Economic Concepts and Antitrust Litigation: Evolving Complexities

• Date: 01 June 1974
• DOI: 10.1177/0003603X7401900207
• Published date: 01 June 1974
• Author: Corwin D. Edwards
• Subject Matter: Article

ECONOMIC CONCEPTS AND ANTITRUST LITIGATION:

EVOLVING COMPLEXITIES

by

CORWIN

D.

EDWARDS·

Under laws

that

are

intended to maintain competition, the

goal

that

is relevant to

antitrust

litigation is simple.

It

con-

sists in preventing impairment of competition by

private

action, whether concerted or individual. When impairment

is clear and substantial and the conduct

that

causes

it

is

clearly intended to do so, the significance of the facts is ob-

vious. Thus hard-core restrictive agreements, crudely formu-

lated,

and

hard-core monopolizations or attempts to monopo-

lize, achieved by destroying competitors, can be identified

and proved to be violations of law without the aid of econ-

omists.

The need to use economists grows as the substance of anti-

competitive action becomes more limited

and

its means be-

come subtler, so

that

business conduct in which restrictive

purposes are expressed becomes less clearly distinguishable

from competitive conduct. Thus the function of economists in

litigation is to help determine the boundaries of

antitrust,

not

its

center.

T.

THE

COMPETITIVE

MODEL

Economic concepts of competition consist essentially in

ideas

that

provide models of the

nature

of competitive con-

duct in

particular

settings. Comparison of the relevant model

with actual business conduct in

that

setting may disclose dis-

crepancies between reality and the model;

and

close examina-

tion of each discrepancy can then result either in modification

of the model, so

that

actual conduct is found to be eompeti-

tive

after

all, or in a conclusion

that

the discrepancy can be

*Professor Emeritus, University of Oregon.

295

296

THE

ANTITRUST

BULLETIN

explained only by a

particular

kind of restraint.

Thus

eco-

nomic concepts

are

highly relevant to decisions whether or

not business acts

and

practices fall within a

fair

interpre-

tation

of the purpose and scope of the

antitrust

laws. Such

concepts

are

particularly

relevant in

interpreting

those legal

concepts

that

have a built-in

flexibility-such

concepts as the

distinction between substantive

and

ancillary

restraints,

the

scope of the rule of reason,

and

the probability of

future

sub-

stantial

reductions of competition.

Good examples of such use of economics

are

to be found in

proceedings by the

Federal

Trade

Commission

against

price-

fixing in various industries

that

took the

form

of conformity

to basing-point pricing formulas. The charge under the Fed-

eral

Trade

Commission Act in these cases was

simple-that

the

parties

had

fixed prices by agreement. The evidence

showed

that

each of the

parties

had

used abasing-point for-

mula in setting

its

prices

and

that

the resulting delivered

prices of all

parties

had

been identical

at

all delivery points.

Direct evidence

that

the

parties

had

agreed to use the formula

was wholly absent in some of the cases,

and

where

present

pertained to action long ago. Respondents contended

that

each enterprise individually

had

met

competition,

and

that

price identities were the competitive result of the

fact

that

at

each destination no seller could charge more

than

the

others and each seller wanted to charge as much as he could.

Attorneys

for

the

Federal

Trade

Commission contended

that

there

was a continuing agreement to use a formula

that

would

match delivered prices

at

all points. The central problem

was to evaluate these contentions by analyzing circumstan-

tial evidence derived from the conduct of the

parties

and

from

the prices

that

emerged from

that

conduct.

The contribution of economics to this analysis consisted

in comparing conduct

appropriate

to competition with con-

duct by the parties. The Commission formulated a model of

the

nature

of competition in an

industry

in which points of

production were scattered and

transportation

costs were im-

portant-a

model

that

was,

at

first, too simple, so

that

it

had