This is an unsettling time for those who support rigorous economic analysis in antitrust cases. Over the past four decades, numerous assumptions underlying the operation of free markets had developed to the point of being virtually unassailable. Rational profit-maximizing behavior on the part of many leads to optimal, self-sustaining equilibria. Markets self-correct, such that many (indeed most) distortions will be ephemeral. Financial markets are efficient, which means that even large-scale entry in capital intensive markets can safely be presumed where supracompetitive prices await. In cases of uncertainty, enforcers should err on the side of false negatives by presuming the existence of competitive markets. In short, the free market works. Certain of these assumptions now lie in ruins. For the antitrust proponent who developed his thinking based on such principles, the global market meltdown poses an unprecedented predicament.
Yet, when all the dust has settled, it is not clear what the objective lessons of the crisis will be for competition policy. The global recession certainly teaches that assumptions of efficiency are misplaced where systemic risk and uncertainty pervade the marketplace. It questions the wisdom of a financial system that becomes concentrated to a point where the failure of one key player triggers the collapse of others. It reveals that monetary policy alone cannot control all macroeconomic fluctuations. It raises fundamental questions about the role of regulation, not just in terms of domestic scope, but in efficacy and global reach too. But for all this, it does not say much about antitrust analysis.
Many have missed this point, and missed badly. Competition enforcers, politicians, and commentators are falling prey to an alluring, yet simplistic and myopic view. They posit that the economic dogma that ushered in today's extraordinary global recession is inextricably linked to the tenets of price theory that inform antitrust doctrine. They are mistaken.
This Article explores the normative repercussions of the global recession for competition policy and explains that minimal readjustment is counseled under the rubric of economics. Nevertheless, past shifts in substantive policy have coincided with larger changes in political thinking. The crisis has undermined U.S. faith in the free market, a development that portends a deviation from the law's cautious approach to economic conduct of indeterminate long-run competitive effect. Such a shift is difficult to justify, but is likely inevitable.
I. FREE-MARKET ECONOMICS AND THE EVOLUTION
OF MODERN ANTITRUST DOCTRINE
A. Antitrust Without Economics? The
Sherman Act from Inception to
the Warren Court
B. A Price-Theoretic Approach to
C. Chicago and the Deregulatory Movement
II. CHICAGO AND THE GLOBAL FINANCIAL CRISIS
A. Chicago as a False Ideology?
B. The Causes of the Crisis Have Little to Do
with Price Theory in Antitrust Markets
1. Concerted Conduct
2. Merger Policy
3. Unilateral Behavior by the
4. Political Repercussions
The collapse of the global financial system in 2008 and the ensuing recession through 2009 raise fundamental questions about the future of free-market economics. Although macro-economic policy and regulation of the financial sector are the most obvious candidates for revision in light of the meltdown, antitrust law--given its explicit reliance on price theory--may also be implicated. This Article surveys the worst recession in a generation and explores the normative insights the crisis provides for proper competition policy.
The market meltdown that began in the U.S. housing sector and tore through the world economy has laid bare a number of economic principles. In particular, the deregulatory movement that swept through myriad industries was premised on the notion that market forces produce results superior to government intervention. …