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Hayek and antitrust.

Abstract: Antitrust have been one of the most unexplored areas in the study of F.A. Hayek. Although Hayek criticised governments for interfering with the market process through antitrust laws, he also partly advocated them. Is this compatible with his economics? Most Austrian School economists opposed antitrust. Why was Hayek, a representative of the Austrian School, a supporter generally in favour? The key to answering this question is found at the 'crossroads' of his views on economics and jurisprudence. This study attempts to approach the interaction between his economic and legal thought more deeply through the lens of his discussion of antitrust.

1 Introduction

Volumes of study have been undertaken on F.A. Hayek. However, there are hardly any books or articles citing Hayek's views on antitrust. Of course, Hayek is one of the towering figures in the history of political economy. And antitrust has been a well-covered topic in the history of economic thought because it developed in parallel with the historical development of economics (see, for example, Furubotn 1991; Mayhew 1998; Peltzman 2005). Although in volume three of Law, Legislation and Liberty (Hayek 1979), Hayek chose antitrust as an important theme, these two topics--Hayek and antitrust--have seldom been written about together. (1) It is difficult to guess why antitrust scholars have not discussed Hayek's views on antitrust. Is this because Hayek himself was neither an antitrust scholar nor a mainstream economist? In fact, many in the Austrian School who insist on the total repeal of antitrust laws have cited Hayek to strengthen their ideas. (2) But they have cited only his theory of competition and markets and have not reached deeply into his legal theory. Hayek's debate on antitrust is a subject that seems to be largely unexplored.

It is interesting that although Hayek criticised antitrust laws in Individualism and Economic Order (Hayek 1948), he partly advocated them. Generally, Hayek has been treated as one of the central figures of the Austrian School. Why do Hayek's conclusions on this subject differ from others in the Austrian School? The key to open that door can be found in his legal philosophy developed after Individualism and Economic Order, and this is quite significant for an inquiry into his antitrust doctrine. How did he apply economic thought to legal questions in the context of the study of antitrust?

Hayek's target after his 'transformation' (Caldwell 1988) had been an inquiry into the legal rules governing the spontaneous order. It is important to understand how Hayek built the 'bridge' between these two fields. His antitrust view offers a valuable insight. How does his legal thought determine his antitrust doctrine even if his theory of competition and monopoly seems to run counter to the need for antitrust laws? (3) This study attempts to approach the interaction between his economic and legal thought more deeply through the lens of his discussion of antitrust.

History of Economics Review No. 61 (Winter)

2 Competition and Rules

Hayek did not treat monopoly itself negatively. According to Hayek, monopoly is one of the natural consequences of competition as a discovery procedure.

The power to determine the price or the quality of a product at the figure most profitable to the owner of such a rare resource used in its production is a necessary consequence of the recognition of private property in particular things, and cannot be eliminated without abandoning the institution of private property. There is in this respect no difference between a manufacturer or merchant who has built up a unique organization, or acquired a uniquely suitable site, and a painter who limits his output to what will bring him the largest income. There exists no more an argument in justice, or a moral case, against such a monopolist making a monopoly profit than there is against anyone who decides that he will work no more than he finds worth his while. (Hayek 1979: 72)

This is also a basic theoretical position that the then current antitrust laws have relied on. Possessing monopoly power and using it to make a profit cannot be found unlawful unless it is accompanied by anticompetitive conduct. In his article in 1947 (Hayek 1948 [1947]), Hayek wrote:
   Here, as much as in the realm of property, the precise content of
   the permanent legal framework, the rules of civil law, are of the
   greatest importance for the way in which a competitive market will
   operate. The extent to which the development of civil law, as much
   where it is judge-made law as where it is amended by legislation,
   can determine the developments away from or toward a competitive
   system, and how much this change in civil law is determined by
   dominant ideas of what would be a desirable social order is well
   illustrated by the development, during the last fifty years, of
   legislation and jurisdiction on cartels, monopoly, and the
   restraint of trade generally. It seems to me that no doubt is
   possible that this development, even where it fully maintained the
   principle of 'freedom of contract', and partly because it did so,
   has greatly contributed to the decline of competition. (115-16)

Antitrust legislation prohibits conduct that restrains competition by private business entities. As seen above, Hayek was sceptical about antitrust laws. He thought that antitrust laws had caused a dysfunction in competition in spite of their aim to maintain competition. Examples of what he was criticising include certain laws: the Clayton Antitrust Act, 1914, and the Norris-LaGuardia Act of 1932, establishing immunity for labour organisations for torts from the Sherman Act (Hayek 1960a: 268). Indeed, he thought that this civil law development determined by 'dominant ideas of what would be a desirable social order ... has contributed to the decline of competition' (Hayek 1948 [1947]: 115-16).

According to Hayek, debates had been poorly structured over how legal rules help competition become more functional. Mentioning the development of antitrust laws since their first enactment in 1889, he stated, Tittle intellectual effort has been directed to the question in what way this legal framework should be modified to make competition more effective' (116). This statement suggests that Hayek does not categorically deny that the aim of antitrust laws is to make competition more effective, although he does criticise how the laws are legislated or applied. He is not excessively optimistic about free markets. He is anxious about the danger of anticompetitive conduct and market dominance by private business entities. His final and concrete thoughts on antitrust are outlined in the third volume of Law, Legislation and Liberty published thirty years after Individualism and Economic Order.

Unlike others in the Austrian School, Hayek focuses on the importance of rules for maintaining a healthy competitive process, even if he is basically optimistic about the consequences of competition like others in this school. One important consideration: what type of conditions should be met in order to be optimistic about free markets? His suggestion that we should find a 'series of conditions' arose at the same time that he reached and constructed the idea of'spontaneous order' based on the theory of dispersed knowledge, competition, and market order after his 'transformation' (Caldwell 1988) in the 1930s. Hayek wrote:

We cannot regard 'freedom of contract' as a real answer to our problems if we know that not all contracts ought to be made enforceable and in fact are bound to argue that contracts 'in restraint of trade' ought not to be enforced. Once we extend the power to make contracts from natural persons to corporations and the like, it no longer can be the contract but it must be the law which decides who is liable and how the property is to be determined and safeguarded which limits the liability of the corporation. (Hayek 1948 [1947]: 115)

Stating 'the precise content of the permanent legal framework, the rules of civil law, are of the greatest importance for the way in which a competitive market will operate' (115), Hayek clearly recognises the existence of legal rules that were not assumed in the classical world where the main players of capitalism were individuals, not corporations. (4) This goal, which Hayek explored over ten years before The Constitution of Liberty (Hayek 1960a), is a starting point for his legal philosophy after that time. In other words, his approach toward legal problems is the same as his approach toward the economic problem of how to use dispersed knowledge more effectively.

From this point, this paper reviews Hayek's mentions of intellectual property rights and then the legal framework for corporations (in the next section). He tried to propose a series of legal rules to deter unacceptable private dominance, which in his view would end up destroying the market process. In the two sections following Section 3, this paper surveys and examines his discussions of antitrust in more detail.

3 Ownership of Rights

The Road to Serfdom (Hayek 1944) became a smash hit during the heightened tensions of the Cold War following WWII, and Hayek consolidated his position as the standard-bearer for defenders of free markets. In '"Free" Enterprise and Competitive Order', which was 'a paper which served to open a discussion on the subject indicated by its title held at a conference' of the Mont Pelerin society in 1947 (Hayek 1948 [1947]: 107), Hayek points out that the free market would be endangered if there existed the wrong rules for granting one's rights. A set of rights initially distributed is decisive for how free market order builds up spontaneously. He was anxious about a private entity fonning a destructive, dominant position. One doubt was the protection of intellectual property. Hayek stated:
   The problem of the prevention of monopoly and the preservation of
   competition is raised much more acutely in certain other fields to
   which the concept of property has been extended only in recent
   times. I am thinking here of the extension of the concept of
   property to such rights and privileges as patents for inventions,
   copyright, trademarks, and the like. It seems to me beyond doubt
   that in these fields a slavish application of the concept of
   property as it has been developed for material things has done a
   great deal to foster the growth of monopoly and that here drastic
   reforms may be required if competition is to be made to work. In
   the field of industrial patents in particular we shall have
   seriously to examine whether the award of a monopoly privilege is
   really the most appropriate and effective form of reward for the
   kind of risk-bearing which investment in scientific research
   involves. (113-14)

One reason that Hayek considers competition superior to planning is that only the former is available for making effective use of dispersed knowledge in society. Competition can work if and only if people are free to use their dispersed knowledge in a market. The other doubt concerned the legal structures of corporations:

There may be valid arguments for so designing corporation law as to impede the indefinite growth of individual corporations; and the ways in which this could be done without setting up any rigid limits or giving the government undesirable powers of direct interference is one of the more interesting problems which we might discuss. (Hayek 1948 [1947]: 116)

Although Hayek is generally supposed to be the embodiment of laissez-faire capitalism, it is important to understand that he was cautious about the unlimited expansion of capital. He recognised, already at the early stage of his study, the risks associated with the 'supercapitalism' mentioned by Reich (2007). Therefore, he stated in the 1960 article, 'The Corporation in a Democratic Society: In Whose Interest Ought It and Will It Be Run?', that there seems 'to exist no reason why a corporation should not be allowed to own stock of another corporation purely as an investment', but it seems 'that such stock, so long as it is owned by another corporation, should cease to confer a right to vote' (Hayek 1967 [1960b]: 309). He went on:
   I must admit that I have never quite understood the rationale or
   justification of allowing corporations to have voting rights in
   other corporations of which they own shares. So far as I can
   discover, this was never deliberately decided upon in full
   awareness of all its applications, but came about simply as a
   result of the conception that, if legal personality was conferred
   upon the corporation, it was natural to confer upon it all powers
   which natural persons possessed. But this seems to me by no means a
   natural or obvious consequence. On the contrary, it turns the
   institution of property into something quite different from what it
   is normally supposed to be. The corporation thereby becomes,
   instead of an association of partners with a common interest, an
   association of groups whose interest may be in strong conflict; and
   the possibility appears that a group which directly owns assets
   amounting only to a small fraction of those of the corporation,
   may, through a pyramiding of holdings, acquire control of assets
   amounting to a multiple of what they own themselves. By owning a
   controlling interest in a corporation which owns a controlling
   interest in another corporation and so on, a comparatively small
   amount owned by a person or group may control a very much bigger
   aggregation of capital. (309)

Such concentration of capital seems 'to be contrary to, rather than a consequence of, the conceptions on which the system of private property rests' (310). Therefore, he proposed a legal rule that would prohibit corporations from have voting rights in other corporations in which they owned shares.

4 Hayek and Antitrust I: Price Discrimination

As well as rules for the ownership of rights, rules of prohibition are quite important for free markets. Hayek refers to antitrust laws as a symbolic example of rules which should be properly set in a modem society. He positively stated his support for antitrust laws, to a certain extent, in Law, Legislation and Liberty. There, Hayek discussed two topics. One was the coercive and obstructive conduct of price discrimination. He wrote:

[W]hat is harmful is not the existence of monopolies that are due to greater efficiency or to the control of particular limited resources, but the ability of some monopolies to protect and preserve their monopolistic position after the original cause of their superiority has disappeared. The main reason for this is that such monopolies will be able to use their power, not only over the prices which they charge uniformly to all, but over the prices which they can charge to particular customers. This power over the prices they will charge particular customers, or the power to discriminate, can in many ways be used to influence the market behavior of these others, and particularly to deter or otherwise influence potential competitors. (Hayek 1979: 84)

Although strictly limited to bringing out the precise implication from Hayek's statements partly shown, we may think about the Robinson-Patman Act enacted in the New Deal era, if we have knowledge of the antitrust law. The Robinson-Patman Act, which prohibits price discrimination, sought to remedy two types of harm to competition. The first type of harm was the competitive injury among buyers when sellers discriminate against them. Competitive injury occurs, for example, when a manufacturer sells a large number of items to a large retailer at a cheaper price than a small amount of the same goods to a small retailer. Structurally, it makes the small retailer inferior to the large retailer in the resale market because their costs are unequal.

The second type of harm is competitive injury among sellers, often called 'predatory pricing'. In this situation, where price discrimination is possible for every category (for example, areas, types of customers, and so on.), a seller can sell a certain item at such a low price that it excludes competitors. As a result, the predatory company can acquire, maintain, or improve its dominant position in a market and not only recoup the loss but also receive monopoly profits (see Gifford and Kudrle 2010). (5)

Prohibition of predatory price discrimination, the second type of harm addressed by the Robinson-Patman Act, aims at 'protection of competition itself. On the other hand, for the first type of harm, competitive injury, there is a social and political role to protect small and medium-sized businesses who are inferior to large ones (Blackford 2003: 111-12). It is difficult to assume that Hayek would have supported this kind of affirmative action. How does Hayek address this issue?

This can be determined, if we focus on Hayek's sentence (cited above), 'such monopolies will be able to use their power, not only over the prices which they charge uniformly to all, but over the prices which they can charge to particular customers' (Hayek 1979: 84).

Hayek thought of uniform monopoly pricing neither as a problem nor as an evil because monopolists are under economic restraints that demand that they use uniform prices for all. Customers are not forced to pay more than a uniform monopoly price. What Hayek is anxious about is that a monopolist might charge 'different' prices for each customer. Indeed, he talks about 'perfect price discrimination,' something every industrial organisation textbook mentions. (6) That is, the situation where all customers must pay the highest price they can accept individually. For Hayek, this is nothing but coercion. Payment is not based on customers' will. There, a transaction is fully controlled at a monopolist's will. That is to say, Hayek differentiates the circumstance where a monopolist can only take a monopoly profit at a monopoly price from the circumstance where a monopolist can discriminate prices and take the maximum profit.

The other issue with price discrimination, predatory pricing, concerns 'the ability of some monopolies to protect and preserve their monopolistic position after the original cause of their superiority has disappeared' (84). Hayek thought it was harmful that a monopoly position allows a monopolist to maintain a dominant position through aggressively low prices that exclude competitors against the background of an already acquired dominant position. This idea almost overlaps with the idea of predatory pricing that has been widely accepted in antitrust economics. (7) Hayek (1979: 85) states: '[S]ince the power of the monopolist to discriminate can be used to coerce particular individuals or firms, and is likely to be used to restrict competition in an undesirable manner, it clearly ought to be curbed by appropriate rules of conduct'.

Who then should enforce these rules prohibiting price discrimination? And how should they be enforced? In practice, there are the injunctive relief procedures from the Federal Trade Commission and the damages action by victims. Hayek prefers the third option because he thought that discrimination by a monopolist often causes positive effects in the market. He wrote:
   The task of preventing such use of discrimination is especially
   difficult because certain kinds of discrimination by a monopolist
   will often be desirable. We have already mentioned there is one
   case in which a monopolist may render better services because he is
   a monopolist. This is the case where his power to discriminate
   between different users of his product enables him to cover most of
   his fixed costs from those who can pay a relatively higher price
   and then to supply others at little more than variable costs. In
   such fields as transport and public utilities it is at least
   possible that some services could not be supplied at all at a
   profit if it were not for the possibility of discrimination such as
   monopoly confers. (85)

Therefore, for Hayek it was not appropriate to totally prohibit price discrimination. Antitrust laws must be limited to conduct which is coercive or makes competition unworkable (that is to say, directly dominating customers through discrimination or excluding competitors by predatory pricing). Hayek thought that public authorities were not the appropriate ones to enforce these rules of prohibition:
   Though it would not be desirable to make all discrimination
   illegal, aimed discrimination intended to enforce a certain market
   conduct should clearly be prohibited. It is doubtful, however,
   whether it would be effectively achieved by making it a punishable
   offence rather than merely the basis of a claim for damages. The
   knowledge required here in order to prosecute successfully is not
   the kind of knowledge that any authority is likely to possess. (85)

5 Hayek and Antitrust II: Cartels

When we see the words, 'antitrust laws', we quickly think of the Sherman Act, especially the prohibition of cartels under section one of the Act. Cartels are generally thought to be the most harmful type of anticompetitive conduct covered by antitrust laws. However, Hayek is not concerned about these kinds of horizontal agreements between competitors: 'There is no reason to believe that any monopolistic organization deserves protection against threatening competition, and much reason to believe that some wholly voluntary organizations of firms that do not rely on compulsion are not only not harmful but actually beneficial' (Hayek 1979: 86).

Although the idea of classifying cartels as 'good' and 'bad' or 'efficient' and 'inefficient' has been established in practice, Hayek insists on a more uniform treatment of cartels. According to him, 'a general prohibition of all cartels, if it were consistently carried through, would be preferable to any discretionary power given to authorities for the purpose of merely preventing "abuses'" (86). In practice, hardcore cartels which have only anticompetitive purposes and effects are illegal per se under section one of the Sherman Act and criminal punishments are to be imposed on violators. Saying ' [i]t would seem that prohibition under penalties cannot be carried out without a discretionary power of granting exemptions, or of imposing upon courts the difficult task of deciding whether a particular agreement is, or is not, in the public interest' (86), Hayek shows his view toward this type of law enforcement. Then, how does he advocate using a uniform treatment for anticompetitive arrangements? Hayek wrote of 'a third possibility, less far-reaching than prohibition under penalties, but more general than discretionary surveillance to prevent abuses' (86), which is 'more in conformity with the rule of law' (86). (8)
   This would be to declare invalid and legally unenforceable all
   agreement in restraint of trade, without any exemptions, and to
   prevent all attempts to enforce them by aimed discrimination or the
   like by giving those upon whom such pressures were brought a claim
   for multiple damages ... (86)

Hayek relies on a natural assumption that the issued arrangements can be beneficial to all participants as long as compliance with the arrangements is not coercively forced and there is no barrier to withdraw from the arrangements:
   Both as regards types of products and terms of the contract the
   establishment of such norms as it would be in the interest of most
   to observe in ordinary instances would produce considerable
   economies. In such instances it will, however, be not so much that
   the norm is obligatory as that it pays the individual to adhere to
   an established standard practice which will bring about his
   conformity. The necessary check on such agreements on standards
   becoming obstructive will be provided by any individual firms being
   free explicitly to deviate from the norm in making a contract
   whenever this is to the interest of both parties to the contract.

If the antitrust law declares the issued arrangements invalid and legally unenforceable, the only issue that remains is whether the participants will obey them spontaneously or not. If certain participants are not satisfied, all they need to do is ignore or withdraw from the arrangements. When other participants try to force them to obey, Hayek proposes, they should be entitled to recover damages. It can be said that he took the treble damages remedy of the antitrust law into account when he proposed multiple damages. Supposedly, Hayek thought that there was no reason to prohibit these arrangements as long as the participants compensate a multiple loss to the unsatisfied persons. (9)

6 Conclusion

The main debate about corporation law and intellectual property law is over the problem of the initial setting of rights. The reason why Hayek treated voting rights entitlements of corporations negatively and considered the legal protection of intellectual property to be unreasonable, while he considered corporate property right as natural and inevitable, is that these legal protections would make the competitive process unworkable, choking our free society and causing it severe injury. Hayek's view to partially support antitrust laws is basically the same as the debate above. And it is remarkable how his explanation became more theoretically rich as time went by. His antitrust views were as firmly developed as the legal doctrine that is grounded in his own legal philosophy.

How is the competitive process workable? This was the starting point of Hayek's legal theory. He recognises 'liberty', as the 'condition of men in which coercion of some by others is reduced as much as is possible in society' (Hayek 1967 [1960a]: 11), as the most important nonnative aspect of market order. He thinks that a government is justified in prohibiting private coercion only through 'known general rules' (21) to make certain that the individual can 'never be coerced unless he has placed himself in a position where he knows he will be coerced' (21); in other words, unless the domain of liberty for individuals has been clearly defined. Hayek's study of how the domain of liberty is defined was developed as his theory of the 'Rule of Law.' There, each of the attributes of true laws--foreseeability, certainty, generality and equality--has a role for properly defining the free domain of individuals. He thinks that the principle maintaining these attributes of true laws should be the basis of society (Hayek 1967 [1960a]: 107-10).

Hayek's theory of antitrust (Hayek 1979, Ch. 15) is in line with his legal theory. First, he thinks that (1) perfect price discrimination should be prohibited when it is coercive, while monopoly pricing should not be prohibited because it is not coercive; and (2) price discrimination should be prohibited when it is used as predatory pricing to exclude competitors because it is destructive in a free market. However, because Hayek recognises that there are some possibilities where price discrimination could be efficient in a market, he proposes that price discrimination should be prohibited when it is harmful. Then he states that actions for damages by victims are more preferable than punishments by the State because the public authority does not have enough knowledge to evaluate the harmfulness. It can be said that these debates on price discrimination are based on Hayek's notion of the effectiveness of the competitive process and exclusion of coercion as purposes of legal rules. Second, Hayek proposes that cartels should be declared invalid and legally unenforceable without any exemptions, even though cartels might be efficient. The reason is that it is more in conformity with the rule of law. In other words, making all cartels invalid under the scheme of multiple damages by private parties can maintain both efficiency and uniformity simultaneously; while if the public authorities have discretion to evaluate whether cartels are efficient or not, it raises the risk of their abusive enforcement of laws. Therefore, Hayek thinks that his proposal is in line with the requirement of his theory of the Rule of Law.

Interesting are the changes to his views over time. As time went by, Hayek used more and varied theoretical tools. Before The Constitution of Liberty, in which he debated the general theory of law, that is, in Individualism and Economic Order, he debated the contents of property rights and distribution of these, and after it, that is, in Law, Legislation and Liberty, he debated the antitrust law under which anticompetitive and coercive conducts are prohibited. He could discuss his theories of antitrust law in Law, Legislation and Liberty clearly because he had already established the theory of liberty and rule of law. This transformation into having a more multi-layered view would be a difficult hurdle to the understanding of Hayek's works. It is said, however, that this could also be an attractive factor in his great works.

One major characteristic of Hayek's economic theory is that it is connected to his legal theory and vice versa. More accurately, his theory of liberty is based on his economics and his legal theory or his theory of the rule of law is based on his theory of liberty. His policy statements have been developed on these all together. Put another way, his policy statements, his debates on the positive laws are guided indirectly by his economic theory. His legal theory mediates between his policy statements and his economic theory.

It is also interesting that Hayek relies on the well-known scenario of price discrimination and predatory pricing as the anticompetitive monopolist conduct that standard textbooks of industrial organisation use as examples, although it is said that he kept some distance from mainstream economics.

Posner (2003, Ch. 7), whose works have been treated as the established classics of Taw and economics', tried to refute Hayek. Posner thought that Hayek's theory of spontaneous order and evolutionary theory of rules denies the framework of law and economics as applied economics. In Hayek's debating antitrust, however, he accepts the theories of industrial organisation and, on the assumption of these, he tries to shape his own antitrust theory as a mixture of his economic and legal thought. This point might be an issue for future study.

Hayek's antitrust doctrine exists at the 'crossroads' of his economic and legal thought and is the fruit of the border transgression of these fields. It can be said that the study of Hayek's works as a mixture of different disciplines is one of the attractive issues that have not yet been sufficiently developed. The antitrust law must be a significant ground for further debate over Hayek's work.

Shigeki Kusunoki, Law School, Sophia University, 7-1 Kiocho Chiyoda-ku, 102-8554 Tokyo, Japan. Email: yhu0171 The author is indebted to two anonymous referees for comments.


(1) Paul (2005) is a rare exception, in which Hayek's antitrust theory is introduced.

(2) In relation to the 'Post-Hayekian Austrian School', Paul (2005) says, 'adherents generally oppose antitrust, viewing competition as rivalrous behavior and a discovery mechanism' and '[Rejecting the perfect-competition paradigm, they see no role for government in policing markets for competitiveness' (168). Also, Cordato (1994) says:
   [I]t is quite common for mainstream economists, particularly of the
   'Chicago School', to reject the model of perfect competition as a
   guide to public policy in the area of antitrust enforcement, citing
   the 'competition as a process' views of Hayek and Kirzner. Yet,
   while Austrians typically argue, a la Armentano, that all antitrust
   laws should be abolished, including those against collusion and
   price fixing, even the most free market Chicago economist rarely
   comes to that conclusion. (357)

(3) Paul (2005) says, '[d]iscussions of Hayek's monopoly theory are scarce in recent book-length treatments of Hayek's political philosophy' and lines up the names, Barry (1979) and Shearmur (1996) as exceptions (Paul 2005: 174). Including Paul (2005), however, there have been no works not only introducing but also reconsidering Hayek's antitrust doctrine until now.

(4) Hayek states in The Constitution of Liberty:

If there is to be an efficient adjustment of the different activities in the market, certain minimum requirements must be met; the more important of these are, as we have seen, the prevention of violence and fraud, the protection of property and the enforcement of contracts, and the recognition of equal rights of all individuals to produce in whatever quantities and sell at whatever prices they choose. (Hayek 1960a: 229)

Just after this, however, he says, '[b]ut if they are not satisfied, government will have to achieve by direct orders what individual decisions guided by price movements will' (229).

(5) Ikeda (2013) clearly states:
   Hayek's claim that the outcomes in a capitalist economy are
   invariably the unintentional result of decisions made by many
   independent players does not always hold. Let us assume that there
   are only a few players in the market. Then it is quite possible for
   a seller to set the price high enough to exclude some demanders;
   the same can be said of a buyer who attempts to exclude some
   sellers, by setting the offer price low enough. This is a situation
   where there are only a few players in the economic scene and one
   might have the dominant position. Then the result is not
   unintentional as Hayek emphasised, but can be reduced to someone's
   intentional effort to realise a certain economic situation. (43)

We have already known that Hayek accepts the scenario of predatory pricing in the debate on the antitrust law, and therefore, he recognises the monopolistic activity which makes the result 'reduced to someone's intentional effort to realise a certain economic situation.'

Papaioannou (2012) recognises and focuses on Hayek's antitrust debate in volume 3 of Law, Legislation and Liberty, but states:

According to him, labour unions and the state are man-made monopolies and should be legally restricted. Since Hayek believes this, he disapproves of the prohibition of enterprise monopolies through penalties ... Nevertheless, he overlooks the fact that enterprise monopolies break the market process of spontaneity and evolution. (Papaioannou 2012: 167)

Here, Papaioannou (2012) overlooks Hayek's proposal of the legal rule which prohibits corporations from having voting rights in other corporations of which they own shares, in Hayek (1948 [1947]), and his debate of price discrimination and predatory pricing in Hayek (1979). '[H]e disapproves of the prohibition of enterprise monopolies through penalties' is not because 'he overlooks the fact that enterprise monopolies break the market process of spontaneity and evolution' (Papaioannou 2012: 167), but because the antitrust authorities and judges lack knowledge and skills to understand and evaluate issued cases. Instead, Hayek proposes several private legal schemes to deter the abusive conducts of enterprise monopolists (Hayek 1979, Ch. 15).

(6) See, for example, Tirole (1988: 135-7).

(7) About the theoretical development of predatory pricing in the antitrust debates, see, for example, Giocoli (2011).

(8) As an example of failure cases, Hayek refers to the competition law of West Germany (Gesetz gegen Wettbewerbsbeschrankungeri). He states:

It begins with a sweeping provision which, wholly in the sense of what has been suggested, declares as invalid all agreements in restraint of competition. But after it has also made such agreements a punishable offence, it ends up by perforating the general rule with so many exceptions, which wholly exempt various kinds of contracts, or confer upon authorities discretionary powers to permit them, and finally confines the application of the law to such a limited sector of the economy, that it deprives the whole of most of its effectiveness. (Hayek 1979: 87)

(9) Hayek states:

Particularly if the law explicitly authorized that a part of the damages awarded might be collected by the lawyers conducting such cases, in lieu of fees and expenses, highly specialized legal consultants would probably soon grow up who, since they would owe the whole of their business to such suits, would not be inhibited through fear of offending the big corporations. (Hayek 1979: 85-6)

Hayek thought that it becomes possible not only to motivate victims to bring a suit but also to train experts in this field and make private law enforcement workable if a difference between the compensation for damages and a real loss applies to judicial costs. He clearly recognised that incentive mechanisms are of great importance in private disputes.


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Title Annotation:F.A. Hayek
Author:Kusunoki, Shigeki
Publication:History of Economics Review
Article Type:Report
Date:Jan 1, 2015
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