On the Inefficiencies of Efficiency as the Single-minded Goal of Antitrust

• Author: Albert Foer
• DOI: 10.1177/0003603X15585981
• Date: 01 June 2015
• Published date: 01 June 2015
• Subject Matter: Symposium: The Role of Efficiencies in Antitrust Law (Part I)

Article

On the Inefficiencies of Efficiency

as the Single-minded Goal

of Antitrust

Albert Foer*

Abstract

This article provides a skeptical look at the role of ‘‘efficiency’’ in antitrust analysis. It begins by

discussing how various types of efficiency may be in conflict, such that the concept is actually less

scientific or useful than often thought. The article asks, What economic considerations are excluded

from today’s antitrust analysis? This leads to a discussion of political, social, and non-efficiency

economic values; externalities; and three types of inefficiencies that may be caused by the single-

minded hunt for efficiencies: X-inefficiency; diseconomies of scale, scope, and coordination; and

the ‘‘too-big-to-fail’’ problem. Finally, the article describes some challenges facing reform proposals,

including problems of prediction and quantification. The conclusion argues that the efficiency goal is

fraught with problems and that a broader concept needs to take into account inefficiencies as well as

efficiencies.

Keywords

antitrust, efficiency, X-inefficiency, diseconomies, consumer welfare

Many political words are similarly abused. The word fascism has now no meaning except in so far as it

signifies ‘‘something not desirable.’’ The words democracy, socialism, freedom, patriotic, realistic, justice,

have each of them several different meanings which cannot be reconciled with one another. ... Words of

this kind are often used in a consciously dishonest way.

George Orwell

1

*Founder and Senior Fellow, American Antitrust Institute, Washington, DC, USA

Corresponding Author:

Albert Foer, Founder and Senior Fellow, American Antitrust Institute, Washington, DC 20008, USA; 2919 Ellicott Street, NW,

Washington, DC 20008-1022, USA.

Email: bfoer@antitrustinstitute.org

1. George Orwell, Politics and the English Language,THE NEW REPUBLIC (June 17, 1946), reprinted in INSURRECTIONS OF THE

MIND 147, 152–53 (Franklin Foer ed., 2014).

The Antitrust Bulletin

2015, Vol. 60(2) 103-127

ªThe Author(s) 2015

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DOI: 10.1177/0003603X15585981

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I. Introduction

For the past quarter century, a full generation, one word has dominated the antitrust community as the

castle dominates Edinburgh or the Parthenon, Athens. The word is efficiency. In his 2001 edition of

Antitrust Law, Richard Posner, once my antitrust professor at the University of Chicago and now our

most celebrated federal Court of Appeals judge, wrote:

Almost everyone professionally involved in antitrust today—whether as litigator, prosecutor, judge, aca-

demic, or informed observer—not only agrees that the only goal of the antitrust laws should be to promote

economic welfare, but also agrees on the essential tenets of economic theory that should be used to deter-

mine the consistency of specific business practices with that goal. Agrees, that is, that economic welfare

should be understood in terms of the economist’s concept of efficiency.

2

This goes further than William Baxter went in 1983, when he recognized that conflicting views of the

goals of antitrust still had to be taken into account, even if subordinated to efficiency:

[W]here there is a conflict, social and political goals should yield to economic considerations primarily for

two reasons: first, the statutes themselves focus on efficiency; and second, nonefficiency goals are too

intractable to be used as enforcement standards.

3

Notice that Baxter initially distinguished social and political goals from economic considerations, but

quickly jumped to implying that non-efficiency goals are necessarily non-economic in nature. This is

consistent with the position of Frank Easterbrook, my classmate in Professor Posner’s antitrust class at

Chicago, who urged the efficiency uber alles doctrine despite its departure from the historic origins of

antitrust. Easterbrook, now serving on the same appellate court as Posner, wrote in 1981:

I agree with Robert Bork that, whatever one makes of this history, the antitrust laws should be treated as if

they served no goal other than economic efficiency.

4

That the twenty-first-century Posnerian consensus reflects a growing self-confidence on the part of

Chicago School adherents is emphasized by the absence of his triumphal 2001 observation in the first

edition of Posner’s Antitrust Law in 1976, whose purpose was then merely to demonstrate the impor-

tance of economic analysis to antitrust.

5

The difference between promulgation of an idea and assertion

a quarter century later that the idea had become virtually unchallenged is rather breathtaking. I believe

it claims too much.

6

2. RICHARD A. POSNER,ANTITRUST LAW ix (2nd ed. 2001).

3. William F. Baxter, Responding to the Reaction: The Draftsman’s View,71C

ALIF.L.REV. 618, 619 (1983).

4. Frank H. Easterbrook, Predatory Strategies and Counterstrategies,48U.C

HI.L.REV.263, 266 n.11 (1981). A few years later

Easterbrook noted, ‘‘Goals based on something other than efficiency (or its close proxy consumers’ welfare) really call on

judges to redistribute income.’’ Frank H. Easterbrook, Correspondence, Workable Antitrust Policy,84MICH.L.REV. 1696,

1703–04 (1986). The reference to Robert Bork may be to ROBERT H. BORK,THE ANTITRUST PARADOX (1978), which lays out a

controversial historic interpretation that the antitrust laws were originally intended to enthrone efficiency.

5. In his first edition, Posner wrote, ‘‘The work of the economists provides at least a starting point for analysis. Since,

unfortunately, they are not unanimous on the essential points of the theory of monopoly, a necessary first step is to thread

one’s way through the doctrinal controversies that have surrounded and continue to afflict the development of the

theory.’’ RICHARD A. POSNER,ANTITRUST LAW:ANECONOMIC PERSPECTIVE 3–4 (1st ed., 1976).

6. The Organization for Economic Co-operation and Development in 2012 conducted a policy roundtable, The Role of

Efficiency Claims in Antitrust Proceedings (2012), http://www.oecd.org/daf/competition/EfficiencyClaims2012.pdf, the

report for which offers a great deal of background on the subject of efficiency, including a review of how attitudes

toward efficiencies have changed over time in the United States, the European Union, and in other jurisdictions.

104 The Antitrust Bulletin 60(2)