Antitrust Law, 2d ed.

• Author: Carrier, Michael A.
• Position: Book Review

ANTITRUST LAW. By Richard A. Posner. [dagger] Chicago: University of Chicago Press. 2d ed., 2001. 316 pp.

INTRODUCTION I. DESCRIPTION: THE ECONOMIC APPROACH AND TOUR OF THE CASELAW II. REVISION: RESPONDING TO THE THEORETICAL ADVANCES OF THE PAST TWENTY-FIVE YEARS III. PRESCRIPTION: NEW TEST, THE NEW ECONOMY, AND NEW ADMINISTRATION A. New Tests B. The New Economy C. New Administration and Enforcement CONCLUSION INTRODUCTION

Judge Richard Posner deserves as much credit as anyone for making the interception. The interception, that is, of the dubious "Hail Mary" cases thrown by antitrust courts in the 1960s--cases in which courts pursued multiple, conflicting objectives and promoted small businesses at the expense of consumers. (1) Judge Posner, along with other members of the "Chicago School," hauled in the interception by powerfully touting economic efficiency as the sole goal for antitrust. So we now find the author running back the interception return, headed towards the end zone of an antitrust regime characterized by coherent, "economically rational" doctrine and enforcement. (2) And at least for the first few yards of the return, which cover the ground of the goals of antitrust, the "Post-Chicago School" blocks for Judge Posner, relieving him of the task of making the case for an economic approach to antitrust. We are far indeed from 1976, when the title of the first edition of his book, Antitrust Law: An Economic Perspective, implied the possibility of other perspectives. (3)

Before reaching the end zone, however, the return confronts imposing obstacles, such as the enforcement and administration of the antitrust laws, the lightning speed of the new economy, and theoretical developments offered by the Post-Chicago School. To a significant extent, these obstacles overlap Judge Posner's objectives in Antitrust Law: (1) "to explain the economic approach to new generations of lawyers and students," (2) "to update the approach in light of theoretical advances since the mid-1970s," and (3) "to apply it to the new issues of antitrust law that have emerged in the last quarter century." (4)

This review concludes that Judge Posner succeeds in his first objective but encounters only mixed success in the other two. The strength of Antitrust Law is its explanation of economic concepts and its breadth of analysis. Also welcome is its focus on the new economy. But the work suffers from two significant flaws. First, in contrast to his objectives for Antitrust Law, and in disregard of the vastly altered jurisprudence, Judge Posner's focus too often is on the distant past, with most of his argument and the cases he discusses taken directly from the first edition. Relatedly, Judge Posner fails to comprehensively challenge the various theories that the Post-Chicago School has offered in the past twenty years. Second, the numerous tests he introduces to improve antitrust law often are insufficiently developed and not calibrated to the need for revision.

1. DESCRIPTION: THE ECONOMIC APPROACH AND TOUR OF THE CASELAW

   For his first task, explaining the economic approach to antitrust, Judge Posner succeeds as few others do. Throughout Antitrust Law, he uses economic theory to illuminate various business practices. He also offers a straightforward, conversational writing style and a no-holds-barred analysis of judicial (primarily Supreme Court) opinions.

   Judge Posner begins with the economic theory of monopoly and continues by leading the reader on a wide-ranging tour of the building blocks of the antitrust landscape: price fixing, divestiture, mergers, exchanges of information among competitors, vertical restraints, and exclusionary practices such as tying, predatory pricing, vertical integration, exclusive dealing, and boycotts. A few examples of his didactic instruction include his explanations of (1) the economic basis of monopoly, (5) founded upon the seller's power over price and its operation in the elastic portion of the demand curve, where additional increases in price would lead to a greater "proportional reduction in the quantity demanded" than the "proportional increase in price"; (6) (2) the difficulty, when evaluating predatory pricing claims, of determining whether a firm sells at less than its marginal cost, since such a measurement "does not appear on a firm's books" (7) but instead "is a hypothetical entity"; (8) and (3) the capacity of vertical restraints, such as territorial restrictions and resale price maintenance, to prevent free-riding (9) but also, perhaps, to reflect the manufacturer's status as "the cat's paw of cartelizing dealers." (10)

   Judge Posner also elaborates the theories that did not become part of antitrust jurisprudence: the economic analysis of pricing that lost out to "proof that the defendants had conspired" (since "lawyers and judges are more comfortable with conspiracy doctrine") in the law of price-fixing, (11) and the inability to "measure elasticities [of demand] reliably by the methods of litigation," which resulted in the dominant influence of market definition in antitrust law. (12) And he explains the prevalence of tying cases that involve patents by referencing the development of the doctrine of patent misuse, where the issue "was whether the patentee had improperly extended the patent monopoly by monopolizing an unpatented product tied to the patented product." (13)

   The tour of economic practices would not be complete without pointing out courts' now-repudiated monuments to earlier, less economics-oriented eras. The carcasses on the side of the road are legion: Columbia Steel, Brown Shoe, Von's, the "scandalous" (14) Simpson, the "feeble" (15) Schwinn, and Utah Pie, to name just the most battered. (16) Another heap of cases and doctrines on the road to disrepute follows, with any life within them exceeding their usefulness, according to Judge Posner: divestiture as a Section 2 remedy, overbroad conceptions of barriers to entry, the potential competition doctrine, submarkets, the Hardwood case, Maple Flooring, Colgate, the per se rule against resale price maintenance, and Kodak's aftermarkets. (17)

   But Judge Posner refuses to join the "pessimists" who question a role for antitrust today. (18) He dismisses as "academic" proposals "to curtail antitrust enforcement drastically or even to repeal the antitrust laws altogether." (19) And he recognizes that "the potential social gains from an effective antitrust policy are substantial," (20) concluding that antitrust doctrine is "sufficiently supple" to cope with problems presented by the new economy. (21)

2. REVISION: RESPONDING TO THE THEORETICAL ADVANCES OF THE PAST TWENTY-FIVE YEARS

   Less effective than his explanation of economic concepts is Judge Posner's response to the theories offered by the Post-Chicago School. In particular, he neglects some of the advances and insufficiently engages others. In exploring Judge Posner's success in updating Antitrust Law, four developments introduced (or revitalized) by the Post-Chicago School are illustrative: (1) more elaborate applications of game theory, (2) the "raising rivals' costs" theory, (3) attention to unilateral competitive effects from horizontal mergers, and (4) new perspectives on barriers to entry. (22)

   Analysis based on game theory--whose ancestors trace back to the nineteenth century "granddaddy" of the Cournot equilibrium (23)--has burgeoned in the past two decades. In fact, game-theoretic analysis underlies many of the Post-Chicago School contributions, including the next two developments discussed in this Part. Stated at its most basic level, the analysis posits that firms' optimal actions incorporate the anticipated reactions of their competitors, and vice versa.

   Judge Posner raises game theory in two contexts. In discussing oligopoly pricing, he notes that game theory models "do not yet yield implications that differ from those of non-game-theoretic approaches" like those advanced by George Stigler in the 1960s. (24) And in the realm of predatory pricing threats, he advises the reader that the conditions required for the theory to operate are too exacting, which offers "a clue to the limited inroads that such analysis has made in antitrust thinking." (25) It is true that the theory has failed to provide courts with a readily applicable set of tools. But perhaps game theory is more helpful than Judge Posner acknowledges. For, at a minimum, it provides a structure for systematizing anecdotal evidence of collusion and imposes discipline on economists to specify firms' "strategic variables, ... timing, and ... information structure." (26) And it could supplement Judge Posner's seventeen characteristics identifying markets propitious for collusion (27) by incorporating factors such as the likelihood of punishment facing firms that deviate from the (tacit) cartel agreement in repeated games.

   The profusion of Post-Chicago scholarship on game theory is second only to the ink spilled on the "raising rivals' costs" ("RRC") theory. A firm raises its rivals' costs "by restraining the supply of inputs available to rivals, thereby giving the purchaser power to raise prices in its output market." (28) Judge Posner traces the origin of RRC back to Aaron Director and Edward Levi, initial founders of the Chicago School, who observed that a monopolist might profitably "`decide to impose additional costs upon itself for the sake of a restriction' on suppliers or customers `if the effect of it would be to...