Wednesday, November 18, 2015
Herb Hovenkamp, Iowa, is Re-Imagining Antitrust: The Revisionist Work of Richard S. Markovits.
ABSTRACT: This review discusses Richard Markovits’ two volume book "Economics and the Interpretation" and "Application of U.S. and E.U. Antitrust Law" (2014), focusing mainly on Markovits’ approaches to antitrust tests of illegality, pricing offenses, market definition and the assessment of market power, and his important work anticipating unilateral effects theory in merger cases. Markovits argues forcefully that the Sherman and Clayton Acts were intended to employ different tests of illegality. As a result, even when they cover the same practices, such as mergers, exclusive dealing, or tying, they address them under different tests. He then shows how he would analyze various practices under the two statutes, discussing virtually every practice that has been the subject of significant antitrust litigation. He also discusses, more briefly, the competition law of the European Union.
Among Markovits’ most influential contributions to antitrust policy is his critique of traditional antitrust approaches to market power and market definition. His work was highly influential in the development of modern "unilateral effects" theories of merger analysis. A provocative question that Markovits’ work invites is whether the unilateral effects approach can or should be extended beyond merger cases. The Supreme Court has insisted that relevant markets be defined in Sherman Act §2 cases, as well as for §1 cases under the rule of reason. No lower court today would be likely to find traditional market definition unnecessary in those areas without new Supreme Court guidance. The same thing is very likely true for tying or exclusive dealing cases requiring assessment of market foreclosure.
One fact seems inescapable: if the logic of unilateral effects analysis applies to mergers, then it should apply equally to other antitrust practices that serve to eliminate or blunt competition between reasonably adjacent firms in differentiated markets. For example, a firm that predates its closest rival into bankruptcy may be able to induce a unilateral price increase, just as much as a merger between these same two firms. Indeed, the industrial organization literature often treats merger and predation as alternative ways of eliminating a rival. The same thing could also be true of tying or exclusive dealing intended to deny a relatively close rival access to a market, as well as loyalty discounts. All of these could be used in differentiated markets to exclude reasonably proximate rivals, with the result that prices increase.
Ironically, giving legal recognition to the problem of eliminating competition in unilateral effects mergers, while denying recognition in nonmerger cases arising in the same market settings, gives firms the incentive to employ the pricing or contractual exclusion strategies rather than merger. One perverse result may be that the elimination of competition will occur, but without the offsetting efficiencies that at least some mergers can provide.