Antitrust Paradox Research Articles

The Flawed Analysis Underlying Calls for Antitrust Reform: An Assessment of Lina Khan’s Amazon’s Antitrust Paradox

In her law journal article Amazon’s Antitrust Paradox, Lina Khan argued, using Amazon as an example, that current antitrust doctrine cannot identify certain types of anticompetitive conduct in platform and data-driven markets and, consequently, reforming antitrust is necessary to correct these deficiencies. Khan’s analysis of Amazon’s conduct and the conclusions she drew from it are flawed because she ignored or misapplied the economics of two-sided markets, mischaracterized competitive conditions, and did not consider the pro-competitive effects of Amazon’s conduct. In this article, we review the economics of two-sided markets and then assess Khan’s analysis of alleged predation in e-books and in the online sale of diapers, as well as alleged anticompetitive implications of Amazon’s vertical integration into logistics and its use of data. A careful assessment of Amazon’s conduct does not support Khan’s conclusion that antitrust reform is necessary because she has not demonstrated that Amazon’s conduct is anticompetitive.

Antitrust Law & Economics Under Attack: Populism Versus Innovation

The economic analysis of antitrust laws is on the wane. The Chicago School influentially developed an antitrust approach with the principle of economic efficiency as the North Star of enforcement analysis. Robert Bork has seminally singled out The Antitrust Paradox of his time: Antitrust suppressed the competition it should foster. Conducive to an economic analysis of antitrust laws, “Borkian” antitrust has nonetheless experienced continuous criticisms. Recently, powerful assaults revived an old antitrust approach–the populist approach. Self-proclaimed the “Neo-Brandeisians” after Justice Louis D. Brandeis, who extolled small businesses and mocked the “Curse of Bigness,” antitrust populism represents a paradigm-shift away from antitrust law & economics in favor of greater discretionary power in redesigning markets for the sake of a market competition made of small business units. This article argues that the limits of the Borkian antitrust do not justify embracing the populist Brandeisian antitrust. Antitrust is at a crossroads: It can reject Brandeisian antitrust without necessarily reverting to a passe Borkian antitrust. Economic analysis of antitrust laws remains relevant only if we take efficiency seriously–namely, including allocative and productive efficiencies and, most importantly, dynamic efficiency (i.e., innovation). An economic analysis of antitrust laws relevant to today’s (and tomorrow’s) economy can only be innovation-centric. Dynamic efficiency in the antitrust analysis would avoid the misguided populist antitrust approach, but it would also frame antitrust analysis in line with Schumpeterian principles. If innovation matters, Schumpeterian competition needs to be the cornerstone of a renewed economic analysis of antitrust laws.

Predatory Pricing and the Flaws in Brandesian Economics Challenging Recoupment Theory

The technology industry has seen rapid growth over the last few decades and many populists and reformers seek to reign in this growth with amendments to various antitrust regulatory structures. This paper continues my previous analysis of these general reforms while specifically analyzing predatory price discrimination and recoupment theory. Brandesian economists wish to swing the antitrust sword to protect small businesses against big corporations. Advocates look at the policy of bigness and claim that permitting its existence must be incorrect and that the courts should counteract bigness with antitrust litigation results shaped not based on economics and consumer welfare but on policy concerns. The critic of the current antitrust system that provides the most relevant and thorough critique of the current system is Yale’s Lina Kahn in her student note Amazon’s Antitrust Paradox. While her note raises several concerns with Amazon’s business strategy, she specifically targets the structural dominance of Amazon through an alleged predatory price discrimination scheme aimed at undercutting competition and establishing its monopoly in the ebook marketplace. Kahn analyzes Amazon’s growing market dominance along with the alleged difficulties in reigning in its market power through modern day antitrust authority. Most striking, is Khan contention that the Apple v. United States case should have examined Amazon’s role in why the book publishers developed a price fixing and exclusionary scheme against Amazon. These arguments, while in theory may seem particularly compelling for reformists who are troubled by the rise of big tech; are in fact flawed. As I advocate below, claiming predatory price discrimination as a theory of harm is illogical as a practical matter and opening up this theory would be cumbersome on courts, would lead to perverse results, and would not increase consumer welfare.

Deconstructing India’s Competition Law in the Context of the Indian E-retail Market: A Case of an Antitrust Paradox

The paper tries to establish that the current concentrated structure of the Indian e-retail market- in terms of the bulk of the e-retail market being captured by two players namely, Flipkart and Amazon India- has been paradoxically aided by India’s antitrust law. This paper shows that the design of Section 4 of the Competition Act 2002 and its enforcement has played out in the Indian e-retail market in a manner, which has firstly, promoted concentration rather than (fair) competition and in doing so it has failed to capture the anticompetitive ramifications of some of the fundamental features of these online platforms, namely indirect network effects, vertically integrated structure and deep discounting funded by the access to deep pockets. Further, this paper also draws attention to the issues entailed in making predatory pricing behavior investigable only in the case of the ‘Abuse of Dominance’ by a firm. The paper does so by critically analyzing some of the CCI’s orders in the case of the Indian radio taxi services market.

How Chicago Economics Distorts “Consumer Welfare” in Antitrust

Since the publication of Robert Bork’s The Antitrust Paradox, lawyers, judges, and many economists have defended “consumer welfare” (CW) as a standard for decisions about antitrust goals and enforcement priorities. This article argues that the CW is actually an empty concept and is an inappropriate goal for antitrust. Judge Bork adopted CW from economics where welfare unambiguously measured utility or well-being. Welfare economists concede that there is no credible measurable link between price and output and human well-being. This means that the concept of CW does not legitimate limited antitrust enforcement nor does it justify the exclusion of other antitrust goals that require more active enforcement practices. This article contends that antitrust policy is not welfare based at all and, that if it were, antitrust policy and enforcement would differ significantly from the Chicago School vision. Without the fiction that economists can establish that in the short run lower price and higher output measurably increase welfare more than other goals, recent defenses of the CW standard resolve down to arguments based on unsupported assumptions.

The Cap Dualism-Efficiency or Competition

The Common Agricultural Policy of the EU (CAP) contains incentives for consolidation of resources and integration of organizations. The entire CAP follows the concept of efficiency achieved through product structure optimization and economies of scale. CAP imposes an advantage for the concept of efficiency at each level of the economic system. For this reason, integration -- horizontal and vertical -- has been imposed as more important for farmers than competition. Such an approach stimulates large-scale exchange and consolidation of resources, at the same time being a prerequisite for problems for market competition. The Chicago School addresses the concept of efficiency in relation to the “antitrust paradox” . Harvard authors propose that the “leverage effect” can occur as a result of efficiency, meaning that the related markets could be influenced by some market players, and therefore discrimination against other subjects can emerge. Another way to achieve higher economies of scale is horizontal integration. Practically, however, in the course of resource exchange, certain actors can be excluded from the economic organization. The type of organizational structure determines the way of resource distribution and it is essential for competition. A critical analysis of the collision between competition and integration has been offered by Glick M. Actually, efficiency may turn out to be in a conflict with competition.

American Gothic: How Chicago School Economics Distorts 'Consumer Welfare' in Antitrust

Since the publication of Robert Bork’s The Antitrust Paradox, lawyers, judges, and many economists have defended “Consumer welfare” (CW) as a standard for decisions about antitrust goals and enforcement priorities. This paper argues that the CW is actually an empty concept and is an inappropriate goal for antitrust. Welfare economists concede that there is no credible measurable link between price and output and human well-being. This means that the concept of CW does not legitimate limited antitrust enforcement, nor does it justify the exclusion of other antitrust goals that require more active enforcement practices. This paper contends that antitrust policy is not welfare based at all, and that if it were, antitrust policy and enforcement would differ significantly from the Chicago School vision. Without the fiction that economists can establish that in the short run lower price and higher output measurably increases welfare more than other goals, recent defenses of the CW standard resolve down to arguments based on unsupported assumptions.

American Gothic: How Chicago Economics Distorts “Consumer Welfare” in Antitrust

Since the publication of Robert Bork’s The Antitrust Paradox, lawyers, judges, and many economists have defended “Consumer welfare” (CW) as a standard for decisions about antitrust goals and enforcement priorities. This paper argues that the CW is actually an empty concept and is an inappropriate goal for antitrust. Welfare economists concede that there is no credible measurable link between price and output and human well-being. This means that the concept of CW does not legitimate limited antitrust enforcement, nor does it justify the exclusion of other antitrust goals that require more active enforcement practices. This paper contends that antitrust policy is not welfare based at all, and that if it were, antitrust policy and enforcement would differ significantly from the Chicago School vision. Without the fiction that economists can establish that in the short run lower price and higher output measurably increases welfare more than other goals, recent defenses of the CW standard resolve down to arguments based on unsupported assumptions.

Is Blockchain the Death of Antitrust Law? The Blockchain Antitrust Paradox

Western legal systems have historically helped establish trust between parties and reduce transactional uncertainty by providing recourse to legal procedures. Nonetheless, establishing trust still imposes significant transactional costs and blockchain may reduce them to a smaller level. In the meantime, the very nature of the technology raises fundamental questions about antitrust law and how individuals conduct transactions. This article intends to contribute to the literature by describing the challenges that blockchain presents for analyses of unilateral anticompetitive practices and proposing some changes to antitrust law and regulations that address those challenges. It proceeds in three sections to this end. First, this article argues that, because blockchain is decentralized, anonymous, and immutable, questions arise regarding the ability to detect anticompetitive practices and their perpetrators. We show that some practices are de facto more likely to be implemented. Next, this article discusses current antitrust laws and how antitrust authorities should tackle these issues. On the one hand, regulators must avoid using their unfamiliarity with a new technology to justify over-regulating a potentially beneficial advancement or employing what this article calls the “blockchain excuse” for regulation. On the other hand, antitrust enforcement must adapt to stay relevant, and this article suggests that regulators adopt a new methodology of “regulatory infiltration” using a “law is code” approach. Third, even if this new regulatory scheme is adopted, some ultimate questions demand resolution. This article seeks to address them in part three: is blockchain the death of antitrust law as we know it? Should it be? Answering those questions is not easy because blockchain continues to evolve. Nevertheless, the decentralized nature of blockchain forces us to consider the legitimacy of antitrust law, which rests on centralized legal structures and enforcement that are inconsistent with blockchain’s trustless nature; although, antitrust is still needed. This is the blockchain antitrust paradox.

Distributive Justice and Consumer Welfare in Antitrust

The dominant view of antitrust policy in the United States is that it is intended to promote some version of economic welfare. More specifically, antitrust promotes allocative efficiency by ensuring that markets are as competitive as they can practicably be, and that firms do not face unreasonable roadblocks to attaining productive efficiency, which refers to both cost minimization and innovation.The distribution concern that has dominated debates over United States antitrust policy over the last several decades is whether antitrust should adopt a “consumer welfare” principle rather than a more general neoclassical “total welfare” principle. In The Antitrust Paradox Robert Bork famously argued that antitrust law should adopt what he termed a “consumer welfare” standard for illegality, but then equated this standard with general welfare. “Total welfare” refers to the aggregate value that an economy produces, without regard for way that gains or losses are distributed.The consumer welfare test is not a balancing test, in the sense that one must attempt to measure efficiency gains and losses and net them out. Under the test, if consumers are harmed (either by reduced output or product quality, or by higher prices resulting from the exercise of market power), then this fact trumps any offsetting gains to producers and, presumably, to others. Theoretically, even a minor injury to consumers outweighs significant efficiency gains. In this sense the consumer welfare test can be easier to administer on a case by case basis than general welfare tests. Even the consumer welfare test can be difficult to administer, however, when a practice impacts different groups of consumers differently. Practices that involve price discrimination, such as variable proportion ties or patent field of use restrictions, typically have this result. The volume and complexity of the academic debate on the antitrust welfare definition creates an impression of policy significance that is completely belied by the case law, and largely by government enforcement policy. Few if any decisions have turned on the difference. In fact, antitrust policy generally applies both tests in the following sense. First, the economic analysis from the dominant Harvard and Chicago schools of antitrust is consistently concerned with general welfare, although the schools entertain different assumptions about the robustness of markets and the merits of intervention. Harvard School antitrust economists began to look at total welfare consequences at least as early as the 1930s. The Chicago School has likewise consistently followed a total welfare approach, ignoring distributional concerns and focusing on the extent to which practices are likely to impose welfare losses in the neoclassical sense.However, if the evidence in a particular case indicates that a challenged practice facilitates the exercise of market power, resulting in output that is actually lower and prices that are actually higher, then tribunals uniformly condemn the restraint without regard to offsetting efficiencies. Indeed, I have not been able to find a single appellate decision that made a fact finding that a challenged practice resulted in lower market wide output and higher prices, but that also went on to approve the restraint because proven efficiencies exceeded consumer losses.

Bork on Vertical Integration: Leverage, Foreclosure, and Efficiency

Robert H. Bork wrote his fist article about vertical integration and antitrust policy in 1954, a year after he graduated from the University of Chicago Law School. He noted a recent increase in antitrust attacks on vertical integration and disagreed with those who believed that these attacks were a novelty. At the time, judicial hostility toward vertical integration was rampant. But Bork overstated his case about the period prior to the 1930s. Through the 1920s judicial attitudes toward vertical integration were more benign than Bork suggested. This position was largely consistent with the pre-Depression economics literature, which emphasized production cost savings and, to a lesser extent, savings in transaction costs.That all changed with the Depression and the New Deal. From then through the 1960s the dominant school of industrial organization was hostile toward vertical integration. Ronald Coase's Nature of the Firm lay ignored by all, including Bork, while writers relentlessly criticized both vertical ownership and vertical contractual integration as devices of monopoly. The dominant critiques can be roughly classified as leverage and foreclosure, although the line between the two is often blurred.Richard Posner once identified the rise of the Chicago School with the critique of leverage arguments against firms that operated in multiple markets. Looking back at centrist industrial organization theory in the 1950s and 1960s, he described it as untheoretical, descriptive, institutional, and even metaphorical. As the prime example he offered the leverage theory of ties, which he attributed to Donald F. Turner, Edward Mason, and Joe S. Bain. Bork's mature thought about vertical integration, presented in The Antitrust Paradox in 1978, was beguilingly simple. First, if vertical integration created efficiencies, then a vertically integrated firm would have cost advantages over unintegrated rivals. In that case vertical integration would deter unintegrated entry, but it is not antitrust's purpose to condemn cost savings. Second, if vertical integration did not create any efficiencies, then it would not impede entry by anyone. Firms that wished to enter at one stage alone could contract with firms at the other stage and be just as efficient as the vertically integrated firm. Third, if vertical integration resulted in higher costs, then vertically integrated firms would decline in favor of unintegrated firms. Fourth, in competitively structured markets vertical integration would lead to self-dealing, but that would do no more than force realignment in purchasing and sale patterns. Bork's observations were built on an extraordinarily narrow conception of entry barriers. He barely mentioned patents or other intellectual property rights. There was no conception that sunk costs plus risk could facilitate entry deterrence.

Judge Bork's Remarkable Adherence to Unremarkable Principles of National Security Law

The late Judge Robert H. Bork is usually remembered as an eminent jurist and scholar in the fields of antitrust law and constitutional law. His judicial opinions and his writings, especially The Antitrust Paradox and The Tempting of America, are certainly standards in these areas. Judge Bork, however, also deserves acclaim for his contributions to other fields of law. One extremely important subject, in which Judge Bork’s judicial work has received little attention, is the law pertaining to national security and U.S. foreign relations. This essay discusses Judge Bork’s opinions in four important D.C. Circuit cases: Demjanjuk v. Meese, Persinger v. Islamic Republic of Iran, Finzer v. Barry, and Tel-Oren v. Libyan Arab Republic. In these cases, Judge Bork identified and followed nine very traditional principles of law concerning national security and foreign relations. These principles were so clear and well-established that at the time they seemed unremarkable. Indeed, while scrutinizing nearly every other aspect of Judge Bork’s records, proponents and opponents of his nomination to the Supreme Court said very little about his opinions in these cases. How Judge Bork addressed the law in the area of national security and U.S. foreign relations is a subject that deserves a fresh look in light of important Supreme Court litigation arising out of the War on Terror. In a series of cases, often decided by the narrowest of margins, Justices of the Supreme Court have effectively rejected each of the nine traditional principles that Judge Bork applied in his D.C. Circuit opinions. Contrasting the Supreme Court’s controversial decisions in these cases to Judge Bork’s very different and more restrained approach reveals another aspect of what was lost when the Senate failed to confirm Judge Bork’s nomination to the Supreme Court in 1987.

Did Robert Bork Understate the Competitive Impact of Mergers? Evidence from Consummated Mergers

AbstractIn The Antitrust Paradox, Robert Bork viewed most mergers as either competitively neutral or efficiency enhancing. In his view, only mergers creating a dominant firm or monopoly were likely to harm consumers. Bork was especially skeptical of oligopoly concerns resulting from mergers. In this paper, we provide a critique of Bork’s views on merger policy from The Antitrust Paradox. Many of Bork’s recommendations have been implemented over time and have improved merger analysis. Bork’s proposed horizontal merger policy, however, was too permissive. In particular, the empirical record shows that mergers in oligopolistic markets can raise consumer prices.

Bork’s Strategy and the Influence of the Chicago School on Modern Antitrust Law

AbstractThis paper addresses why Robert Bork’s The Antitrust Paradox appears to have had such influence on the Supreme Court, leading the Court to largely adopt the Chicago school analysis of antitrust issues. It attributes this influence to Bork’s endorsement of the per se prohibition of price-fixing—not embraced by all others of the Chicago school—which Bork claimed required the Court to rethink its treatment of vertical restraints. The paper also attributes the influence to Bork’s emphasis on neutral principles for judicial decision making, to Bork’s service as solicitor general, to the delayed publication of his book until after that service, and to the appointment of John Paul Stevens to the Court. Although it has not been generally publicized, Stevens, like Bork, was heavily influenced by Aaron Director and was well aware of the many economic criticisms of the Court’s antitrust opinions published in this Journal.

“Antitrust’s Least Glorious Hour”: The Robinson-Patman Act

In The Antitrust Paradox, Robert Bork explored many of antitrust’s misadventures. Specifically, Bork severely criticized the Robinson-Patman Act, which he characterized as “antitrust’s least glorious hour.” In this paper, we explore Bork’s criticism of the Robinson-Patman Act along with those of other legal scholars and economists. We analyze the central prohibitions of the act and explore their competitive implications. We also show that the act’s unfortunate prohibitions have been muted by the antitrust agencies’ benign neglect and three recent Supreme Court decisions.

How Do Cartels Use Vertical Restraints? Reflections on Bork’s The Antitrust Paradox

In The Antitrust Paradox, Robert Bork discusses vertical restraints and policy responses to naked and ancillary price fixing. Empirical research finds that vertical restraints are generally welfare enhancing. We examine cartels that used vertical restraints to support collusion. We find that one-quarter of a sample of convicted contemporary international cartels used vertical restraints. Some of these cartels used vertical restraints to control downstream firms who might otherwise have undermined collusion. In other cases, distributors themselves had market power and received a share of cartel rents in return for their willingness to exercise that power as part of a cartel. This raises questions for antitrust policy toward vertical restraints in highly concentrated industries or in those with a history of cartel activity.

Consumer Welfare and the Legacy of Robert Bork

AbstractWriting 35 years ago in The Antitrust Paradox, Robert Bork observed, “Antitrust policy cannot be made rational until we are able to give a firm answer to one question: What is the point of the law—what are its goals?” Bork proposed what he called a consumer-welfare standard, though it is what we today call a total-welfare standard. Interestingly, many of the arguments Bork offered in defense of the latter apply also to the former. Bork defended his proposed standard less on the support that it finds in economics and more on his reading of legislative intent. Although Bork’s antitrust analysis drew largely on basic microeconomic theory, he believed that economists and courts were incapable of estimating competitive effects. He therefore favored bright-line rules for, particularly, proposed mergers. Whatever else one thinks of Bork, on the critical question of antitrust’s fundamental purpose, his views have in large measure prevailed.

Antitrust Predation and The Antitrust Paradox

The widely recognized influence that the Chicago school of law and economics had on the institution of antitrust is nowhere more apparent than in predatory-pricing law. Starting with Aaron Director, this movement had many distinguished contributors. But even in this company, Robert Bork stands out for his part in persuading the judiciary to refocus antitrust law on the interests of consumers rather than on the interests of competing firms. In The Antitrust Paradox and other writings, Bork advanced the Chicago school insight that the kind of aggressive price cutting that, at the time, passed for predatory pricing is instead an essential and, for consumers, beneficial attribute of competition. The resulting change in direction that antitrust has taken in predatory-pricing cases culminated in the Court’s Matsushita (Matsushita Electric Industrial Co. v. Zenith Ratio Corp., 475 U.S. 574 [1986]) and Brooke Group (Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 [1993]) opinions, both of which bear the marks of Bork’s influence.

The Evolving Law and Economics of Resale Price Maintenance

Economic developments since the publication of The Antitrust Paradox have reinforced Bork’s view that resale price maintenance is part of the competitive market process by which firms create efficient distribution arrangements. Even when there is no retailer free riding, manufacturers cannot rely entirely on retailer competition to supply desired point-of-sale retailing services because retailer promotion has little or no inter-retailer demand effects. Consequently, manufacturers must compensate retailers for devoting their valuable retail assets to the sale of a manufacturer’s products, and resale price maintenance often is an efficient way to accomplish this. Therefore, contrary to Bork, retailers may initiate demands for resale price maintenance to obtain a competitive market price for their promotional services.

The Evolution of U.S. Cartel Enforcement

Antitrust as a whole was transformed owing in large part to Robert Bork in The Antitrust Paradox. This paper examines what Bork said and did not say about cartel enforcement and offers an examination of how the actual structure of cartel enforcement played out relative to what Bork advocated. To provide some perspective on Bork’s view of cartel enforcement, we compare his views with those of the other major influential antitrust book of the time by Richard Posner. We identify three distinct stages of cartel enforcement. Stage 1 is characterized by a low number of cartels prosecuted along with low fines and jail terms. Consistent with Bork’s vision, stage 2 demonstrates a significant increase in cartels prosecuted, although fines and jail terms remain low. Stage 3 (the current stage) exemplifies a decline in the number of cartels prosecuted relative to stage 2 but with dramatic increases in monetary fines and jail terms.