Tuesday, April 14, 2009
Posted by D. Daniel Sokol
ABSTRACT: The Neal Report, which was commissioned by Lyndon Johnson and published in 1967, is rightfully criticized for representing the past rather than the future of antitrust. Its authors completely embraced a theory of competition and industrial organization that had dominated American economic thinking for forty years, but was just in the process of coming to an end. The structure-conduct-performance (S-C-P) paradigm that the Neal Report embodied had in fact been one of the most elegant and most tested theories of industrial organization. The theory represented the high point of structuralism in industrial organization economics, resting on the proposition that certain market structures were highly concentrated and experienced high barriers to entry, making certain types of conduct inevitable. Under the very strong Cournot assumptions of the day oligopolists simply could not avoid setting prices above costs and continuously and excessively differentiating their products. The result was high short-run profits, excessive investment in product differentiation and advertising, reluctance to cut price in order to grow market share, and general stagnation.
The Neal Report's fate lay in the fact that the S-C-P paradigm was coming under withering attack by the late 1960s. The Report's simple and uncritical acceptance of the S-C-P paradigm as gospel inspired many young academics in the United States to align themselves with the competing Stigler Report, commission by President Johnson's successor Richard M. Nixon. The conflicts that erupted largely defined the views of some of the 1970s most important antitrust scholars - namely Richard A. Posner, Robert H. Bork, and William F. Baxter.