Economic Theory and Judicial Process: A Case Study

• Author: Thomas G. Marx
• DOI: 10.1177/0003603X7502000406
• Published date: 01 December 1975
• Date: 01 December 1975
• Subject Matter: Article

ECONOMIC

THEORY

AND JUDICIAL

PROCESS:

A CASE

STUDY

by

THOMAS

G.

MARX-

T.

INTRODUCTION

The basic inability of the

antitrust

laws to upset monopoly

absent proof of

predatory

behavior reflects the fundamental

inconsistency between economic analysis, which emphasizes

industry

performance,

and

legal theorizing, which emphasizes

business conduct.

Professor

Coase, reflecting on the develop-

ment of industrial organization, keenly observed: "The ways

in which the [monopoly] problem was viewed by the lawyers

[judges and advocates] were accepted as the ways in which

we should approach the problem. The opinions of the judges

often became the

starting

point of the analysis, and an at-

tempt was made to make sense of

what

they had said." 1

Attempts to resolve monopoly issues within the constraints

of judicial interpretations of the law (requiring proof of

predatory

conduct) have deprived

antitrust

analysis of the

benefits of economic theory, and led to self-serving interpre-

tations of business conduct, and procrustean efforts to bring

monopoly within the gamut of Section 2.

The inability to attack monopoly absent proof of

predatory

conduct has also had the perverse effect of biasing

antitrust

enforcement against the relatively more competitive indus-

tries. Nearly half of all

antitrust

actions brought since 1890

have been aimed

at

food-processing

and

distribution, produc-

-Foster Associates, Washington, D.C.

AUTHOR'S

NOTE:

The author is indebted to Professor Oliver E.

Williamson for constructive criticism throughout the preparation of

this study.

Jonathan

Ogur also made many helpful comments. All

opinions expressed, however, are those of the author.

1Ronald H. Coase,

"Industrial

Organization: AProposal for Re-

search," in Policy Issues and Research Opportunities in Industrial

Organization, V. R. Fuchs, ed. (New York: Columbia University

Press,

1972), p. 67.

775

776

THE

ANTITRUST

BULLETIN

tion

and

distribution

of building materials,

and

the

service

trades:

industries

not identified with high concentration."

The explanation is

that

because these

industries'

are

less

concentrated,

they

need to collude formally, which exposes

them to Section 1violations, whereas the

more

highly

con-

centrated

industries

obtain the same

results

tacitly,

and

thus

avoid prosecution.

Galbraith

is one of the

most

outspoken

critics of

antitrust

law,

and

he does

not

miss

the

opportunity

here:

And

here

enters

the element of

charade

in

the

anti-

trust

laws.

If

you

already

have

the basic requisite of

market

power, you

are

safe

....

Where

firms

are

few

and

large

they

can,

without

overt

collusion, establish

and

maintain

aprice

that

is generally

satisfactory

to all

participants.

. . . And

this

market

power is legally im-

mune

or

very

nearly

so. . . .

But

if

there

are

20 or 30

or

more significant firms in the

industry,

this

kind of

tacit

price

making

...

may

be

very

difficult. The same

result

can only be achieved by

having

a

meeting

or by

exchanging

information

on prices

and

costs

and

price

intentions.

But

this is illegal.

It

is also legally vulner-

able.

And

it

is, in fact, an

everyday

object of pros-

ecution

....

s

Because of

the

judicial emphasis on

predatory

conduct,

and

the

need

to uncover "evidence,"

attorneys

have

been

slow to recognize the benefit of economic analysis.

Establish-

ing

conduct offenses requires prolonged litigation (8

years

is

the

average

length

of a dissolution proceeding in a monopoli-

zation case),

and

complex

and

lengthy

documentation (100,000

pages

is

not

unusual).

Bain

explains

what

is involved:

This

prolongation

and

expense of antimonopoly ac-

tions

results

in

large

part

from

the

fact

that

establish-

:I: Richard R. Caves, A.merican

Industry:

Structure,

Conduct,

Performance (Englewood Cliffs, N.

J.:

Prentice-Hall, 1964), p. 67.

S

John

K. Galbraith, "The New

Industrial

State," in Monopoly

Power and Economic Performance, E. Mansfield, ed. (New York:

W. W. Norton, 1968), pp. 128-29.