At Truth On The Market, Josh Wright destroys Northwestern Professor Anthony D’Amato’s assertion that “There is Little Evidence that Economic Analysis of Law Has Changed [Antitrust] in Any Noticeable Way.“
The Orange Book Blog analy…

The most absurd thing, as fun as it has been (very!), would be to continue this exchange with you. You clearly hold your view as strongly as I hold mine (perhaps you too are a “committed disciplinarian”?), and are clearly not going to accept my invitation to take this claim out of your paper. So it does not appear the exchange will be productive.

Perhaps it would be productive if I accepted your invite to teach you economics. I do love a challenge, but from what I’ve read in your comments you have convinced that you are easily beyond my abilities as a teacher (maybe in a few years when I have more experience?). I’d be happy to suggest elementary textbooks offline.

I feel like I’ve done what I set out to do: rebut the claim in the title of the post. I stand by those views as you do yours. These claims and evidence are here for all to see. Perhaps you will convince some readers that your claim is accurate. But I doubt it. Best of luck to you and with the paper in any event.

Wright scores big on falsifying the conclusion with which he titled this post, but with a slight deduct for getting bogged down in the rhetorical nickel-and-dime of coin dealers.

D’Amato scores one for rhetorical brilliance, illustrating the beffudlement of lawyers trying to argue antitrust in the face of economics.

Both sides get deducts for painful punditry regarding “Wright,” making this exchange net very little.

You gave an example (vaguely stated, to be sure) of conduct that “cannot” violate the antitrust laws. I posited a coin dealer who met the terms of your example. I showed how this coin dealer “could” violate the antitrust laws. Now you respond by saying that in my naivete I overlooked the fact that section 1 of the Sherman Act prohibits what the coin dealer has done.

First of all, you don’t have to be an economist to read the Sherman Act, though it certainly doesn’t help.

Second, it was the very point of my example that the coin dealer violated the antitrust laws. Yet with barely muffled satisfaction you hurl this back at me and say that, lo and behold, what the coin dealer did was to violate the antitrust laws! You attack me by agreeing with me. Don’t you see the absurdity of your position?

You keep harping on my alleged “mistake” in saying that Microsoft won the antitrust case. Microsoft settled with the US government by accepting a slap on the wrist. They got away with their predatory conduct against Netscape for a few shekels. Of course Microsoft won; they won big-time. They didn’t win by having better economists than the US government or Netscape. They won because they had better lawyers. And they got those better lawyers by paying them many many times what the government could have afforded to pay them. I don’t defend these lawyers. Microsoft, Google, Yahoo, and Amazon are today’s robber barons, only much richer. And what about the increasing consolidation of the media? The US is heading toward corporate fascism, abetted by economists who concentrate on the means (vertical, coordinated, tying, etc.) while losing sight of the original political purpose and intent of the antitrust laws.

The last refuge of a committed disciplinarian is to insist that any outsider who criticizes the discipline does not understand it. Your posts are a perfect portrait of such an expert. You keep telling me that I do not understand economics. You say you are not here to teach me all of economics. Well, if you know all of economics, I’d be interested. When will the next recession occur? Will it be brief or severe? Or are these macro problems that are outside your definition of your expertise? Like antitrust?

Well, enough vituperation for now. I agree with you totally on one point: it has been fun.

Let’s start small and obvious. I am happy to stand by my statement that there exist both a set of conduct X which contains types of conduct which can violate the antitrust laws and a set Y which contains conduct which cannot. I’m comfortable with that. If that was unclear, I’m also comfortable blaming myself for failing to make it so. But lets all get on the same page, and see if we can have a rational debate after all.

But now let the absurdity truly commence! And perhaps, maybe even send you to that tent you mentioned. You write: “what I am supposed to do with your example” of “single firm conduct of firms without market power”? Well, for starters … my answer is “understand it.”

Let’s try again. The thing about the aardvark and the nest is clever and all. Really. But a firm unilerally imposing exclusive dealing contracts, tying arrangements, maximum resale price maintenance, slotting allowances, etc. that does not have sufficient market share to control market output does not violate the antitrust laws. Those are several examples. How about a firm with market power that prices below its marginal cost in a market with no barriers to entry? Agency guidelines also have injected various safe harbors into antitrust analysis of joint ventures. There are hundreds of these. Surely you at least agree that exclusive dealing, tying, and predatory pricing are conduct is the subject of the antitrust laws — what with your opinion of Microsoft *winning* their lawsuit by befuddling the judges (no clever retort about that error which rhymes w. my last name or some such?)? Now, I respectfully submit that this conduct has not much to do with aardvarks or nests. Though I am willing to admit I dont know much about either of those.

But lets expose the fundamental naivety of your example of the coin dealers a bit more. The agreement you suggest between competing coin dealers on price is not unilateral conduct — it involves an agreement between competitors after all — and so I’m happy to say that the dealers have not violated Section 2! They’ve violated section 1 by entering a conspiracy in restraint of trade. These sorts of distinctions: coordinated v. unilateral conduct, vertical v. horizontal, etc … are generally covered very early in antitrust courses. You butcher these basic distinctions but purport to make claims regarding the purpose, direction, and evolution of antitrust analysis — not to mention the outcomes of specific cases. Without looking, can you tell me what claims were made against Microsoft? Which they won and lost at the district court level? How about on appeal? The first lesson on these basics is gratis.

So, I’ve given you quite more than a single example of business conduct that does not violate Section 2. I’ve given you several examples of conduct by a single firm alleged to violate the antitrust laws. And you ask for more without properly digesting these first? Want more? These are easy to generate. I would hope any decent law student could come up with about 25 in an hour.

As to the notion that all my other claims rest on this single example … this is clearly false, but I can live with it since the example and my original claim are both correct (Wright? Sorry, had to do one). My claim, to repeat, is something like the following: “D’Amato’s claim that economics has not changed antitrust is demonstrably false.” I’ve offered plenty of support for that claim in the comments and in the original post. Much of which you have not responded to — nor can you sensibly.

I’m not here to teach you all of antitrust. I certainly dont claim that I can do that. You’ve got Herclites, I’ve got a story about the horse you can only lead to the water but still dies of thirst. Forgive me, I dont think the horse had a fancy name or title.

After all of this, I am sure you will still stand by your conclusion that economic analysis has not changed antitrust law. It is a shame that you will not take this claim out of your article. It does not belong there. It is wrong. It weakens your claim substantially to anybody with even a passing knowledge of the events in antitrust over the past 40 years. If weakening your claim is not a good enough reason, perhaps accuracy is? There is no shame in admitting ignorance of a field. But its your article. Have a blast.

I do appreciate all your comments. It has been fun. And though I’m certain you will not see why it is appropriate, now that I’ve narrowly escaped that whole aardvark-tautology gambit, I’m off to envision you, a desert, and that tent.

P.S. I don’t know Bernanke or Paulson, sound like macro guys to me

“And by the way, while there is plenty of business conduct which can violate the antitrust laws, you might be surprised to know that there is
a great deal of conduct which cannot.”

But now you say, in post # 10:

” Third, and on a related note, you say that I claim the opposite: that there exists plenty of conduct that cannot violate the antitrust laws.
Not quite right. There exists significant sets of conduct that both can and cannot violate the antitrust laws.”

Who is being “not quite right” here? Is it Wright who is not quite right? I can only respond to the written words you have used. When you go on to deny that you said whose very written words, and when the printed word contradicts you, how can you expect to conduct a rational debate? Maybe with Heraclitus, but not with D’Amato.

But let’s proceed. To quote myself in post #9, I asked you to “give us an example or two of business conduct that cannot violate the antitrust laws.” I went out on a limb in asking you this question, because if you then provided me with such an example, I’d have to fold my tent and slink into the night desert. However, again you backed off. Instead of giving me an example, you gave me a tautology. You said, in post # 9:

‘One easy example should suffice: single firm conduct by firms without market power. There is universal agreement by economists and in the law that this conduct (whether by exclusive dealing, tying, or other vertical contract) cannot violate Section 2 of the Sherman Act.”

In other words, you are giving me an example that by definition is outside the Sherman Act. Why not use the example of an aardvark licking up a nest of termites? The aardvark is by definition not engaging in antitrust behavior.

What am I supposed to do with your example? After all, on it your other claims all rest. And so I imagine a coin dealer, engaging in “single firm conduct” “without market power” (I quote from your post # 9). He enters into an agreement with all the other thousands of coin dealers in the United States. They all agree not to sell an ounce of silver to any customer without also requiring the customer to purchase for $20 a 5×8 photograph of President George W. Bush for each ounce of silver bought. Further, they all agree not to sell an ounce of gold to any customer without also requring the customer to purchase a laminated high-definition 12×20 portraint of the President for $600. What would Bernanke say about this? What would Paulson say? What would you say? Surely the one thing you cannot say, unless you change what you’ve already said so far, is that the coin dealers have violated section 2 of the Sherman Act.

Now, maybe my coin dealer example isn’t the exact one you had in mind. I would then ask you again: give me a single example of business conduct that “cannot” be an antitrust violation.

First, you claim your article was not about antitrust. I do not dispute that. But you use antitrust as an example to make your case that economic analysis has not been a success story at least in part because it has not changed the law even in an area conducive to such analysis like antitrust. I have demonstrated, I think beyond reasonable dispute, that antitrust does not support your claim.

Second, you imply that anthropology or any other form of analysis would change antitrust, as if economics has changed the field in a manner akin to flipping a coin. Again, you disclaim knowledge about the field and then make anecdotal and superficial claims about its content. And this breezy treatment demonstrates a lack of knowledge that really should prevent these sorts of claims. Perhaps you could respond again that “your article is not about antitrust.” I agree. But antitrust is also not about your article.

Third, and on a related note, you say that I claim the opposite: that there exists plenty of conduct that cannot violate the antitrust laws. Not quite right. There exists significant sets of conduct that both can and cannot violate the antitrust laws. I do not deny the existence of either set. One easy example should suffice: single firm conduct by firms without market power. There is universal agreement by economists and in the law that this conduct (whether by exclusive dealing, tying, or other vertical contract) cannot violate Section 2 of the Sherman Act. There is plenty of conduct in there … enough to hold a whole set of FTC/DOJ hearings. But let us not get bogged down in the details. After all, it is your article and your claim that antitrust supports your thesis. A quick review of the literature should be sufficient to get you up to speed.

Fourth, and on to the small details, you disclaim not to have expertise but a sufficient amount to declare that Microsoft should have lost the lawsuit. Of course, it is clear that you are under the impression that MS won the lawsuit and was found not to violate the antitrust laws. Well, let me be the first to let you know: Microsoft was found to violate the Sherman Act. Whether this was because of befuddlement or otherwise, I will leave to you. But there is a significant economic literature involving understanding Microsoft’s practices and their consumer welfare implications, and it is worth reading.

Fifth, in response to this: “I still say that economic analysis has not thrown any light upon antitrust law.” If the examples in the post and the comments dont convince you, I am fairly certain that it cannot be done. Which is a shame, because as you say, this is not your area of expertise and your claim has little to do with antitrust. But your reference to economics and antitrust is clearly erroneous, does not support your claim, and hand waving — even vigorously with reference to quantum mechanics, will not make it accurate.

Sixth, and finally, quite the opposite of your broader claim, one might view antitrust has suggestive of the opposite relationship. It is the law that (in this area) appears to be more directionless and vague — and economics which has given policy makers and judges the tools through which to move the ball forward.

(I realized I got Wright wrong as soon as I hit the submit button; but I’ll keep trying until I get it Wright.)

My article was not about antitrust, it was about assuming that one discourse can throw light upon another. Of course, compared to an expert, I display lack of knowledge of antitrust. The only “expertise” I can defend is international law.

To be sure, economic analysis has changed antitrust. The use of any kind of analysis will change its target. Anthropological analysis would change antitrust too.; Economic analysis has complexified antitrust law, to the point where an outside observer can say that with 10 or 30 factors you can prove that just about anything that a corporation decides to or decides not to do is an antitrust violation. You say the opposite is true: that there is a great deal of conduct that “cannot” violate the antitrust laws. Perhaps you might give us an example or two of business conduct that cannot violate the antitrust laws.

I still say that economic analysis has not thrown any light upon antitrust law, and in the case of Microsoft, it has perhaps dimmed the light that was already there.

First, your claim was that (as the title of the post states) economic analysis has not changed antitrust. I listed ten ways that it has (and can probably push the list to about 50). I would have thought that the appropriate response from you would be a concession that your argument does not apply to antitrust. Your comment here suggests that perhaps antitrust is not a field where you have enough expertise to be making these sorts of claims which such confidence. Whether that is the case or not, it certainly cannot be that my counterexamples “proved your point.”

Second, the idea that economic efficiency and the exercise of market power are “directionless factors” goes a long way to show your failure to understand basic economics. One can quarrel about whether the appropriate antitrust standard is total welfare or consumer welfare, but not as to whether economic analysis is useful to address either question. Economics can tell us a great deal about the efficiency (total welfare) and consumer welfare implications of a number of practices.

In fact, the very point of my post (which I am not quite sure that you read) was that this sort of economic analysis has been incorporated into a great deal of antitrust enforcement and doctrine.

And, by the way, while there is plenty of business conduct which can violate the antitrust laws, you might be surprised to know that there is a great deal of conduct which cannot. Of course, the reason this second set exists is because of the contributions of economists to our understanding of these practices which were ultimately incorporated into antitrust analysis.

Baker’s excellent paper applying the self-enforcing contract framework to antitrust enforcement discusses balances between producer and consumer interests — but it cannot possibly support D’Amato’s claim. Baker discusses the possibility that the US political system adopted a political bargain between these interests in the middle of the 20th century, and provides a lens through which to view post-1950 developments such as the rise of the Chicago School in light of this bargain. He does not show, nor attempt to demonstrate, that economic analysis was irrelevant to antitrust at the time the Sherman Act was passed.

There is, however, a VERY large literature on the legislative history of the Sherman Act which is consistent with my claim that these laws were passed in light of a myriad of concerns including economic efficiency, market power induced wealth transfers to consumers, political concerns, etc.