Costs and Benefits of per Se Rules in Antitrust Enforcement

• DOI: 10.1177/0003603X9303800404
• Published date: 01 December 1993
• Date: 01 December 1993
• Author: William C. Wood
• Subject Matter: Article

The Antitrust Bulletin/Winter 1993

Costs and benefits

of

per se rules

in antitrust enforcement

BY

WILLIAM

C.

WOOD*

887

Few judicial rules in antitrust are as firmly rooted as the per se

rules against price fixing- and horizontal market division." The

language of the Sherman Act is plain, and judicial interpretation

has made

it

even plainer: the prosecution need only prove that the

act took place and judgment must follow. The defense may try to

show that the conduct did not take place but is precluded from

trying to show that the conduct was justified.

In

existing justifications

of

the per se rules there is an explicit

cost-benefit argument. A per se rule, it is argued. is less costly

than a rule

of

reason. One leading antitrust treatise claims that

*Zane D. Showker Professor of Economic Education, James Madi-

son University, Harrisonburg, VA.

AUTHOR'S

NOTE:

The author is grateful to Kenneth G. Elzinga and Scott

Milliman for helpful comments on an earlier draft.

1U.S. v, Socony-Vacuum, 310 U.S. 150 (1940).

:2 U.S. v. Topeo Associates. Inc., 405 U.S. 596 (1972). Group boy-

cotts also are subject to a per se rule, although the judicial rule is not

quite as clear. See IGor's Inc. v, Broadway-Hale Stores, Inc., 358 U.S.

207 (1959).

e1994 by Fedctal Legal Publications. Inc.

888

:The antitrust bulletin

"per se rules greatly simplify and speed up the process of prose-

cution."> P.M. Scherer and David Ross's discussion

of

antitrust

reform states that a rule

of

reason case has to go further in its

proof than a per se case.' Justice Thurgood Marshall wrote of per

se rules:

They are justified on the assumption that the gains from imposition of

the rule will far outweigh the losses and that significant administrative

advantages will result.!

Aper se rule also is thought to achieve substantial benefits

through suppression of anticompetitive behavior. Justice Marshall

implies that price fixing and related practices have so little

redeeming value that flatly prohibiting these practices has positive

net benefits.

As this article will show, both the cost savings and the benefits

of a per se rule may have been overstated. This article explains

why a per se rule may actually be more expensive than a rule

of

reason. This finding, initially treated in the literature as an

anomaly," is shown to be an entirely plausible outcome

of

a

straightforward optimizing process by plaintiffs and defendants.

This article also provides confirming evidence that in a substan-

tial proportion of cases a per se rule may provide a vehicle for

harassment more than deterrence

of

anticompetitive behavior.

Therefore, the costs

of

a per se rule may be higher and the bene-

fits lower than has commonly been appreciated.

3A.D.

NEALE,

THE

ANTITRUST

LAWS

OF

THE

U.S.A. 447 (3d ed.

1980).

4F.M. SCHERER &D. Ross,

lNDuSTRIAL

MARKET

STRUCTURE AND Eco-

NOMIC

PERFORMANCE

336 (3d ed. 1990).

SU.S. v, Container Corp. of America, 393 U.S. 333, 341 (1969).

6The greater costs of per se cases were first set forth by Elzinga &

Wood, The Costs

of

the Legal System in Private Antitrust Enforcement in

PRIvATE

ANTITRUST

LmGATION:

NEW

EVIDENCE,

NEW

LEARNING

(L. White

ed.1988).