Issues in Antitrust Enforcement

• Date: 01 April 2007
• Pages: 1-23
• DOI: https://doi.org/10.1016/S0573-8555(06)82001-8
• Published date: 01 April 2007
• Author: Vivek Ghosal,Joseph E. Harrington , Jr.,Johan Stennek

CHAPTER 1

Issues in Antitrust Enforcement

Vivek Ghosala, Joseph E. Harrington Jr.band Johan Stennekc

aGeorgia Institute of Technology, Atlanta, GA, USA

bJohns Hopkins University, Baltimore,MD, USA

cResearch Institute of Industrial Economics, Stockholm, Sweden

Motivated by recent events and experiences in antitrust enforcement and policy

in the United States and the European Union, and new insights and findings

from academic research, this book presents a collection of theoretical, em-

pirical and public policy-oriented articles representing recent research on the

political-economy of antitrust. Political-economy is defined broadly to include

the demand-side drivers of antitrust activity such as market failures and interest-

groups, along with supply-side drivers including ideology and partisan politics

as well as the importance of informational limitations in antitrust enforcement

and the institutional structure of the antitrust agencies. Examining issues re-

lated to the political-economy of antitrust is important as antitrust policy and

enforcement provide a key mechanism for preserving the competitiveness of

markets, with implications for innovation, efficiency, growth and welfare. This

book brings together contributions by leading academic researchers in the areas

of political-economy, cartels, merger and non-merger enforcement, as well as

economists working with antitrust authorities in the U.S. and E.U., to make a

timely contribution for researchers and practitioners.

The chapters in this volume cover the full range of topics: enforcement of

cartels; merger control; monopolization and abuse of dominance; and systemic

issues in antitrust enforcement and policy. Since the last few years have seen

significant changes in both the U.S. and E.U. in the attitudes towards cartels, the

book places emphasis on antitrust enforcement of cartels, including topics such

as the corporate leniency programs that have recently been introduced in the U.S.

and E.U., optimal deterrence mechanisms against cartels and detection of car-

tels. While the individual chapters of the book make independent contributions

and may be read separately, the book brings together articles from various sub-

areas to present a more encompassing picture. This chapter provides an overview

of some the trends and recent research in antitrust enforcement and policy and

highlights the contributions made by the chapters in this volume.

CONTRIBUTIONS TO ECONOMIC ANALYSIS © 2007 ELSEVIER B.V.

VOLUME 282 ISSN: 0573-8555 ALL RIGHTS RESERVED

DOI: 10.1016/S0573-8555(06)82001-8

2V.Ghosal et al.

1.1. Shifting winds in antitrust

Changes in intellectual thinking in economics, law and politics have produced

significant shifts in antitrust enforcement and policy in the U.S. over the last

several decades. The intellectual underpinnings of some of the key changes can

be traced back to the rising tide of criticisms of the U.S. antitrust enforcement

in the 1950s and 1960s by the Chicago-School scholars, and the genesis of their

law and economics movement is often recognized to be Aaron Director and Ed-

ward Levi.1Director and Levi (1956) criticized the state of antitrust, disagreed

with a variety of business practices like tying and vertical restrictions being

anti-competitive and abuse of monopoly power, downplayed the likelihood of

predatory pricing, emphasized efficiencies and noted flaws in key antitrust de-

cisions like Standard Oil (1911) and Alcoa (1947).2In similar tone, Director

(1957) criticized the United Shoe Machinery (1918) decision. Many of these

arguments went on to become guideposts for the Chicago-School’s law and eco-

nomics thrust. The influential contributions by Stigler (1964) and Williamson

(1969), along with Demsetz (1973, 1974),Bork (1966, 1978)3and Posner (1969,

1974, 1976) among others, solidified the modern law and economics framework

in the U.S. Overall, the thinking shifted in two important ways. First, vertical

and conglomerate mergers, resale price maintenance, vertical restrictions and

other conduct that were often viewed as anti-competitive under the older an-

titrust regime were given pro-competitiveand efficiency interpretations. Second,

the focus shifted to areas of clearer harm to welfare such as horizontal mergers

in concentrated markets and price-fixing.4Ghosal (2006a) presents an empirical

analysis of the long-term patterns of enforcement and finds noticeable structural-

breaks in the U.S. enforcement data in the mid-to-late-1970s, symptomatic of a

regime-shift in enforcement towards greater emphasis on prosecuting cartels and

lesser emphasis on merger and non-merger (civil) enforcement. While there are

competing explanations of this shift, the Chicago-School engineered rethinking

1Director joined the Chicago Law faculty in 1946, founded the Journal of Law and Economics in

1958, and his students included Robert Bork, Frank Easterbrook and Richard Posner—legal scholars

and judges who greatly influenced antitrust. Bork notes: “[Director’s]teachings . . . made him the

seminal figure in launching the law and economics movement, which transformed wide areas of

legal scholarship.”(From: Aaron Director, Founder of the Field of Law and Economics, University

of Chicago Press, 2004.)

2Influenced by Director’s hypothesis that firms would prefer mergers and other practices to attain

monopoly status as opposed to predatory pricing, McGee (1958) tested whether Standard Oil en-

gaged in predatory pricing, a key issue in the 1911 antitrust decision. His results suggested this was

not the case.

3It is noteworthy that while Bork’s book was published in 1978, it was completed much earlier in

1968–69.

4As Baker (1997) notes: “Our own discipline,antitrust,underwent its Copernican revolution

within the professional experience of all but the most recent antitrust practitioners.I am speaking,

of course,of the rise of the Chicago school approach.” Baker (2002, 2003),Crandall and Winston

(2003),Kovacic and Shapiro (2000) and Motta (2004, pp. 2–9) provide discussion of these shifts.