Evolutionary Theories of Competition and Aftermarket Antitrust Law

• Author: Peter R. Dickson
• DOI: 10.1177/0003603X0705200105
• Published date: 01 March 2007
• Date: 01 March 2007
• Subject Matter: Article

THE

ANTITRUST

BULLETIN:

Vol.52, No. IjSpring 2007 :73

Evolutionary

theories of competition

andaftermarket antitrust law

By

PETER

R.

DICKSON*

I. INTRODUCTION

Underlying the current debate

about

aftermarket competition is a fun-

damental

zeitgeist issue, adisquiet about

the

intellectual foundations

of antitrust law. From the perspective of

modern

evolutionary theo-

ries of competition, the problem is

outdated

rule of reason legal prece-

dents

buttressed

by

the

application

of

a

primitive

theoretical

paradigm.

It

is a maxim of

good

law

that

precedent

and

paradigm

orthodoxy provide certainty, but surely this cannot be a justification

for

trumping

the

rule

of reason?'

Deadweight

intellectual

capital,

based on primitive economic principles (e.g.,

stationary/equilibrium

assumptions

in

deriving

optimal

welfare solutions)

and

definitions

(e.g., a

monopoly

exists

when

market

share

is X), is

indisputably

ensconced in antitrust expertise

and

case law.

*Ryder

Eminent

Scholar, College of Business,

Florida

International

University.

AUTHOR'S NOTE: I wish to

acknowledge

themanyhelpfulsuggestions of Dr.

Gregory

Gundlach.

Both meanings of the term "rule of reason"

are

intended: the legalistic

principle

that

the law

must

adapt

to the

new

realities of

market

competition,

and

the more general meaning that reason

and

reasonableness rule.

©2007by

Federal

Legal

Publications, Inc.

74 :

THE

ANTITRUST

BULLETIN:

Vol. 52, No.

l/Spring

2007

The problem is

not

just

that

antitrust

law

has

not

kept

pace

with

our

understanding

of innovation

and

the evolution of markets.

The

dominant

orthodoxy

is

defended

by an

incredibly

powerful

and

diverse intellectual base, which includes the antitrust legal establish-

ment, the courts'

vast

experience in

and

comfort

with

past

case law,

and

acornered economic orthodoxy that is tenaciously

defended

by

economists

and

their

institutional

establishment.

This

"antitrust

orthodoxy"

path-dependency

is so entrenched that to

uproot

it

would

create

unacceptable

chaos,

uncertainty

and

risks for

antitrust

law,

markets,

and

marketers.

And

yet

that

is

the

task

that

the

Justice

Department faces in its

current

review of antitrust law. Some progress

has

been

made

in

introducing

network

effects

and

feedback effect

path-dependencies into

the

discourse;

but

at the core of the

current

discourse in aftermarket

and

intellectual property rights is a

debate

about the need to give

much

more weight to the

study

and

conclu-

sions of economic theory that explain the processes of innovation

and

innovation competition,

rather

than

the oldorthodox economic theory

that explains prices

and

price competition or the new

orthodoxy

that

sees everything as

game

theory, including the cynical, opportunistic

gaming of

the

extant

antitrust

and

intellectual property laws, rules,

and

precedents.

The fundamental conclusion of this article is

that

there

needs

to

be

better

reasoned

and

reasonable

coordination

and

balancing

of

intellectual property

and

antitrust law, the first encouraging innova-

tion

through

patent

right

economic rents,

the

second

encouraging

allocation efficiency

and

the

rapid

diffusion of innovation by encour-

aging competition in distribution

and

marketing skills,

but

particu-

larly by encouraging price competition. Such coordination

must

be

informed by economic theory

that

emphasizes coordinating economic

processes rather

than

coordinating economic states of nature. Follow-

ing the dictum attributed to Albert Einstein

that

everything

should

be

made as simple as possible,

but

not simpler, the economic theory

used

to

support

such innovation has to advance beyond the too simplistic

stationary or equilibrium theories of market competition,

where

price

equilibrating negative feedback effects (i.e., increased price reduces

market

demand

and

increases

market

supply, which reduces price,

causing capital

and

rivals to enter markets earning economic rents,

which

drives

prices

down

and

economic

rents

out

of

the

market)