Antitrust Economics on Trial: A Dialogue on the New Laissez-Faire.

This book critically examines, in an innovative and lighthearted fashion, the economic justification of the Chicago style approach to antitrust. The setting is a voir dire in a United States district court, in which a purported expert witness is being questioned by an attorney in front of a judge to ascertain his/her qualifications to comment on a pending merger case. The expert, trained at the University of Chicago, also teaches there, and publishes almost exclusively in University of Chicago journals. (We also learn, over a hundred pages later, that the he/she also sports an Adam Smith necktie.)

The general form of the questioning is such that the examining attorney presents the expert with apparently incontrovertible evidence which seems to suggest that the results of the Chicago analysis are fundamentally flawed. The witness then attempts to defend his/her alma mater, frequently invoking the logic and common sense of price theory. The book begins with the witness defending the use of applied price theory to explain a number of ostensibly non-economic behavior, including marriage, crime, drug addiction, suicide, and extramarital affairs. This puts the expert on the defensive, a position he/she maintains throughout the book. The attorney goes on to question the witness on a variety of topics, including contestability, predation, and horizontal, vertical, and conglomerate merger policy.

The book is extremely well documented, with a wide variety of references reflecting the work of both the Chicago economists and their critics. The attorney's questions are usually based on the results of economic studies, journal articles, or other research findings. The responses of the expert, too, are often paraphrased from Congressional hearings, journal articles, or books (Bork [1] and the speeches and testimony of William F. Baxter are frequently the sources of the expert's replies). Ultimately, though, this reliance on documented facts and arguments unquestionably biases the book against the Chicago approach. While the questioner can and does draw from a variety of sources in forming a particularly trenchant criticism to which the expert must respond, the answer is too often culled from a general comment or statement and, as such, is scarcely a direct rejoinder to the specifics of the question. Consider the following exchange on vertical foreclosure (the included footnotes are from the original and indicate the degree and spirit of the references):

Attorney: Now, isn't it a fact that in the motion picture industry, the Supreme Court found that by acquiring theaters, the major motion picture producers were able to control the industry, in part by foreclosing independent producers' access to key first-run theaters and in part by foreclosing independent theaters' access to the majors' movie productions? 187 Similarly, in the petroleum industry, hasn't the Federal Trade Commission recently documented the integrated majors' vertical capacity to control price-competitive independents by limiting their access to gasoline supplies? 188 And, again in the cable television field, hasn't the Federal Communications Commission found that vertically integrated cable firms have the ability to deny or unfairly place conditions on a program producer's access to local cable outlets?[189] As an economic scientist, don't you think such empirical evidence rather strongly suggests that vertical foreclosure can, in fact, lessen competition?

Expert: It is a theoretical impossibility.[190] [pp. 76-71

A number of interchanges of this sort occur, leaving the undecided reader little doubt as to who possesses the superior argument.

A second shortcoming with the book is that much of the criticism directed toward particular Chicago theories adduced by the questioning attorney occurred prior to the date the relevant theories were developed. For example, the attorney introduces evidence that seventeen University of Chicago economists, including Nobel laureate Milton Friedman, presented a letter to the House Antitrust Subcommittee in 1952 arguing that Resale Price Maintenance (RPM) is anticompetitive. Yet the initial efficiency argument for RPM was not made until 1960 [2]. Too often the criticisms levied on the Chicago results from dated analyses. Much of the most penetrating critiques of the Chicago analysis involve rec developments, including the application of game theory to situations of imperfect information. By and large, the authors ignore these recent responses to the Chicago school.

The strongest part of the book is the discussion on conglomerate mergers. Both sides present convincing arguments, and the witness finally abandons the defensive posture and begins to offer counter evidence in support of the Chicago view. The reader leaves this section of the book undecided, longing for continued debate. Indeed, I left much of the book wishing the discussion would have been longer, more thorough, and more combative.

While antitrust economists will find nothing new in this book, its fast pace and wit make for quite enjoyable reading. It is extremely well written and is worth its price for the references alone. Although the book does a commendable job in delineating the issues involved, it does little to categorically answer the question of the appropriate role of antitrust law. In the parting words of the presiding judge, "I'm afraid this debate could go on interminably without reaching a conclusion."

References

[1.] Bork, Robert H. The Antitrust Paradox, A Policy at Work with Itself. New York: Basic Books, Inc., 1978. [2.] Telser, Lester, "Why Should Manufacturer's Want Fair Trade." Journal of Law and Economics, 3, 1960, 86-105.