The Chicago School and exclusionary conduct.

• Author: Easterbrook, Frank H.

One panel is not remotely enough to discuss Robert Bork's contributions to antitrust, or even a small portion of his magnum opus, The Antitrust Paradox. (1) The essayists on this panel have carved off just a few slices. Mine is exclusionary practices-predatory pricing, refusals to deal, tying, and many related practices that are said to make entry difficult and thus reduce the number of rivals. This is a subject on which much of what was deemed outre when Bork wrote is now settled doctrine at the Supreme Court and the normal way of thinking at the Antitrust Division and FTC. When Bob Bork was a nominee for Solicitor General, Senators insisted that he promise not to impose his views on the Antitrust Division. He represented the Division's views faithfully during his time. Today a nominee to the Antitrust Division is apt to be asked for assurances that he will implement Bork's views.

Bob Bork is a product of the Chicago School (particularly of Aaron Director) and was its leading exemplar during the 1960s and 1970s, even though living in exile at Yale. (When the three essayists on this panel were students at Chicago, our teacher was Phil Neal, who is not a member of the Chicago School!) What are the intellectual tools that Bork used, and how did they lead to his diagnoses?

* Antitrust is about the promotion of social wealth. Usually this means consumers' welfare. It is never, ever about the promotion of producers' welfare. What is good for small dealers and worthy men, in Justice Peckham's phrase, (2) usually is bad for everyone else. Competition is a gale of creative destruction (this is Joseph Schumpeter's memorable line), (3) and it is by weeding out the weakest firms that the economy as a whole receives the greatest boost. Antitrust law and bankruptcy law go hand in hand.

* The goal of antitrust, to be more precise, is preventing the allocative loss that comes about when firms raise price over long run marginal cost, and thus deprive consumers of goods for which they are willing to pay more than the cost of production. Bork also stressed productive efficiency, joining Yale Brozen among Chicago comrades in arms. An emphasis on efficiency implies a program for antitrust law: look for situations in which firms can increase their long-run profits by reducing output. (4) It also implies accepting another of Schumpeter's prescripts: that sometimes one large firm is best, when that firm can produce most cheaply (and, as Schumpeter noted, internalize the benefits of research and other ideas, which have free rider problems and will be underproduced in Adam Smith's world of pinmakers) (5) To put it otherwise, atomistic competition may not be as efficient as other market structures.

* When looking for situations in which self-interested producers can do consumers dirt, assume rationality. When will a rational, self-interested producer find that money can be made by restricting output? This is not to say that everyone is rational. Instead the point is that the law's sanctions are directed to such people. Those who figure out how to lose money by restricting output need not be penalized. Their conduct is self deterring. For example, antitrust law does not impose penalties on people who make bad product-design decisions, even though they drive consumers away and reduce output. This has a big effect on the understanding of exclusionary practices, because many of them (predatory pricing, for example) can succeed only if someone, or lots of someones, behaves irrationally. Mistaken attempts to predate confer benefits on consumers, who enjoy lower prices. That's self deterring, so the law should ignore it. The other possibility is that low prices stem from productive efficiency, and then we should welcome the producers' behavior.

* Be exceedingly suspicious of claims that new products or low prices or novel means of distribution injure consumers. Innovation is one thing that we seek to promote. Assertions that the long run will depart from the short run are easy to make but hard to prove. As Yogi Berra put it, "It is always hard to make predictions, especially about the future." Instead of making predictions that are impossible to test--and will injure consumers if wrong--wait to see what happens. If monopolistic prices happen later, prosecute then. (6) This, too, has become the norm in the Supreme Court's jurisprudence.

In days gone by...