August 31, 2009
Reformulating Antitrust Rules to Safeguard Societal Wealth
Posted by D. Daniel Sokol
Alan Devlin, and Bruno L. Peixoto, Lanna Peixoto Advogados, The Brazilian Institute for Economic Analysis of Law have a paper on Reformulating Antitrust Rules to Safeguard Societal Wealth.
ABSTRACT:Myopic application of the antitrust laws has produced
two perverse effects: it has halted increases in aggregate social wealth and
erroneously sanctioned business practices that cause significant societal
welfare losses. Thus, current competition rules give rise to a society deprived
of resources it would otherwise enjoy. Present antitrust rules may appear to be
formulated with the well-being of capital-constrained consumers in mind, but
such is not the case. This Article debunks the consumer welfare standard, the
current antitrust lodestar. We show that the competition laws currently draw an
unwarranted distinction between producer and consumer wealth, subordinating the
former to the latter. They do so absent sound distributional reasons justifying
the promotion of one form of wealth-generation over the other.
This Article shows that the consumer welfare standard does not accurately reflect principles of Rawlsian justice and may, in fact, result in highly imperfect and possibly unjust redistribution. We defend a monotheistic approach to antitrust law, extinguishing the artificial division of society in the distinct and opposed classes of consumers and producers. We favor an antitrust policy in which expanding society's aggregate welfare and efficiently allocating resources in production are the sole goals. We argue that even if significant wealth transfers from the bottom of the social pyramid to its top occur because of the novel standard, redistribution should occur more efficiently through enhanced private mechanisms aimed at sharing increased wealth. We show which, and how, antitrust rules should be reformulated to both sanction Kaldor-Hicks efficient transactions and block welfare-reducing practices. Finally, we argue that legal and practical objections to the adoption of a standard focused on sharing increased wealth are easily surmountable.
Antitrust Divergence and the Limits of Economics
Posted by D. Daniel Sokol
ABSTRACT: Few would question the primacy of economic analysis in the construction and enforcement of contemporary antitrust rules. Chicago-derived principles of price theory have slowly, but inexorably, transcended their traditional boundaries within the United States to find welcome application in Europe and elsewhere. Indeed, it has become standard for antitrust authorities around the world to frame issues of competitive concern in exclusively economic terms. Price theory would thus seem to have become the ubiquitous standard by which to inform competition policy.
Yet, international antitrust harmonization has proven to be frustratingly elusive. Although the two most important jurisdictions find broad agreement on many aspects of competition policy, notable instances of EC/U.S. divergence have become apparent. Given the primacy of economic analysis, it is only natural to suppose that the transatlantic divide will narrow in parallel with advancement in society’s understanding of economics. Put differently, contemporary areas of disagreement should be susceptible to resolution through the lens of economic theory and econometrics alone. Practice ostensibly mirrors this theoretical prediction, as both sides to the transatlantic rift vociferously promote the supremacy of their respective viewpoints in economic terms. The U.S. Justice Department has been especially vocal (and cutting) in its criticism of what it considers to be erroneous economic policy underlying European jurisprudence.
We suggest that the direction of this debate may be misguided. Although price theory has forever revolutionized the substance and application of competition law, its contribution is not unlimited. Economic analysis is subject to serious epistemological limitations with respect to certain areas of antitrust concern, in particular with regard to the trade-off between the short- and long-run. It is noteworthy indeed that recent areas of major divergence are characterized by precisely such economic indeterminacy. Moreover, these policy disagreements are not limited to the international arena—a serious and disturbing rift has become apparent between America’s two enforcement agencies.
We argue, first, that there are important limitations to economic analysis and, second, that the pursuit of long-run convergence must recognize these constraints and rely on a mutual understanding of distinct socio-political cultures and traditions. Recent scholarly and public debate has been noteworthy for its exclusive focus on economics, and may for that reason have been incomplete and inefficacious. This Article explores these concerns by focusing on perhaps the most divisive area of antitrust law, refusals to deal. Such refusals cast the tension between balancing short- and long-run effects into critical relief, and render explicit the limitations of economic theory. Given that the bastion of the Chicago School, the United States, has been incapable of agreeing on a uniform approach in this area, the idea that international law can be harmonized on the basis of economics alone seems strikingly quixotic. Nevertheless, we conclude that outside of the empirically indeterminate issue of balancing the short- and long-run, economics can indeed lead policymakers to optimal and well-defined outcomes.
Divisionalization and Horizontal Mergers in a Vertical Relationship
Posted by D. Daniel Sokol
Tomomichi Mizuno, Competition Policy Research Center - Japan Fair Trade Commission has a paper on Divisionalization and Horizontal Mergers in a Vertical Relationship.
ABSTRACT: In this paper we evaluate the effects of horizontal mergers in a vertical relationship. Each downstream firm can create autonomous divisions. We show that an infinitesimal merger of downstream firms may exhibit a positive welfare effect if the upstream and downstream sectors are sufficiently unconcentrated. However, any merger of upstream firms reduces social welfare. Moreover, a decrease in the concentration in the upstream stage (respectively downstream stage or non-merging stage) makes the welfare effects of the merger in the upstream stage (respectively downstream stage or non-merging stage) less negative (respectively ambiguous or ambiguous).