Efficiency Considerations and Horizontal Restraints

• Published date: 01 December 1991
• DOI: 10.1177/0003603X9103600401
• Date: 01 December 1991
• Subject Matter: New Directions in Compliance

The Antitrust Bulletin/Winter 1991

Efficiency considerations and

horizontal restraints

BY KEVIN J. ARQUIT* and JOSEPH KATTAN**

717

A concern with efficiency is at the core

of

contemporary antitrust

analysis of horizontal restraints. This article discusses how effi-

ciency considerations are analyzed by the Federal Trade Commis-

sion: what is a cognizable efficiency; what types of efficiency

claims will not be credited; and how efficiencies are weighed

against arestraint's anticompetitive potential. The discussion

draws particularly upon the Commission's experience in the

health care area to illustrate the various principles, but the analyt-

ical approach outlined is applicable to any agreement among com-

petitors.

Why do we care about efficiencies? Antitrust seeks to pre-

serve competition so as to provide consumers with the greatest

choice

of

goods and services at the lowest possible price. Yet

*Director, Bureau of Competition, Federal Trade Commission.

** Assistant Director for Policy and Evaluation, Bureau

of

Competi-

tion, Federal Trade Commission.

AUTHORS' NOTE: This article is adapted from aspeech delivered before

the National Health Care Lawyers Association on February 14,1991. The

views expressed herein are those

of

the authors and are not necessarily

those

of

the Commission or

of

any individual Commissioner.

© 1992by Federal Legal Publications. Inc.

718 : The antitrust bulletin

some products can only exist if there is some restraint on business

conduct. To give one example, a partnership may need to restrict

its members from competing against the joint enterprise in order

to make its product, whether the product is widgets, legal advice,

or medical care. We must take care not to confuse the means that

are used to achieve a competitive result with the result itself and

thereby condemn restrictions that facilitate the goals

of

competi-

tion. A literal reading

of

section 1

of

the Sherman Act would lead

us to conclude that every agreement that restrains competition is

unlawful, but as we know, the Supreme Court decided long ago

that section 1 prohibits only "unreasonable" restraints.' An exami-

nation

of

efficiencies allows us to distinguish the means from the

end.

It

helps us decide when a restraint facilitates the goal

of

competitive prices and product quality and when it subverts mar-

ket choices.

Thus, the distinction between naked price-fixing agreements,

which are illegal per se, and agreements ancillary to joint ven-

tures, which are analyzed under the rule

of

reason, rests on the

efficiency-enhancing potential

of

the economic integration in

legitimate joint ventures.> Further, the Supreme Court has explic-

itly focused application of the rule

of

reason inquiry on the issue

of

efficiencies. In Indiana Federation

of

Dentists, the Court said

that "the creation of efficiencies in the operation of a market or

the provision

of

goods and services" is necessary to sustain an

agreement not to compete on the mix

of

goods and services

offered to consumers.'

I. The role of efficiencies in Commission analysis

The question of what constitutes an efficiency is of particular

importance at the Federal Trade Commission. Drawing upon

Chicago Board of Trade v. United States, 246 U.S. 231 (1918).

2Compare Arizona v. Maricopa County Medical Society, 457 U.S.

332 (1982) with Broadcast Music, Inc. v, Columbia Broadcasting System,

Inc., 441 U.S. 1 (1979).

3FTC v. Indiana Federation of Dentists, 476 U.S. 447, 459 (1986).