The Antitrust Revolution

DOI10.1177/0003603X20950203
Date01 December 2020
Published date01 December 2020
AuthorWilliam S. Comanor
Article
The Antitrust Revolution
William S. Comanor*,**
Abstract
The Antitrust Revolution of the early 1980s arose from various intellectual currents, including spe-
cifically the growing acceptance of modern game theory. Its greatest impact, however, lay in the
development of revised standards for merger policy. From ones which employed largely a set of per se
standards, they rapidly evolved into those more compatible with the Rule of Reason. Large horizontal
mergers were routinely approved, and concentration levels in major industries sored. Although effi-
ciency levels were sometimes enhanced, there is little evidence that consumers generally benefited in
the form of lower prices. As a result, the new merger policy may have contributed to the observed
growing inequality in U.S. distributions of income and wealth.
Keywords
horizontal mergers, policy standards, economic consequences
Introduction
Keynes taught us that ideas have consequences and can be “dangerous for good or evil.” He also
observed that many such ideas arise from “some academic scribbler of a few years back.”
1
In the
1980s, with the advent of the Reagan Administration in the United States, a revolution occurred in both
antitrust thought and policy-making, which transformed the competition policy landscape. It is now
more than forty years since that revolution rocked the antitrust world, which offers a good vantage
point from which to review what occurred. My purpose here is to recall the ideas that were both created
and discarded, consider the new policy doctrines that followed, and evaluate the results for both the
antitrust enterprise and the larger economic landscape.
Although the Antitrust Revolution of the 1980s evolved from a spectrum of intellectual currents and
concerned a large panoply of policy issues, its greatest impact may have been on policies dealing with
large horizontal mergers. Indeed, of the 1267 investigations carried out in the decade ending in 2019,
fully 60%concerned mergers.
2
In what follows, our attention is directed toward the striking shift in
* University of California, Santa Barbara, CA, USA
** UCLA Fielding School of Public Health, University of California, Los Angeles, CA, USA
Corresponding Author:
William S. Comanor, University of California, Los Angeles, CA 90095, USA.
Email: comanor@ucla.edu
1. JOHN MAYNARD KEYNES,THE GENERAL THEORY OF EMPLOYMENT INTEREST AND MONEY 383–84 (1936).
2. Thomas G. Wollmann, Stealth Consolidation: Evidence from an Amendment to the Hart-Scott-Rodino Act,1A
M.ECON.REV.
INSIGHTS 77 (2019).
The Antitrust Bulletin
2020, Vol. 65(4) 547–567
ªThe Author(s) 2020
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DOI: 10.1177/0003603X20950203
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antitrust standards specifically toward large mergers among competing rivals. Through the 1970s,
enforcement practices largely followed the Department of Justice 1968 Guidelines that severely
limited horizontal mergers. But that changed in the 1980s when enforcement actions published a new
set of guidelines which pointed in a very different direction.
The Ideas
I. Merger policies are invariably linked to an underlying theory of oligopoly. Large horizontal mergers
can alter an industrial landscape and impac t economic performance. Permitting or rejecti ng such
mergers therefore requires predicting outcomes. And making those predictions is the function of an
oligopoly theory.
What occurred in the early 1980s is that the dominant economic model of oligopolistic industries
changed. For some time, the accepted principles of conduct among firms that recognize their mutual
interdependence had been those set forth by Edward Chamberlin and William Fellner.
3
Chamberlin’s
conclusions were dominant: so long as rivals responded rapidly (as was expected), to any price cuts,
“the prices of all will move together, and ...the equilibrium price will be the monopoly one.”
4
Following him, Fellner embellished the Chamberlinean model and projected that, subject to interfirm
differences, rivals would establish quasi-agreements at which near-monopoly prices would be set.
However, in a striking reversal, a conflicting model gained resonance, seemingly overnight. It led
instead to the opposite conclusion: that competitive prices would likely be established without regard
to the number of rivals. That result relied on a game theory concept fashioned originally by John Nash
5
and thereby known as the Nash equilibrium. And that concept served as the starting point for what
Franklin Fisher has called the “game theory revolution.”
6
An interesting feature of this intellectual shift was that the propo nents of both the established
regime and the new paradigm paid homage to the same predecessors of a century before: Augustin
Cournot writing in 1838, and Joseph Bertrand, writing nearly fifty years later, in 1883. However, the
two policy regimes learned very different lessons from these classical precedents. Both Cournot and
Bertrand saw that equilibrium required firms to accept their rivals’ choices as compatible with their
own, such that in equilibrium, firms would not have an incentive to change their parameter values
(either price or quantity) in response to those set by rivals. Any equilibrium solution required mutually
compatible values that could persist over time. Where Cournot and Bertrand differed was only whether
firms set quantities or prices to reach their presumed equilibria.
In the earlier period, the common presumption was that decisions were made sequentially so that
each firm could respond to its rivals. Indeed, that presumption underlay Fellner’s critique, included in
his leading treatise of the era, which applied to both the Bertrand and Cournot versions of the model:
The characteristic feature of the Cournot model is that if each duopolist continues to assume that the other
will not change his rate of output, then ultimately they wil l prove to be correct, although during the
approach to the equilibrium, for a limited period of time, they will be wrong. A produces a quantity which
maximizes his profits on the assumption that B will go on producing his present output, whereupon B
adjusts his output, which induces A to adjust his output, etc.
7
3. EDWARD H. CHAMBERLIN,THE THEORY OF MONOPOLISTIC COMPETITION (7h ed., 1956); WILLIAM J. FELLNER,COMPETITION AMONG
THE FEW (Augustus M. Kelley, 1965), Original edition 1949.
4. CHAMBERLIN,supra note 3, at 50.
5. John Nash, Equilibrium Points in N-Person Games,36P
ROC NATLACAD SCI 48–49 (1950).
6. Franklin Fisher, Games Economists Play: A Noncooperative View, 20 RAND J. ECON. 113–24 (Spring 1989).
7. FELLNER,supra note 3, at 50–58.
548 The Antitrust Bulletin 65(4)

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