These were all abandoned in less than a decade, as the Chicago definition of efficiency was recognized as the only coherent objective. The outcome of this transformation is a virtually unchallenged authority for neo-classical economic logic in the decision-making procedures of US antitrust authorities and the courts. To explore how this came about, this article focuses on three areas of transformation in which the overall neo-classical enterprise was ascendant.
First, there was the emergence of the Law and Economics movement in the University of Chicago in the s, which gathered pace during the s and s. The virtue of the market price mechanism is that it makes explicit and socializes this calculative psychology, but economists are free to apply price theory where they choose, regardless of whether market prices are actually at work. Richard Posner, the leading contemporary figure in Chicago Law and Economics, offers a more pragmatic spin on the definition of economics: About the best one can say is that there is an open-ended set of concepts.
Posner, a, p. The Law and Economics movement is one of the earliest manifestations of this controversial project. Posner has suggested that Jeremy Bentham should be credited for first applying economic calculus to the state Kitch, However, in the University of Chicago itself the movement owes its origins to something of an accident. In the s, the university set about establishing a law programme for students who did not have BAs in law, which required adding an additional year of study into the programme.
As part of this additional year, students were also required to learn economics. In , Henry Simons, a maverick free market economist and author of the provocatively anti-Keynesian A positive program for laissez-faire , was appointed head of this new law school. In the collective memory of the Chicago School, the economics department of the s was politically far to the left of what was to follow and the law school turned out to offer an enclave of nascent anti-Keynesian, free market ideas Kitch, While Simons himself was a controversial figure, and was mainly interested in macro-economics, the fact that there was an economist in charge of the law school proved critical.
The Journal of Law and Economics was founded in , under the joint editorship of Director and Levi, and was to become a key platform for Chicago thinking about the state. In , Coase made a switch to the law school and took over the Journal. The division between the two departments subsequently remained very porous, with prominent Chicago micro-economists such as George Stigler and Gary Becker dedicating a portion of their teaching time to courses in law.
First, it has studied law that specifically relates to the economy, such as antitrust, tax or trade law.
Second, it has used economics to study law in non-market contexts such as marriage and crime, as demonstrated in the work of Becker. Law and Economics scholars consider their greatest political successes to be in the first of these, with the revolution in antitrust their greatest victory. Yet in epistemological, methodological and stylistic terms, the distinction is non-existent.
Rather than simply study a world of embodied people circulating material objects and money, Coase recognized that communication and social coordination also create costs in the economy. The study of transaction costs sought to explain why different varieties of economic organization come into being and survive, based on the original neo-classical and utilitarian assumption that an individual will select a certain option only if it is the most efficient one available.
The question is not whether markets or hierarchies are more efficient, but which overall ecology of markets and hierarchies is most efficient. At a certain point, it becomes more efficient to trade and compete than it is does to give managerial orders; if the firm grows beyond this point, it becomes inefficient. By the same token, a market could become too fragmented, and transaction costs rise to an inefficient level. But working out where each point lies is not something that can be divined from economic theory, but something that requires careful empirical analysis.
The commitment to applied price theory was so strong, that Coase and his followers claimed to renounce all ontological or a priori claims about individuals, economy and society. The core uniting assumption, that individuals act rationally to maximize utility, was safely bracketed within the bounds of methodology, and never allowed to become inflated to the status of ontology. The consequence of this ontological abstinence was that Chicago school economists ceased to privilege markets, at least in any a priori or normative sense.
Moreover, given that child-rearing is still voluntarily done in families, it can be assumed that markets would in fact be less efficient in performing this social function.
By coupling methodological dogmatism with ontological agnosticism, Coase is able to explain why it is that the economy sometimes does and sometimes does not adhere to the liberal, free market model.
If a producer charges a given amount for a product, but is failing to account for the pollution they are creating, then the price of their product is not an accurate reflection of the cost. Some form of regulation or third-party intervention is required to support accurate price formation. For Coase, however, this represents excessive commitment to the price mechanism and insufficient faith in price theory.
Proper use of price theory would factor in the cost of intervening to deal with the market failure and the in all likelihood greater aggregate efficiency of simply allowing the parties to continue to act in a self-interested, utility-maximizing fashion. Pollution and a faulty price mechanism may be a more efficient outcome than costly intervention and a functioning price mechanism.
If agents are acting in a certain fashion, this is usually a sign that it is efficient. This is a conservative, potentially even tautologous perspective on the economy.
Intentions and strategies are imputed in a post hoc fashion, regardless of whether they were conscious or explicit in advance. A prevalent theme in Chicago School discourse is that unconscious intentions may be more rational than conscious ones, which would later result in a period of antagonism between economists and lawyers in antitrust policy.
Just as unconscious intentions and strategies may actually turn out to be inadvertently efficient on closer inspection, so conscious intentions and strategies may turn out to be inadvertently inefficient. The rationality of each actor is never in question, but, where their actions involve plans with wide-ranging consequences, the presumption of efficiency no Downloaded By: [University of Oxford] At: 23 April longer holds.
It holds that public policy-makers are acting to maximize utility, but only for themselves and, indirectly, those who grant them power and money.
What is most likely to undermine the efficiency of the status quo is therefore the intervention of those who presume to be able to improve on it. The virtue of markets is that they bring conscious and unconscious calculation into some form of alignment.
There is ultimately no ontological difference between the state and the market, only a phenomenological one, namely that the latter makes its costs publicly apparent. In one respect, Law and Economics is simply the extension of transaction cost economics to the study of law and regulation. Is there nothing about the normativity of norms that makes law a specific object of economic study?
Three things in particular are worth noting. First, there are occasional hints that the market itself does possess a normative dimension. More significantly, he implies that market exchanges offer a uniquely liberal means of maximizing utility. As he puts it: If one considers consent an ethically attractive basis for permitting changes in the allocation of resources on grounds unrelated to the fact that a consensual transaction is likely to increase the happiness of at least the immediate parties, one will be led.
Posner, , p. It is assumed that, if individuals choose to act in a certain way, that this must de jure be the rational utility-maximizing choice. It follows that the status quo is efficient, save where some party exercises wide- Downloaded By: [University of Oxford] At: 23 April ranging powers to transform it. Second, there is a recognition that stable, publicly recognized rules contribute to efficiency by reducing transaction costs. In the absence of law, economic and non-economic interaction would become extremely costly, because there would be no shared rules of conduct Fligstein, Somewhat paradoxically, law maximizes utility precisely because it does not intend to: a wholly Benthamite society, in which laws were constantly manipulated according to utilitarian ends, would be less efficient than the conservative proposition that existing rules be sustained over time.
Federal law, however, can be inefficient in its desire to reform society around particular political ends. Once again, the unconscious agenda is more efficient than the conscious one. Third, and following on from the point just made, Law and Economics adopts a somewhat ambiguous position on sovereignty.
If law is simply a means of altering incentives, then it possesses no normative quality, let alone transcendence. Law is simply one of various Benthamite economic technologies. Yet the pragmatism of Chicago School thinking cuts both ways. The heterogeneity of social objects implicitly remains very much intact, while it is the social sciences themselves that undergo a radical homogenization. One might argue, therefore, that it is not the subsumption of law within the economy that the Law and Economics movement seeks, but a subsumption of legal expertise within economic expertise.
The battle is a self-consciously epistemological and discursive one, although how successfully this remains bracketed from ontology is ambiguous. As Stigler put it: Downloaded By: [University of Oxford] At: 23 April The difference between a discipline that seeks to explain economic life and, indeed, all rational behaviour and a discipline that seeks to achieve justice in regulating all aspects of human behaviour is profound.
This difference means that, basically, the economist and the lawyer live in different worlds and speak different languages. Stigler, , p. Meanwhile, although this is never stated, there is an imputation that state sovereignty remains intact, for otherwise it could not be empirically assessed and economically re-framed. It is precisely the fear of the sovereign state that makes it an urgent target for neo-classical analysis.
At the same time, it is precisely the sovereignty of the law that makes it a potential source of efficiency gains, where used appropriately to create artificial stability. Simons recommended that the FTC become the most powerful arm of government to ensure that the market was protected from big business, unions and government, who appeared to Simons to have reached a stable, cooperative arrangement in which market competition was deliberately limited.
Hayek, who maintained strong associations with the Freiburg School, advanced a policy programme that, in its hostility to expert utilitarian planning, corresponded closely to this. The design and rigorous enforcement of a competition framework should be the sole form of state planning in a neo-liberal society, and should be wilfully oblivious to its empirical effects Hayek, , p. Hayekian and ordo-liberal defences of competition were at least as normative as they were economic, and often solely normative Hayek, , p.
That said, the primary fear underlying the ordo-liberal programme was that of economic power in the market, rather than, as for Hayek, excessive technocratic planning by the state. Following his switch to Chicago, Hayek became increasingly suspicious of the use of public law to uphold competition, and in this respect represents something of a bridge between the Austro-German and the later Chicago School.
For, by the mids, the Chicago School was at the forefront of a campaign to reduce greatly the remit and activity of antitrust authorities. Far from the legal formalism of the Freiburg School, these texts argued for a wholesale rethinking of antitrust enforcement around the utilitarian goal of efficiency maximization and the elimination of political and normative dimensions from antitrust policy.
This section seeks to map how this intellectual shift took place within the Chicago School. Director would then set about dismantling this legal argument using applied price theory, but in terms that were easily understood by the assembled law students. The communicability of Law and Economics to lawyers was always a highly important element in its programme.
Posner, a professional lawyer, noted that this skill went right back to Coase, and the question of making sense reappears once more: Downloaded By: [University of Oxford] At: 23 April [Coase] has what to a lawyer is quite important, an unusually lucid and simple style of writing.
When I read it, having no knowledge of economics at all, it seemed to me to make perfectly good sense. The fact that it was very well and clearly written enabled him to communicate with me in a way that most economists could not.
Kitch, , p. Getting economic arguments to perform effectively in court is now in fact the main concern of antitrust authorities, which requires achieving sophistication and clarity at the same time Muris, It was the intuitive simplicity of the Chicago approach that was central to its efficacy. Although the Supreme Court paid lip service to this idea in the s, in practice antitrust enforcement acted to penalize firms for competing too vigorously against their competitors Amato, Moreover, markets that were effectively competitive could still be criticized on the basis that they possessed latent structural potential to reduce future competition Bain, In line with the market failure paradigm of welfare economics, this rested on an idealist epistemology in which the market possessed an essential form which was efficient and which needed protecting by the state.
As Chicago economists were at pains to point out, this meant that firms that were highly attractive to consumers or effective at cutting costs could be punished, once this led to their profits increasing.
Within the various pieces of legislation that make up the US antitrust and consumer protection regime, there is scope to penalize a wide range of economic actions. The Sherman Act had originally focused on illegalizing restraints on trade as committed by the large railroad trusts towards small businesses Thorelli, The Clayton Act , which created the FTC, adds further powers to regulate mergers and protect consumers.
Blair,David L. Citing relevant legislation and landmark court cases, the text offers a comprehensive analysis of both horizontal and vertical antitrust issues and uses economic theory to evaluate antitrust policy throughout. The text moves fluidly from theory to real world court cases to public policy, making it ideal for upper-level economics majors or law school courses in antitrust law. This book bridges the gap between introductory texts and advanced research volumes by presenting select themes in antitrust economics and modeling.
While brief and selective, the method provides a basic analytical reference point for approaching special antitrust topics not covered here, such as tying, bundling, and exclusive dealing. Such analytics are sometimes likened to a rational defense of monopoly and related anti-competitive behavior, but are essential to explicating antitrust economics from a mainstream Western economic vantage.
In a number of different areas of antitrust, advances in theory and empirical work have caused a fundamental reevaluation and shift of some of the assumptions behind antitrust policy. This reevaluation has profound implications for the future of the field. The Oxford Handbook of International Antitrust Economics has collected chapters from many of the leading figures in antitrust. In doing so, this two volume Handbook provides an important reference guide for scholars, teachers, and practitioners.
However, it is more than a merely reference guide. Rather, it has a number of different goals. First, it takes stock of the current state of scholarship across a number of different antitrust topics.
In doing so, it relies primarily upon the economics scholarship. In some situations, though, there is also coverage of legal scholarship, case law developments, and legal policies. The second goal of the Handbook is to provide some ideas about future directions of antitrust scholarship and policy. Antitrust economics has evolved over the last 60 years. It has both shaped policy and been shaped by policy.
The Oxford Handbook of International Antitrust Economics will serve as a policy and research guide of next steps to consider when shaping the future of the field of antitrust. Below are some websites for downloading free PDF books where you can acquire as much knowledge as you want. If you want to annotate or comment while reading on PC, you could click the download button below to read and add bookmarks to your PDF books.
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