The Antitrust Constitution

Author:Thomas B. Nachbar
Position:Professor of Law, University of Virginia School of Law
Pages:57-114
SUMMARY

Antitrust is today viewed almost exclusively in strictly economic terms. Under the nearly ubiquitous "rule of reason," conduct is condemned or saved by courts largely based on their evaluation of the conduct’s effect on economic efficiency. But many aspects of antitrust law cannot be explained by efficiency analysis. The full sweep of antitrust makes sense only when one considers other values that... (see full summary)

 
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The Antitrust Constitution
Thomas B. Nachbar
ABSTRACT: Antitr ust is today viewed almo st exclusively in st rictly economic
terms. Under the nea rly ubiquitous “r ule of reason,” cond uct is condemned or
saved by courts larg ely based on thei r evaluation of the c onduct’s effect on
economic efficiency . But many aspects o f antitrust law ca nnot be explained by
efficiency analysis. The full sweep of antitrust makes sense only when one
considers other val ues that underlie th e antitrust laws, va lues contained in the
allocation of public and private power inherent in the larger constitutional
order. This Article a ttempts to provid e a more comprehen sive understanding of
antitrust as policing th e private exercise of regulatory power.
This Article conside rs both the dominant, efficiency-maximizing approa ch to
antitrust and the “societal” alternatives offered by critics. The two approaches
are more alike than they are different , and gaps in each suggest a missing factor
in both approache s: a recognition that a harm to co mpetition consis ts of both a
harm to efficiency (a “ma rket harm”) and a harm to freed om of choice (a
“regulatory harm”). After developing a conception of “regulation” as control
over property separa ted from ownership, this Ar ticle explores the cons titutional
law of private reg ulationthe constit utional prohibiti on against delega tions of
governmental power to private partiesfollowed by a discussio n of the same
principles in the sp ecific context of an titrust and identifies the nature of the right
to choice that th e antitrust laws p rotect. This Artic le then considers specific
implications of rec ognizing the role of reg ulatory harms in an titrust, including
changes to how antitrust treats horizontal and vertical restraints and mergers,
the ability to expla in some casesespecia lly in the area of ty ingoften
considered outlie rs when viewed exclu sively through the le ns of economic
analysis, and the po ssibility of a rene wed role for concep ts that have been larg ely
forgotten in the rise of the rule of reason, such as conduct, inte nt, and the role of
the per se rule in antitrust .
Professor of Law, Universi ty of Virginia School of Law. I would like to thank Peter
Carstensen, Barry Cushman, Neil Duxbury, Scott Hemphill, Ariel Katz, Ed Kitch, Alan Meese,
Barak Orbach, Barak Richman, Glen Robinson, Rich Schragger, Chris Sprigman, Spencer
Waller, Tim Wu, and the participants of the 13th Annual L oyola Antitrust Colloquium for
helpful comments and suggestions. I am also indebted to Phillip Brown, Reba Mendoza, Jacob
McCloy, and Jed Moody for excellent research assistance.
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58 IOWA LAW REVIEW [Vol. 99:57
INTRODUCTION ...................................................................................... 59
I. THE ECONOMIC CONCEPTION OF ANTITRUST ........................................ 61
A. ANTITRUST AS A RULE OF EFFICIENCY ................................................. 62
B. “SOCIETAL ANTITRUST .................................................................... 66
C. MICROECONOMIC EFFICIENCY ANALYSIS AND SOCIETAL ANTITRUST
AS PARALLEL APPROACHES ................................................................ 67
D. ANTITRUST AND REGULATORY HARM ................................................ 69
II. ANTITRUST AND REGULATION ................................................................ 69
A. PROPERTY AND REGULATION ............................................................. 70
B. THE DISTANCE BETWEEN PROPERTY RIGHTS AND REGULATORY
CONTROL......................................................................................... 71
C. CARTELS, MONOPOLIES, AND REGULATORY EFFECTS ........................... 73
D. PROPRIETARY CONTROL, REGULATORY CONTROL, AND ANTITRUST ..... 74
E. REGULATORY EFFECTS, REGULATORY HARM, AND PRIVATE
REGULATION .................................................................................... 77
III. THE PUBLIC/PRIVATE DISTINCTION IN MARKET REGULATION ............... 79
A. THE PRIVATE NONDELEGATION DOCTRINE ......................................... 79
B. PRIVATE REGULATION AND THE NEW DEAL ........................................ 82
IV. ANTITRUST AS A RULE AGAINST PRIVATE REGULATION .......................... 88
A. ANTITRUSTS EPILOGUE TO THE NEW DEAL ........................................ 89
B. ANTITRUST AND THE CONFLICT BETWEEN PUBLIC AND PRIVATE
REGULATION OF COMMERCE .............................................................. 90
C. PRIVATE REGULATION AS A CHALLENGE TO PUBLIC REGULATORS ........ 92
V. THE IMPLICATIONS OF REGULATORY HARM FOR ANTITRUST .................. 93
A. ANTITRUST AND PUBLIC REGULATION ................................................ 93
B. DISTINGUISHING BETWEEN PROPRIETARY AND REGULATORY
CONTROL......................................................................................... 95
C. THE HORIZONTAL/VERTICAL DISTINCTION IN ANTITRUST .................. 97
1. Market Harm, Regulatory Harm, and Vertical Re straints ..... 97
2. The Limits of Verticality: Exclusi on ....................................... 98
D. THE ROLE OF CONDUCT AND INTENT IN ANTITRUST .......................... 105
1. Conduct Generally ................................................................ 105
2. Purchasing Both Property and Control: The Case of
Mergers ................................................................................. 106
3. Intent ..................................................................................... 108
E. THE REDISCOVERED ROLE OF THE PER SE RULE ................................ 109
CONCLUSION ....................................................................................... 113
2013] THE ANTITRUST CONSTITUTION 59
INTRODUCTION
The U.S. fashion industry of the late 1930s faced a problem. High-end
textile manufacturers and apparel makers were willing to invest cons iderable
time and expense in devising the new and distinctive designs consumers
wanted, but those designs were being copied by knock-off manufacturers
shortly after being released, preventing the designers from recouping the
cost of their investment. The industry solved the problem by organizing the
Fashion Originators Guild, through which the manufacture rs enlisted the
help of apparel retailers in collectively agreeing to refuse to do business with
any apparel maker who copied original designs created by Guild members. 1
Normally, intellectual property prote ctions like those adopted by the Guild
are thought to be socially beneficial by making it possible to engage in
creative activity,2 and it is possible that the Guild rules increased economic
output and hence consumer welfare for just that reason. On the other hand,
it is possible that the limitation on the business of both apparel
manufacturers and retailers outweighe d the benefit of the rules, causing a
net reduction in output and a harm to consume r welfare. Without knowing
more about the nature of the restraints, the fashion industry, and the
apparel and textile markets, it wo uld be impossible to know whether t he
Guild rules increased or decreased social wealth.
Antitrust usually deals with restraints that have ambiguous effects on
social wealth by applying the “rule of reason,” which balances the
procompetitive and anticompetitive effects of a restraint to determine its net
effect on economic output and hence consumer welfare.3 We will nev er
know how the Guild’s style protect ion regime would have fared under that
approach, though, because, when the Federal Trade Commission sued the
Guild, the Supreme Court did not ana lyze the style protection system unde r
the rule of reason but rather declared the system a “per se” violation of the
antitrust laws, striking the Guild’s style protection system more for the threat
it posed to Congress’s legislative power than the threat it posed to
consumers’ buying power.4
1. Fashion Originators’ Guild of Am. v. FTC., 312 U.S. 457, 46263 (1941).
2. See Mazer v. Stein, 347 U.S. 201, 219 (1954) (recounting the economi c theory of
individual incentive and social benefit underlying U.S. copyright law).
3. See Leegin Creative Leather Prods., Inc. v. PS KS, Inc., 551 U.S. 877, 886 (2007).
4. See Fashion Originators’ Guild, 312 U.S. at 465 (“[T]he combination is in reality an
extra-governmental agency, which pre scribes rules for the regulation and restraint of inter state
commerce . . . and thus ‘‘trenches upon the power of the national legislature and violates the
statute.’”).
There is some reason to believe the Guild’s rules would have fared considerably better
under the rule of reason. The Guild successfully defended an antitrust suit brought by a retailer
in which the First Circuit applied the rule of reason. See Wm. Filene’s Sons Co. v. Fashion
Originators’ Guild of Am., 90 F.2d 556, 560 (1st Cir. 1937). A special maste r found specifically
“that the object of The Guild and i ts members and affiliates was bene ficial, rather than

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