pretending its examination of human consumer behavior is a science, economics is really a logical and
deductive moral philosophy that takes as its core principle the misapplication of physics. Because the
unit of analysis is not the entire system, the use of physics and the consumer welfare standard from
which it is derived falls apart if one examines the outcomes of its applications and its assumptions in
the realm of antitrust.
Economists increasingly assert that consumer behavior theory is empirically true. The desire to
make economics more scientific has led to the notion that economic observations about the modern
economy are scientifically true and proven. As an example, the notion of efficiencies as a merger
defense stems from the notion that a firm is profit maximizing and therefore will seek to cut costs or
otherwise engage in strategies to lower its cost of production. This is taken as a fundamental assump-
tion upon which economics is based. Oddly, proof of this concept is ethereal at best. Worse, production
theory in mainstream economics is a mirror image of its application of consumer theory, which it
misapplied from constrained optimization challenges in physics.
The misapplication of scientific theory in economics has ramifications for antitrust policy. For
example, the fixation on firms as economically rational has led to the rejection of some theories of
harm that have been empirically observed. For example, economic theory over the course of the past
several decades has rejected claims of predatory pricing because such a strategy would be an irrational
strategy for a profit-maximizing firm to employ.
However, such policy decisions in the face of dramatic shifts in economic theory are not uniform.
For example, vertical resale price maintenance’s flagship case of over 100 years, Dr. Miles, was
overturned based upon “economic evidence,”
signaling perhaps that the Supreme Court believed that
a paradigm shift had taken place in economic theory, at least with respect to resale price maintenance.
The “science” of economics was introduced into the antitrust realm in the early 1970s. The Olin
Foundation and others educated judges in the field of microeconomics to suggest that the overall value
of antitrust policy should be to maximize consumer welfare. Unfortunately, the knowledge conveyed
upon the judges was incomplete, and they failed to understand that what economists were conveying to
them was really an ethical consideration driven by what was mostly the smoke and mirrors of
economic analysis made mathematical.
In this fashion, the encroachment of economics into antitrust policy has created a dystopian world in
which a substantial amount of effort and money is invested in increasingly limited antitrust review.
The lynchpin of this dystopian view has been an extremely limited view of the consumer welfare
theory of economics and the concept of efficiency.
The application of this policy has been beneficial to everyone involved. Merging parties for the
most part still get to merge. The Department of Justice (DOJ) and the Federal Trade Commission
(FTC) can claim “wins” from compelling relative ly minor consent decrees. Defense lawyers and
economists can continue to bill major hours in assuring that the mergers go through.
The result has been increasing concentration, increasing challenges to the efficacy of current
antitrust enforcement efforts in the United States, and increasing defensiveness on the part of the
agencies. In essence, the DOJ, the FTC, and the Supreme Court have caused the death of antitrust by
“1,000 economic theory cuts.”
What neither agencies nor the Court could constitutionally do, repeal a
statute, they have accomplished through their dystopian view of how the Sherman Act operates, a view
completely removed from the purpose of the Act and the consequences such a view has created for free
enterprise and economic organization in our country.
1. See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).
Verizon Commc’n Inc. v. Law Offices of Curtis v. Trinko, LLP, 540 U.S. 398
, 414 (2004) (quoting Brief for State of New
York as Amici Curiae).
510 The Antitrust Bulletin 63(4)