Private Antitrust Litigation: Procompetitive or Anticompetitive?

• Pages: 453-462
• Date: 01 April 2007
• DOI: https://doi.org/10.1016/S0573-8555(06)82017-1
• Published date: 01 April 2007
• Author: R. Preston McAfee,Hugo M. Mialon,Sue H. Mialon

CHAPTER 17

Private Antitrust Litigation:

Procompetitive or Anticompetitive?

R. Preston McAfeea, Hugo M. Mialonband Sue H. Mialonc

aHumanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125

E-mail address: preston@mcafee.cc

bDepartment of Economics, Emory University, Atlanta, GA 30322-2240

E-mail address: hmialon@emory.edu

cDepartment of Economics, University of North Dakota, Grand Forks,ND 58202

E-mail address: sue.mialon@und.edu

Abstract

The antitrust laws are intended to permit procompetitive actions by firms and

deter anticompetitive actions. We consider firms’ incentives to use the an-

titrust lawsuits for strategic purposes, in particular to prevent procompetitive

efficiency-improvement by rival firms. Our main result is that, ceteris paribus,

smaller firms in more fragmented industries are more likely to use the antitrust

laws strategically than larger firms in concentrated industries.

17.1. Introduction

The antitrust laws were put in place to protect competition. Competition lowers

prices and increases firms’ incentives to innovate, to the benefit of consumers.

However,the antitrust laws also have the potential to harm consumers if the laws

are used to subvert competition. Whether the antitrust laws improve consumer

welfare depends crucially on the incentives of those bringing antitrust lawsuits

to court.

In the United States, the Antitrust Division of the Department of Justice and

the Federal Trade Commission enforce the antitrust laws on behalf of the pub-

lic. These agencies are charged with representing consumers. In addition, the

antitrust laws are also enforced privately in the United States—firms directly

harmed by anticompetitive acts havestanding to sue under the antitrust laws. The

Clayton Act, which offers the successful plaintiff treble damages, often makes

such private litigation quite attractive.

Private firms will generally pursue antitrust actions when it is in the pri-

vate firm’s interest, an interest that could easily diverge from the social interest.

Firms may have incentive to use the antitrust laws strategically, which may hin-

der rather than promote competition. The possibility of strategic abuse of the

CONTRIBUTIONS TO ECONOMIC ANALYSIS © 2007 ELSEVIER B.V.

VOLUME 282 ISSN: 0573-8555 ALL RIGHTS RESERVED

DOI: 10.1016/S0573-8555(06)82017-1