The Antitrust Paradox: A Policy at War with Itself, by Robert H. Bork, New York: Basic Books, 1978, 462 pp. $18.
The debate on antitrust broke into the open at the beginning of this decade. It continues to this day and is likely to gain momentum with repeated attempts to legislate a restructuring of American industry. Professor Robert Bork has been an active critic of antitrust policy for longer than the present debate, and he now joins issues again in this major contribution to the discussion.
His starting point is to posit in principle and from his study of the origin of the Sherman Antitrust Act that its legitimate objective is the promotion of consumer welfare, or, in the technical language of economics, efficiency. He then examines the development of antitrust from early landmark cases to recent decisions, covering the fields of market concentration, mergers (horizontal, vertical, and conglomerate), and various marketing and pricing practices. The reader is left with no doubt about Bork's appraisal—antitrust has strayed considerably from the promotion of consumer welfare and, consciously or unconsciously, has been turned instead to protecting competitors to the detriment of consumers.
More importantly, the reader is left with no doubt about Bork's reasons for this gloomy appraisal. Unlike most works on antitrust, which make ample use of catch phrases such as "shared monopoly," "barriers to entry," and "market foreclosure," Bork looks behind words to logical analysis. This he does by an unremitting application of standard price theory to a discussion of cases and decisions.
This discussion can be faulted in a few respects. Bork is more aware of recent legal developments than of recent work by economists; had he followed the economists' contributions more closely, he would have been able to bring a different sort of evidence to bear in support of his conclusions—broad-based statistical work. As it is, he is forced to confine his discussion to the logic of particular cases, supplemented with a scattering of facts found in those cases and in discussions of them by others. This creates the possibility of a biased sample of antitrust decisions or a biased selection of quotations and reasoning from those decisions (neither of which I believe to be the case). In addition, Bork's methodology is too heavily weighted toward rejection of the court's logic; more attention to the provision of positive explanations of business practices in terms of efficiency would have been worthwhile and could have been offered.
Finally, Bork's objection to horizontal mergers that create highly concentrated industries seems ad hoc and does not at all flow from a consistent application of his logic. That logic relies heavily on the assertion or fact of open entry—where there are no legal or "artificial" barriers to new firms' entering an industry. Bork uses that logic to undercut concern about "dominant" firms that secure their position through internal growth and also to disarm belief in various "market imperfections." It is equally applicable, though, to mergers, and the fact that Bork refrains from a consistent application of open entry reveals an implicit but unrecognized deficiency in the analytical tool at his disposal.
That tool is price theory. But price theory has not yet addressed the question of how long it takes for market processes to erode "temporary" market power. The question then arises whether a judicious application of antitrust cannot accomplish this task more efficiently. Bork's implicit answer with regard to internal growth of a firm to a position of dominance is no, but to growth achieved by merger, yes. But the reader must wonder why different answers are given. A consistent answer would be no if we are willing to accept the position that (the threat of) competitive entry reflects merely the true cost of doing business. An appropriate objection to this would be that the potential entrant does not include in his expected return from entering the full social benefits of upsetting temporary market power, so that extra-market action is called for. Here I am addressing only the logical inconsistency in Bork's application of the constraints imposed by (potential) entry on firms made "dominant" through merger. There is perhaps the more important and researchable question of fact: do courts act more quickly than entry to end market power (when they are not busy creating it)?
Bork is too much impressed by economic logic to fully recognize its shortcomings in dealing with certain problems. He is therefore prone to take the position that, if only judges and lawyers knew economics, most of our mistakes in antitrust policy would have been avoided. Unfortunately, many economists have and do support the very court decisions attacked by Bork. Partly, of course, this is because of poor or incomplete economic analysis, but partly it is because there is nothing in economics per se that puts consumer interest before other interests. Economics, after all, is (or should be) value-free. An economist, judge, or civil servant who fears that big business may have too much political influence, or who in general subscribes to a version of "Jeffersonian Democracy," may not want to leave the issue to new congressional legislation, as Bork proposes. An economist or judge may be so fearful of socialism that he deems the cost of sacrificing innocent firms to antitrust well worth incurring.
These shortcomings notwithstanding, Bork's book is in a very real sense a tour de force. In case after case he demonstrates clearly that it is more likely that consumer interests have suffered than gained from antitrust decisions, that we are not dealing with an infrequent error embedded in a multitude of pro-consumer decisions but rather the reverse. His discussions are clear and systematic. They reveal the slipshod reasoning and the lack of supporting evidence in cases that affect the way business can be carried on in this country. The overall impression made on someone not already familiar with the situation must be one of shock and dismay. A policy—the antitrust policy—so unclear as to application, applied so often against consumer interests, cannot be judged a good law from the viewpoint of those interests. Something other than lack of economic knowledge is at work. The decisions are not randomly in error; they are systematically in error.
If consumer interest is accepted as the guide for policy in this area, as it is by Bork, then the conclusion one must reach after reading Bork's devastating attack is not for reform of antitrust policy but for the end of antitrust. Mere knowledge of economics, however, or mere reading of Bork's book, is insufficient to offset the powerful interests that work to turn antitrust against consumers. Bork's call for reform, for adherence to consumer interest as revealed by economic analysis, must fall on the hard of hearing; indeed, in one way or another, in court and out, they have heard this call before. That is the paradox of antitrust.
Harold Demsetz teaches economics at the University of California at Los Angeles.