues that a market is capable of efficient self-regulation. He makes a point that a “monopoly is self-destructive”, “monopoly prices eventually attract entry”.
    However, in practice we can find much evidence of ever-lasting monopolies which do not attract any entry, because, for instance, high entry barriers to entry. Therefore, I do not find the above mentioned arguments sound.
    Besides, the author proposes to use some filters. I will comment on the first two filters as the authors claims that the most clear cases with anticompetitive conduct would be identified at this stages without proceeding to the following filters.
    The first filter that has been proposed is market power. It is indeed an important concept and it is used in competition analysis nowadays (in Europe). However, I do not understand the author’s argument that the firm should demonstrate market power, but such a demonstration does not entail “the difficult market definition issues”. How one can conclude that an undertaking has a market power without defining on which market such an undertaking is operating? Defining a relevant market is certainly not the easiest task, in particular taking into account that defendants are always eager to define it as largely as possible in order to prove that they have insignificant market power, if any. Nevertheless, defining a market should be a first step in competition analysis.
    The second filter is logical relation between profit and reduced competition. I have doubts regarding the statement “the plaintiff must show that the defendant has an incentive to behave in an anticompetitive way and that antitrust sanctions are necessary to correct the defendant’s incentives”. Here a problem with a burden of proof appears. In other words, a defendant’s conduct is deemed to be lawful if a plaintiff did not prove that a defendant has an incentive to violate competition law. So, a defendant would enjoy a presumption that he had no incentives to engage in anticompetitive conduct, unless it is proven otherwise? And how, practically speaking, one can prove “an incentive to behave in an anticompetitive way” and not behaviour itself?

  13. Rodrigo Vallejo says:

    I will focus this week reaction in the Kobayashi and Muris piece in order to provide a preliminary approach to the broader questions suggested for this session. Their claim is essentially an explanatory one. By reconstructing the analytical commitments of the Chicago School of Antitrust Law, they challenge conventional visions that associate it with ‘a narrow and uniform ideological approach’ based on ‘conservative economics’ to what antitrust law should be about. Two are their main arguments. First, that was distinguishes the Chicago School is not a set of substantive prescriptions but methodological choices (i.e. fact oriented, bottom-up, case-by-case, empirically testable hypothesis based on economic models, etc.). Second, that some of their main tenants actually disagree about prescriptive implications of those findings, which would demonstrate the lack of any common substantive dogma in the Chicago School. The explanatory narrative thus gives the impression of the Chicago School as a contribution that transformed antitrust into objective science rather than value judgments thus rescuing the ‘rule of law’ from the risks of judicial activism (‘rule of men’) that lingered in antitrust enforcement before.

    Its hard to understand why from the mere disagreement the authors imply the absence of shared substantive commitments in the Chicago School. Nevertheless, its on another aspect of their argument that I’d like to focus my criticism in connection to the remaining readings. Last week Allensworth showed that even if we agree that the sole public interest that antitrust law must protect is competition, understood as consumer welfare (rather than competitors), this inevitably entailed that antitrust enforcers (i.e. administrative agencies, judges) still have to make value judgments in the determination and commensuration of consumer preferences. This week Eleanor Fox reaffirms this point by showing how efficiency has diverse meanings and implications for market structures in antitrust enforcement. Hence, the imaginary depicted by Kobayashi and Muris about how a ‘more economic approach’ would imply an antitrust practice properly scientific/legal vis a vis the ideological/activist that inspired the previous paradigm simply does not seem to sustain.

    Kobayashi and Muris actually acknowledge the book where Fox’s article was published, but unfortunately they choose not to confront her argument. They just rely in their ‘methodological’ characterization of the Chicago School of Antitrust to dismiss these type of claims about any conservative ideology inspiring them. Its hard to see if they are just being naïve or cynic about it. In any case, their ultimate claim about how the ‘Chicago label’ has become meaningless in the face of a perceived methodological consensus on a ‘more economic approach’ neatly reveals how they intend to conceal and naturalize what is actually ideologically and historically contingent.

    This is why the analogies raised by Bouguette et. al. seems particularly lucid and pertinent. Their article suggests how in the same way that Classical Legal Thought back in the 19th Century purportedly separated law (sphere of reason) from politics (sphere of passions) as functional to a distinctive ideological program of ensuring certain conceptions of markets as the sole distributive mechanisms, Neoclassical Legal Thought is currently fulfilling the same purposes in Antitrust Law. The analogy is suggestive because it does expose Neoclassical Legal Thought to the type of criticisms at at that time raised by the Legal Realist movement, prompting quite an incisive transformation of American Law. “To criticize the courts for having the wrong antitrust goals is politics, not science” – Donald Dewey “The economic theory of antitrust: science or religion? 50 (3) Virginia Law Review (1964) 413-434.

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