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date: 28 May 2020

Antitrust Law as a Problem in Economics

Summary and Keywords

“Antitrust” or “competition law,” a set of policies now existing in most market economies, largely consists of two or three specific rules applied in more or less the same way in most nations. It prohibits (1) multilateral agreements, (2) unilateral conduct, and (3) mergers or acquisitions, whenever any of them are judged to interfere unduly with the functioning of healthy markets. Most jurisdictions now apply or purport to apply these rules in the service of some notion of economic “efficiency,” more or less as defined in contemporary microeconomic theory.

The law has ancient roots, however, and over time it has varied a great deal in its details. Moreover, even as to its modern form, the policy and its goals remain controversial. In some sense most modern controversy arises from or is in reaction to the major intellectual reconceptualization of the law and its purposes that began in the 1960s. Specifically, academic critics in the United States urged revision of the law’s goals, such that it should serve only a narrowly defined microeconomic goal of allocational efficiency, whereas it had traditionally also sought to prevent accumulation of political power and to protect small firms, entrepreneurs, and individual liberty. While those critics enjoyed significant success in the United States, and to a somewhat lesser degree in Europe and elsewhere, the results remain contested. Specific disputes continue over the law’s general purpose, whether it poses net benefits, how a series of specific doctrines should be fashioned, how it should be enforced, and whether it really is appropriate for developing and small-market economies.

Keywords: anti-monopoly law, antitrust, antimonopolista, competition law, competition policy, concurrence, concorrenza, konkurrenz, trade practices law, wettbewerbsrecht


“Antitrust” is a common name for legal rules now in place in most countries in the world.1 These rules prohibit private interference with the operation of healthy markets. While their details are elaborate and vary significantly across jurisdictions, antitrust laws generally impose three broad limits. They govern (1) agreements among competitors, (2) anticompetitive conduct by dominant competitors, and (3) mergers or acquisitions among firms that would limit competition. Generally speaking, their goal in most nations is to serve some notion of “efficiency,” as defined in contemporary microeconomic theory.

The term “antitrust,” which is a bit accidental, remains common in the United States and Europe, but elsewhere such laws are more commonly known as “competition policy” or “competition law.”2 They are also sometimes known as “anti-monopoly law,” as in China, Japan, and Russia, and as “trade practices law,” as in Australia and the United Kingdom.

Origins, History, and Diffusion


On some level competition policy is ancient and long predates the American statute that is its best-known example: the Sherman Act of 1890. Some such rules are known to have existed since classical Antiquity. The earliest known application appears to be a criminal monopolization challenge during the 4th century bc, against Athenian grain merchants who took advantage of shortages during war (Kostiris, 1988). Competition values also appeared in Roman law in the 3rd century bc, as well as in Asian, Islamic, and other systems, and they have been found in various forms ever since (Sullivan, Grimes, & Sagers, 2016). As will be explained, the unmistakable origins of contemporary antitrust appear in the English common law tradition as early as the turn of the 15th century, when recognizably modern competition values began to inform specific legal rules.

Of course, economic policy throughout Western history was often at odds with the orthodoxy that now underlies most competition laws. Even as medieval Europe emerged from feudalism and capitalism got its beginning, the trades and professions were made subject to highly restrictive, state-sanctioned guild regulation, and it prevailed throughout Europe until well into the 18th century (Ogilvie, 2004). Most European nations also pursued mercantilist monetary and trade policies at odds with the market liberalism now implied in competition policy. Even those legal rules most closely resembling modern competition policy can seem fairly confused by modern lights. Often discussed are the so-called marketing offenses, which regulated buying and selling at trade fairs, at which much commerce occurred throughout Europe. Specifically, these rules prohibited “forestalling,” “regrating,” and “engrossing,” offenses that differed in their details but basically regulated buying and then reselling for gain. They perhaps had theological roots, in the medieval scholastic tradition of the “just price.” Until the late 18th century, lawyers and social thinkers had difficulty conceptualizing how a thing could be sold at a “just” price in one transaction and then resold for more (Atiyah, 1979). For what it may be worth, their aim was in part to prohibit deliberate efforts to create scarcity, and to that extent they could make sense as modern market-power offenses. They also may be somewhat misunderstood by latter-day critics, as they may have been not so much confused economic misunderstandings as they were needed to make primitive trading institutions work (Atiyah, 1979). But in any case, they also tended to seriously frustrate certain functions we now consider desirable and necessary, particularly wholesaling and distribution, and they appear at times to have caused serious shortages (Jones, 1926; Letwin, 1965).

The policies that would ripen into American antitrust, and by way of it inform the competition laws of most other countries, gestated for several centuries in a different set of rules: the English common law against “restraints of trade” and “monopoly.” The English courts had since about the turn of the 15th century refused to enforce certain kinds of agreements that they thought unduly limited trade, and they justified their decisions in terms at least superficially similar to modern economic reasoning. For example, in one of the earliest and best-known such cases (Dyer’s Case, Y.B., 2 Hen. V, f. 5, pl. 26 [1415]), the court refused to enforce a tradesman’s agreement not to ply his own trade in a given town, explaining the result as needed in part to protect the public interest in the exercise of trades. The law increased in sophistication as it evolved, enough so that the reasoning of an early-18th-century English decision (Mitchel v. Reynolds, 1 P. Wms. 181, 24 Eng. Rep. 347 [K.B. 1711]) would form the basis of one of the most important early interpretations of the Sherman Act, by its most important early exponent (United States v. Addyston Pipe & Steel Co., 85 F. 271, 283 [6th Cir. 1898] [Taft, J.]).

This law against restraints of trade, like the rest of the English common law, was inherited by the Americans as British subjects and retained by them without change following the American Revolution. American courts applied it throughout the 18th and 19th centuries, and so by the time of adoption of the Sherman Act in 1890, its rules were well known to American lawyers. And indeed, the Congress of 1890 apparently intended to incorporate them directly into the new Sherman Act, borrowing as it did specific terms from the common law. It prohibited “contract, combination . . ., or conspiracy, in restraint of trade” (Sherman Act § 1, ch. 647, 26 Stat. 209 [1890], now codified at 15 U.S.C. § 1), and “monopoliz[ation]” (Sherman Act § 2, ch. 647, 26 Stat. 209 [1890], now codified at 15 U.S.C. § 2).

An interesting question is why the United States saw need for national legislation when each of its states already maintained the traditional common law rules against restraints of trade and monopolization, particularly when it merely incorporated those terms verbatim. The answers are several. First, the state common law could not be enforced criminally, and it provided no money damages. Its only legal effect was to hold contracts in violation of it void and unenforceable. Second, because each state could only enforce its laws against defendants within its own jurisdiction, firms could evade state law rules by simply doing business in more permissive states. Finally, while it may or may not have been any legislator’s intent in 1890, the new federal statute invited the creation of a new body of judicial interpretation. That was so even though the statute incorporated common law language, in part because the law’s new enforceability provisions required it, and indeed the courts fashioned a new law that in many ways diverged from its common law antecedents (see Hovenkamp, 1991).

International Diffusion

And so, at length, the Sherman Act was hardly the world’s first competition law. Indeed it was not even the first modern competition statute, Canada having adopted one in 1889 (Kovacic, 2015). It was nevertheless the first modern competition statute under which there developed a substantial body of law with lasting influence. It held that position through much of the 20th century, not challenged by the prominence even of European Union law until perhaps the 1980s. However, while many observers believed that only U.S. and European Union law really “mattered” as late as the turn of the 21st century (Cheng, 2012), that is surely no longer the case. Germany, under compulsion by the Allied occupying powers, adopted what would become an important law after World War II, and its law then formed the basis of the antitrust provisions in the treaty of 1958 creating the European Economic Community (Sullivan & Firkentscher, 1998). Other nations began to explore and adopt competition laws, and a large number of them were adopted after the collapse of the Soviet system in 1989 (Fox, 2015). In the 21st century, around 120 nations have adopted competition laws. And so, for example, a large transnational merger might require pre-consummation approval from dozens of nations, following different procedures and timelines (Fox, 2015), and large conspiracies with multinational effects are now routinely prosecuted by authorities from several nations working in concert. In terms of substantive influence, European Union law is now more influential in shaping world systems, at least in their details and probably also in enforcement priorities (Kovacic, 2010).

There is as yet no international competition law, though there was long agitation for one. In fact, Germany’s important 1940s law was actually borrowed from the Havana Charter of 1945, which would have created a multilateral postwar treaty organization to be known as the International Trade Organization. It contained among other things a binding international antitrust law. Thus, though it never went into force as such, the Havana Charter became the conduit for diffusion of antitrust, largely along the lines of the American model, throughout Europe (Sullivan & Firkentscher, 1998; Wood, 1992).

Significant efforts were made again during the 1990s toward adoption of some binding international competition law, through the auspices of the World Trade Organization, but the effort failed. Proposals were made in the mid-1990s, largely at the behest of the European Union (see, e.g., European Commission, 1995), to adopt binding rules to be enforced through the WTO framework. The magnitude of such an effort kept it from ever becoming a realistic goal. As a compromise, however, a set of issues that came to be known as the “Singapore Agenda” called for mandatory harmonization, through multilateral negotiation, of national competition rules (Woolcock, 2007). Even that narrower goal encountered substantial opposition, and it was dropped in 2003 (Cheng, 2012; Fox, 2015; Woolcock, 2007). Opposition came most importantly from the United States, on sovereignty grounds, and developing economies, for whom development was more important than—and arguably in conflict with—vigorous domestic and import competition (Fox, 2015; Woolcock, 2007).

What has emerged instead is a looser network of national enforcement authorities, which has worked voluntarily toward hortatory “convergence.” That is to say, they have worked to harmonize their substantive national laws not through any binding agreement but merely through communication and debate. The most significant convergence organization has been the International Competition Network (ICN), formed in 2000 by member states of the Organization for Economic Cooperation and Development (OECD). Other important convergence work is performed by various economically oriented non-governmental organizations, including the OECD and the United Nations Conference on Trade and Development (UNCTAD). The work of these groups has consisted of publications, model codes and best-practices statements, technical and financial assistance, and “peer reviews” of emerging nations’ competition regimes (see Cheng, 2012). In addition to the broad, multilateral work of groups such as these, there also have been regional efforts at substantive convergence and enforcement cooperation. Regional efforts have sometimes been of a more binding character, as in the Competition Working Group of the NAFTA countries (Wood, 1992, 1995; Woolcock, 2007).

An interesting question is why international harmonization of competition laws has gone so much more smoothly than harmonization of other economic policies, such as trade and intellectual property. It has obviously been in part because, so far, competition convergence has been hortatory and not binding. It may also reflect the fact that harmonizing competition policies really involves no preferential parochialism or zero-sum trade-offs between nations (Cheng, 2012).

Nature of the Current Law

Though their details are often elaborate and vary widely, most antitrust regimes effectively consist of just two or three basic rules—they prohibit: (1) anticompetitive conspiracy, (2) monopolization, and (3) anticompetitive merger or acquisition. Generally speaking, these three rules are taken as foundational, because they are thought to capture the most important means by which private actors can interfere in the workings of healthy markets.

First, most competition regimes limit agreements among market participants that could restrain competition, like agreements among competitors to fix prices or output. Most obviously, head-to-head competitors selling the same good or service—known as “horizontal” competitors—may not fix their prices or limit their output. Horizontal price and output restraints are taken most seriously among antitrust violations, and they are punished most harshly. Where agreements are anticompetitive they are commonly known as “conspiracies.” Where they do nothing other than restrain price or output, they are often specifically known as “naked” conspiracies or “cartels.” Price and output restraints are known in Europe as “hard-core” price fixing or cartel activity.

Many other kinds of multilateral conduct can be illegal, however. Generally speaking, any agreement among two or more participants in a market can be illegal if it can plausibly be shown that it will restrain price or quality competition. Common examples include vertical restraints, which may fix the prices at which a manufacturer’s goods will be resold or otherwise limit competition among the manufacturer’s distributors. Likewise, common are arrangements that may affect price or output in some way but that are also part of some larger arrangement, such as a joint venture, a license of copyright or patent, or a sale of property.

Second, most such laws limit unilateral conduct by powerful firms that could exclude competitors or injure competition. Generally, firms in this position are prohibited from tying up sources of supply or distribution or foreclosing access to customers in ways that thwart competitive challenge. Examples include exclusive contracts between a dominant manufacturer and distributors making it unduly difficult for competing manufacturers to get their products to market. Unilateral exclusionary conduct by a powerful firm is known as “monopolization” in the United States and “abuse of dominance” in Europe and much of the rest of the world.

Third, most competition laws limit mergers and acquisitions that could injure competition. As with the law of anticompetitive conspiracy, contemporary merger law takes horizontal mergers most seriously—those that combine head-to-head competitors. Vertical and conglomerate mergers can also be challenged under various theories. In many systems, the merger rule is augmented by some form of pre-merger notification and review system. That is to say, in those systems mergers may require government approval before they can be consummated.

One way in which competition systems differ, and a way the U.S. system differs substantially from most others, is the means by which they are enforced. The United States maintains a surprising variety of enforcement mechanisms, permitting criminal enforcement as well as non-criminal actions by two separate federal agencies, any of the state governments, and private persons. State governments and private persons can recover money damages in most cases, and where they can they are entitled to treble damages. That is, where they are able to prove that an antitrust violation caused injury, they recover not just the damage that it caused but three times that amount.

Outside the United States, by contrast, competition rules traditionally were enforced primarily by government enforcement agencies bringing non-criminal enforcement actions. That became less the case in the first decades of the 21st century. A number of developed nations have built up robust criminal enforcement programs, and many agreements are now in place by which national enforcers coordinate criminal enforcement. The European Union also divested enforcement authority for European Union law much more broadly to the competition authorities of its member states, whereas that authority had been retained fairly exclusively by the European Commission until 2003 (Council Regulation [EC] No. 1/2003, O.J. L 1 [April 1, 2003]). Private enforcement has also appeared outside the United States, though it has so far remained much more tentative. A smattering of nations recognized private enforcement of national competition laws during the 1980s and 1990s, and private enforcement of European Union law became clearly available in 2001. However, it has been widely thought to be ineffective in most jurisdictions, and as a part of enforcement overall it remains secondary.

An antitrust regime can include any number of subsidiary or miscellaneous substantive rules, in addition to the three typical rules governing conspiracy, monopoly, and merger. The U.S. system, for example, maintains a special statutory regime to govern price discrimination, though it has fallen largely into disuse,3 and a vestigial statutory rule for interlocking directorates (Clayton Act § 8, c. 323, 38 Stat. 730, 732 [1914], now codified at 15 U.S.C. § 19). Other regimes have adopted idiosyncratic or experimental rules. Japan, Korea, Germany, and France, for example, have adopted rules against “abuse of superior bargaining position” (ASBP), under which a firm can be held to have unfairly abused long-term contracting relationships, even in the absence of market power (Wakui & Cheng, 2015). Likewise, during the early 21st century, the United Kingdom introduced a remarkable power of prospective, no-fault monopolization control known as the “market investigation,” under which it can study a market on its own initiative and order remedies for competitive problems, up to and including breakup of existing firms, even without a formal showing of legal violation (Competition & Markets Authority, 2017).

In some regimes, local peculiarities arise from their law’s special origins or their nation’s special historical circumstances. Several rules of European Union law, in particular, reflect its origin as part of a treaty regime meant to secure internal peace and external trading prowess. Those rules really have no counterparts in other regimes, like their strict restrictions on state aid to domestic firms and domestic antitrust exemptions (Fox, 2014). Likewise, China’s Anti-Monopoly Law governs what remains a Communist nation, in which state-owned firms still account for perhaps half of its economy. Accordingly, it contains a set of special clemencies for state-owned firms, and there has been persistent suspicion that China applies it discriminatorily in their favor (Farmer, 2010; Fox, 2008).

Outside their antitrust regimes, most jurisdictions follow any number of other rules that can be thought of broadly as “competition policy,” in that they constrain entry, exit, the structure of a market, or the size of its firms. Obviously, most jurisdictions maintain intellectual property protection, and intellectual property is also governed internationally by treaty. That policy is a complex, contested regime of “competition” rules all its own. Likewise, many states have controlled terms of competition in utilities, infrastructure, or the like, through government ownership or heavy oversight. Some states control entry, exit, or other terms through licensing or ethical rules, as in hospitals, education, and the professions. Any number of other miscellaneous rules or regulatory regimes affect competition. Oftentimes they serve not the economic goals now most associated with competition policy but other goals entirely. U.S. banking law, for example, tightly restricted the size and operations of banking firms through much of its history and as late as the 1960s limited the industry to “unit” banking (permitting each firm to own only one physical location). At least one major purpose of those restrictions was to prevent systemic instability (Sagers, 2015). Likewise, communications law in many jurisdictions has contained rules limiting the number of newspapers or broadcast outlets any one person may own, to preserve editorial diversity and the vigor of democratic exchange (Hardy, 2010; Sagers, 2015).

Generally speaking, however, the terms “antitrust” and “competition policy” are reserved not for this broad miscellany of policies but for the handful of specific conduct rules previously discussed. They most often consist of the three basic rules against anticompetitive conspiracy, monopolization or abuse of dominance, and anticompetitive merger and acquisition.


Antitrust began and has always remained in controversy. When the American law was first adopted it was widely derided by economists as counter-productive or irrelevant at best, a reflection of the view then prevalent that competition among the massive new firms of the industrial revolution had become “destructive” (Clark, 1931; Hovenkamp, 2009; Letwin, 1965). It has been criticized on many other grounds ever since. The left has often said the policy puts no real constraints on business and just gives businesses cover by giving the appearance that government is doing something (e.g., Arnold, 1937). The right has attacked it on any number of grounds. They argue most often that its rules are confused and actually disserve the efficiency goals it should aim for (e.g., Bork, 1978), or that it is too clumsy to get many cases right and that it cannot correct most market problems as well as markets can themselves (e.g., Easterbrook, 1984).

Modern controversies all to some degree take place in the shadow of an intellectual shift that began in the 1960s, now commonly known as the “Chicago” movement. Many of its major figures were associated with the economics and law faculties of the University of Chicago, though not all were. (On the history and substance of the movement, see generally Bork, 1978; Kitch, 1983; Posner, 1978, 1979.) The Chicago movement achieved extraordinary success in the United States, in the sense that it was influential with courts and policymakers, but it has also been extremely controversial. It has been joined by a critique that many observers have described as different or complementary, often known as the “Harvard” critique (Hovenkamp, 2008; Kovacic, 2007). The Harvard movement stressed not so much internal intellectual conflicts in the policy, as practical or institutional problems in its application. They stressed the expense and difficulty of measuring actual economic effects and the risk of courts getting cases wrong.

These criticisms have manifested in hundreds of specific policy controversies over the law’s long life. The following briefly summarizes some of the most prevalent issues currently in dispute. They all can be understood to some degree as either criticisms made by or reactions to the Chicago and Harvard movements.

Fundamental Controversies: The Place of Allocational Efficiency and the Relevance of Concentration for Its Own Sake

Among perhaps many others, two commitments were fundamental to the Chicago movement. First, it insisted that the purpose of antitrust should be defined more narrowly, such that it should only attempt to increase “efficiency,” as defined in modern microeconomic theory. That has meant, as a practical matter, that antitrust should intervene only when conduct could increase price or reduce output. A second quarrel, however, was with a leading tradition of the time that was content with allocational efficiency as the goal. The so-called structure-conduct-performance or SCP paradigm was an effort among academic economists, who themselves were neoclassical marginalists, to prove that concentration is systematically correlated with market power. It was mainly empirical and consisted of a long series of econometric studies, but it contained a potentially broad policy argument. If market structure itself can be known reliably to result in harm the antitrust laws should prohibit, then the law could simply regulate concentration for its own sake. Chicago critics disagreed vigorously, and in their methodological and other attacks on SCP they accomplished some of their most consequential changes in the policy.

Purpose: The Place of Allocational Efficiency

A competition policy can serve a range of different goals, and the goals it chooses can substantially affect outcomes, because different goals are not always consistent. It may seem surprising that the very purpose of a law could really be in doubt, but in fact critics have disputed the goals of antitrust throughout its history, and the evidence is not conclusive regarding either what the original 1890 Congress intended (if indeed it had any clear intent), or what the best choice of goal should be. As consensus over appropriate goals has changed, rules and outcomes have changed as well.

It is generally presumed that in the law’s early life it aimed at least partly to prevent accumulations of political power as well as economic power (Pitofsky, 1979). It also aimed to protect the liberty of individuals and small firms to compete, despite the power of bigger firms. That was explicitly acknowledged in early judicial language and case-law rules, and protection of smaller firms explicitly underlay important legislative amendments governing price discrimination (Robinson-Patman Act, ch. 592, §§ 2 to 4, 49 Stat. 1526 [1936], now codified at 15 U.S.C. §§ 13-13c) and resale price maintenance (Miller-Tydings Act, ch. 690, 50 Stat. 693 [1937], repealed Pub. L. No. 94–145, § 2, 89 Stat. 801 [1975]). There is some tendency to describe such goals as “non-economic,” because they differ from the narrow contemporary notion of allocational efficiency. In fairness, such values are in fact “economic,” in that they deploy rules about firm size and conduct to achieve particular social goals, according to theoretical claims as to how markets and economic institutions work. They just happen to take somewhat different end goals or somewhat different perspectives about how end goals are best reached (Hovenkamp, 1991).

But in any case, during the major recalibration of the American law associated with the Chicago movement, a chief target was concern with values other than microeconomic efficiency. The argument was based in some part on review of the law’s legislative history (Bork, 1978) but also on purely normative grounds. Much of the remainder of the Chicago critique goes to the perceived perversities of older rules that seemed contrary to this goal.

Singled out for harshest attack was the traditional protection of small businesses for their own sake. As conservative critics argued that neoclassical economic theory and its comprehensive model of allocational efficiency should be at the heart of antitrust, they argued that protection of small firms is often contrary to that goal, at least insofar as the only danger from which they are protected is the scale economy or other competitive advantages bigger firms get from being more efficient. Thus, for example, a key target for the right was the existing rules on “predatory pricing.” A price is said to be “predatory” when it is set aggressively low, with the goal of driving a competitor out of the market. Conservative critics said that existing rules on predation—which made it relatively easy to show—perversely frustrated the goal of efficiency and lower prices from vigorous competition, which in their view was the very goal of antitrust itself. They raised a similar critique of rules against price discrimination. For example, those rules frustrated volume discounts to larger retailers, even though the discounts may reflect genuine cost savings and therefore be efficient, at least in the narrow economic sense (see Bork, 1978; Posner, 1978). These examples show how significant the choice of goal can be. If the goal is solely to maximize allocational efficiency, then the older rules were at least sometimes counterproductive. But if the goal is to preserve smaller firms and entrepreneurial opportunity for what they could contribute to neighborhoods, communities, or other social values, then the older rules may have made sense.

In any case, one specific issue within this debate was at one time much discussed, though it now appears to have been largely settled. The debate was played out most prominently between two eminent works, Bork (1978), and Lande (1999). Even if the goal of antitrust is “economic” in a narrow modern sense, it could still serve at least two different notions of “efficiency” that sometimes call for different legal results. On the one hand, it might serve “total” efficiency, commonly known in economic theory as Kaldor-Hicks efficiency. On that standard, conduct is efficient if it increases total welfare in the aggregate, even though some persons affected are individually worse off as a result. But efficiency could also be defined so that conduct is not efficient if certain people are left worse off, even though aggregate welfare is increased. Lande (1999) laid out an elaborate case (one that has now been largely accepted) that the 1890 Congress intended the latter standard, and specifically that conduct should be illegal if it deprives “consumers” of welfare.

Often the choice between the two standards will not call for different results, but sometimes it does. For example, a merger might both increase internal efficiencies and also give the merged entity market power. The merged entity may cause harm to consumers both by decreasing output (causing a deadweight loss) and raising prices (confiscating some consumer surplus) but also improve efficiency by reducing its own costs. If the cost reductions outweigh the deadweight loss, then overall efficiency is increased (because the confiscated consumer surplus is merely a transfer and does not reduce overall efficiency). So, on the total welfare standard, the transaction would be efficient on net and should be permitted. But on the consumer welfare standard it should be illegal because despite the productive improvements, consumers are left worse off. The same result follows in many cases of price discrimination. In perfect price discrimination, for example, the price discriminating monopolist can keep output at the competitive level but confiscate all consumer surplus. Total welfare is unchanged from competition—in fact, it is optimized—so on a total welfare standard the conduct should be permitted. But on a consumer welfare standard it should be illegal, because consumers are much worse off.

Concentration for Its Own Sake

A second fundamental controversy drove the revolution in competition policy. This has since become more muted, it also remains fundamental. The question is over the degree to which law should regulate concentration for its own sake, as opposed only to conduct.

That issue was posed directly during the 1950s and 1960s by an influential academic literature putting forward what came to be known as the “structure-conduct-performance” paradigm (SCP). Associated principally with the economists Edward Mason of Harvard and his student Joseph Bain of Berkeley (e.g., Bain, 1956, 1951; see also Hovenkamp, 2009), SCP was a movement of academic economists who espoused the same marginalist economics as their Chicago critics. However, within the developing theory of the day, they found reason to believe that concentration itself would systematically lead to market power. For some decades leading up to the 1970s, they purported to prove it through a series of studies comparing average accounting profits with industry concentration. Their results dominated the antitrust policy of the day, which as a result became uncompromisingly strict, especially in the law of mergers, monopolization, and vertical restraints (Hovenkamp, 2009).

Separately, certain political developments of the 1960s and 1970s helped bring the controversy to a head. In part on the strength of the SCP literature, advocates and some members of Congress advocated a change in U.S. antitrust law to permit direct attacks on concentration without any evidence of bad conduct or anticompetitive effect. An expert panel appointed by President Lyndon Johnson in 1969 (White House Task Force on Antitrust Policy, 1969) urged an affirmative deconcentration law that would have empowered the breakup of larger firms without evidence of anticompetitive conduct or harm. Any number of other proposals for deconcentration or no-fault monopoly rules surfaced in Congress and enjoyed lengthy consideration, especially before the Senate antitrust subcommittee under Chairman Philip Hart. Though none of those initiatives became law, they generated intense controversy in popular and policy debate. Meanwhile, the U.S. federal enforcement agencies maintained an aggressive enforcement program in mergers and monopolization during the 1960s and 1970s, stressing their view that large concentrations should be illegal without elaborate evidence of conduct or harm, and that program, too, generated significant controversy (see Kovacic, 1989).

Chicago’s response was severe, and at length its methodological attacks on SCP would prove so decisive that, as much as any other single argument, they drove the revolution that occurred in that period in competition policy. Above all, the influential Demsetz (1974) created deep doubts about inferences drawn by the SCP movement from accounting data. In part that paper was devoted to a position that has never generally been widely believed. It argued that market power was rarely possible except through the government’s own interference. But in the course of defending it, Demsetz elaborately critiqued the SCP methodology and especially inferences drawn from accounting data. Aside from well-established problems in compiling those data themselves, Demsetz stressed the variety of ways that accounting profits may mischaracterize economic profits. For example, accounting rules would not treat as a cost the significant returns to capital that could appropriately count as economic costs where a firm heavily invests in innovation or can otherwise reasonably expect to generate large growth.

As some latter-day defenders observe (e.g., Hovenkamp, 2009), the SCP literature’s reductionism could actually have been a strength, in part because it avoided the ambiguous, theoretically fraught assessment of conduct in markets that are neither perfectly competitive nor monopolized. However, criticisms of SCP methodology were widely influential and went largely unanswered. In fact, Demsetz (1974) and others were so influential that economists mostly abandoned direct study of concentration and market power. That work was not taken up again until a new econometric literature studying merger consequences emerged in the early 2000s. (That newer literature is discussed in “Merger and Acquisition,” below.)

The conflict remains to some degree fundamental, even though it often figures less explicitly in debate. In American law since the 1970s, and to some lesser extent in Europe and elsewhere, a common refrain is that the law is unconcerned with size or even market power but only anticompetitive conduct. That value is manifested for example in the strict and frequently emphasized principle of American monopoly law that mere power in itself is not illegal. It violates the law only where it is gotten or maintained by “exclusionary” conduct. In the United States, courts have made even merger law—the one American rule even nominally concerned with concentration as such—increasingly difficult to enforce, typically now requiring proof of extremely large market concentrations and elaborate demonstrations of the likelihood of future harm.

Net Benefits

It is remarkable, given the near-global diffusion of competition laws, how little real evidence there is whether they have net positive effects. Not to say there is particular reason to believe they do not, but systematic study of the question remains limited. Direct empirical study of the law’s consequences is complicated by certain serious problems. Even if they are effective, antitrust rules would often work primarily at the margin, and their effects could be swamped by other factors affecting a given market. Study of antitrust on any more than a market-by-market level also poses a serious counterfactual problem. Counterfactuals can be approximated in study of individual markets by difference-in-difference econometric study, and some such evidence is emerging, but those studies tend to be case specific and not easy to generalize into broader conclusions (see Kwoka, 2003).

Emerging evidence suggests several things. The best-established empirical result so far is that the most serious anticompetitive conduct—hard-core, horizontal price or output restraints—is probably quite harmful, and preventing it produces substantial social benefits. Evidence has begun to show that cartels are more effective and may last longer than theory had predicted (Baker, 2003, 2017; Connor & Lande, 2012; Levenstein & Suslow, 2011). In particular, it seems likely that cartels are so profitable on average that even the notoriously tough American enforcement system, which couples stiff criminal penalties and a robust federal enforcement program with treble-damages private enforcement, is an insufficient deterrent (Connor & Lande, 2012).

Second, some evidence is emerging that merger and consolidation are more serious than had been thought, though this work remains mostly new and its findings and policy implications remain sharply contested. The debate is discussed in more detail in “Merger and Acquisition,” below. If the evolving consensus holds, however, and it more firmly demonstrates that mergers at comparatively small levels of concentration pose danger, it will suggest that merger enforcement is net beneficial.

Finally, there is some comparative evidence suggesting that antitrust enforcement has general benefits. Some cross-border studies have shown that a vigorous national competition policy improves productivity and economic performance and may be more important in this respect than differences in labor, capital markets, and macroeconomic policy (Baker, 2017, p. 10, notes 63–65). The explanation could be that vigorous competition prepares domestic firms better to weather international competition.

Beyond these points, however, little evidence exists. Even this evidence—except perhaps for that concerning hard-core cartels—remains new and contested, and attempts to measure the overall effects of antitrust enforcement more generally have been inconclusive and extremely controversial (see, e.g., Stigler, 1966; as to the bitterness of the controversy, compare Crandall & Winston, 2003, with Baker, 2003; Kwoka, 2003; Werden, 2003).

Accordingly, debate about the effectiveness of competition policy is still left mainly to theory and rhetoric. A large but purely theoretical literature has consumed much of the debate in America, leaning heavily on so-called decision theory. The debate frames the general question of how to write any given antitrust rule as whether the risk is greater of making a “false positive” or a “false negative.” That is, decision theory in antitrust asks whether a mistaken determination that conduct is illegal is more socially harmful than a mistaken determination that it is not. Critics urging that approach borrowed it from statistics and social science. They made generous use of the fact that, in that context, the bias is strongly in favor of avoiding “false positives.” That is so because in statistics and social science the only real issue is whether or not to consider some hypothesis properly proven. As a consequence, the influence of decision theory in antitrust has been heavily pro-defense. Its critics object, because in legal contexts actual government decisions must still be made. In contrast to statistics and social science, rejecting a hypothesis is not merely academic. It has the effect of systematically failing to stop illegal conduct, which may be harmful. Moreover, the various arguments of antitrust critics that false positives in antitrust are more serious—because they may chill pro-competitive conduct, whereas false negatives are likely to be cured by markets themselves (Easterbrook, 1984)—lack any real empirical foundation (see Baker, 2015; Devlin & Jacobs, 2010). In most systems, moreover, a strong bias against enforcement seems contrary to the law’s fairly evident legislative intent. Nevertheless, the decision-theory approach, including its heavy skepticism, has won significant sway with courts and policymakers and has been endorsed by the U.S. Supreme Court (see, e.g., Verizon Commun. Inc. v. L. Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 [2004]).

In the end, normative antitrust debate raises questions that are inherently empirical. But studying them empirically is difficult, and such evidence as exists is mostly controversial. Antitrust debate therefore remains, to some apparently irremediable degree, political (Jacobs, 1995).

Specific Problem Areas

Horizontal Relationships and the Problem of Desirable Collaboration

Most competition regimes limit collaboration among “horizontal” competitors (meaning those who compete head to head), offering substitute goods to the same customers. Most systems consider certain horizontal collaborations to be among their most serious concerns. Where they restrict price or output and do nothing else, they are known as “naked” or “hard-core” price-fixing or cartel. That conduct is typically flatly prohibited and is severely punished.

Such controversy as there is over horizontal restraints rarely involves hard-core conduct. Rather, it concerns how to fashion rules for more ambiguous collaborations that seem to pose both anticompetitive risks and opportunities for procompetitive gain. Measuring the effects of these sorts of economic integration has been called the “central issue confronting antitrust policy,” and one as to which “there is . . . no easy way to distinguish desirable from undesirable transactions” (Brodley, 1982, p. 1523). Generally speaking, however, non-hard-core horizontal conduct has become quite difficult to challenge legally, both because the standards that apply to it are deferential to defendants and because in many jurisdictions special exemptions exist to protect research and production collaborations, standard setting, and other horizontal conduct thought to be desirable.

Vertical Relationships and Distribution

By contrast to horizontal arrangements, the economic and legal debate surrounding vertical restraints is vast, complex, and controversial.

Vertical restraints are those between parties who are at different levels in the chain of distribution of the same good. So, for example, a manufacturer of television sets is in a vertical relation with the wholesalers and retail stores that deliver its televisions to the consumers. A chief difference between horizontal and vertical relationships is that, unlike horizontal ones, vertical relationships essentially must exist. Except for the simplest businesses that distribute directly to local customers, all businesses need relations of supply and distribution. Those relations will essentially always involve contractual restraints and ongoing communications of a kind that would be much more suspect in horizontal relationships. A second peculiarity of vertical relations is that although they must exist and are generally mutually beneficial, they are also always adversarial to some degree. A maker of a good and every party that participates in distributing it is eager to secure the largest piece of what ultimately is a finite maximum pie of revenue that can be earned from end-use consumers (see, e.g., Steiner, 2004). Accordingly, the history of mass market capitalism has largely been one of conflict and varying patterns of restraints among manufacturers and sellers, which they all claim are needed to protect their own interests and that they tend to explain in different ways. In particular, as distribution sectors became much more competitive during the mid- and late 19th century, vigorous opposition arose among smaller wholesalers and retailers to the price-cutting innovations of growing firms and especially chain stores. Their opposition took the form of widely orchestrated vertical restraints meant to curb retail price cutting (see Levinson, 2011; Palamountain, 1955; Peritz, 2007). Ever since, competition law and economic theory have struggled to understand when vertical restraints are desirable and when not.

Traditionally, American law has been harshly opposed to vertical restraints. It was especially opposed to vertical price fixing—agreement between a seller and buyer as to the price at which the good could be resold, also known as “resale price maintenance” or RPM—and for much of the history of the law, it was flatly prohibited (Dr. Miles Medical Co. v. John D. Park & Sons, 220 U.S. 373 [1911]). American law even briefly prohibited all vertical restraints, between 1967 and 1977, such that distribution agreements could not even set exclusive territories or otherwise limit competition among distributors (under United States v. Arnold, Schwinn & Co., 388 U.S. 365 [1967], rev’d Continental T. V. v. GTE Sylvania, 433 U.S. 36 [1977]). The U.S. ban on RPM was not lifted until 2007 (Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 [2007]), but it had been fiercely criticized under the influence of the Chicago movement. RPM can still be challenged under U.S. law but under the much more permissive “rule of reason” standard, and challenges to RPM are now uncommon. Meanwhile most other competition systems have also made RPM subject to challenge and for the most part have dealt with it more harshly than the United States now does.

The economic defense for RPM and other distribution restraints rests heavily on the reasoning in Telser (1960). In brief, the argument is that in some cases a manufacturer may benefit from services provided by distributors that are expensive for the distributor to provide. Unless the distributor can be protected from price competition by other distributors of the same good, it may choose not to provide the services because it could not recoup the cost. One may think that if the service is in fact useful to consumers, it would still be valuable for the distributor to provide because consumers would pay more for it. But as Telser observed, there is a chance that would not happen if consumers could consume the service—as by visiting a showroom to see a demonstration—but then buy the product from a competing, price-cutting distributor that does not provide the service. This came to be known as the “free riding” explanation for RPM, and it became extremely influential with courts. It was on Telser’s reasoning that the U.S. courts first substantially liberalized the antitrust treatment of non-price vertical restraints in the Continental T.V. case above, and then liberalized the treatment of RPM itself in Leegin in 2007.

The economic and legal literature on vertical restraints has become vast, and theorists have come up with a number of other explanations for vertical restraints—such as that preventing discount retail pricing and thereby keeping them only in higher prestige retail outlets—can give products a quality certification (Marvel & McCafferty, 1985).

However, the arguments for free riding, quality certification, and other defenses of vertical restraints have faced much criticism, and even strong defenders of vertical restraints acknowledge that much observed RPM is not explained by standard justifications (Klein, 2009). Probably the most significant basis for doubt, at least of justifications for RPM, is just the simple historical observation that RPM has tended to be fairly unstable when used and that sellers of similar products have not used it consistently over time or across territories (Grimes, 2010). But there is also some evidence that RPM may generally cause harm without providing much benefit (Mackay & Smith, 2014).

Finally, however, as for non-price vertical restraints, there is consensus that they are usually less harmful than RPM (Grimes, 2009). Challenge to them under U.S. law is now rare. There remains some significant controversy over some non-price vertical restraints, mainly because a handful of specific non-price restraints were traditionally subject to special and typically harsher rules. They include tying, bundling, volume discounts, and related arrangements. Though actual courtroom challenges to those restraints are also rare, they continue to generate substantial academic controversy (e.g., Elhauge, 2009). There also has emerged a theoretical literature concerning “most-favored nation” agreements (e.g., Baker, 2013a), under which one party agrees to give the other terms at least as desirable as those given to anyone else. Separately, there had for a time been special rules governing exclusive contracting—vertical agreements providing that one or both parties would not do business with others for the same good. However, because exclusivity claims are rarely made in the absence of large market shares, they mainly are challenged as components of the “exclusionary conduct” required for monopolization claims (described in “Monopolization or Abuse of Dominance,” below).

One respect in which U.S. and European Union law differ most dramatically is in their handling of vertical restraints. The European Union rules have always been stricter, and the divide grew substantially after the liberalization of U.S. rules in the 1970s. As they exist, European Union rules make most price and non-price vertical restraints presumptively illegal for any firms with sizeable market shares—some of them more or less conclusively so—and permit exemptions only for restraints that follow specific formal guidelines. The system has generated substantial controversy in Europe (see Czapracka, 2017; Subiotto & Amato, 2001).

Monopolization or Abuse of Dominance

Most competition regimes also specifically control unilateral conduct. Unilateral conduct enforcement has been controversial in the United States. Critics have claimed that it poses uncommonly serious risk of chilling procompetitive conduct, because to a greater degree than with horizontal agreements, unilateral exclusionary conduct will tend to look like ordinary competition. Most controversial of all, for example, has been “predatory” pricing. Pricing is predatory where it is designed to drive out competition, with the goal being to preserve power to raise prices supracompetitively. While competition law has always provided that in appropriate cases it could be anticompetitive and therefore illegal, critics argue that except where prices are set desperately low with obvious anticompetitive purpose, the possibility that it could be illegal would just perversely deter vigorous price competition. (See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 [1993]; Areeda & Turner, 1975.)

U.S. law has sharply distinguished between unilateral and multilateral since the early 1980s, largely over this concern that unilateral exclusionary conduct is difficult to distinguish from ordinary competition (Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752 [1984]). It has since been much more difficult under U.S. law to challenge it than to challenge multilateral agreements. That fact in and of itself has been the focus of substantial controversy (e.g., Baker, 2013b; Sagers, 2011; see also Hemphill & Wu, 2013). Meanwhile, the treatment in Europe is generally said to be less deferential to defendants. Europe also differs in that there it can be illegal and trigger monetary penalties merely to use monopoly power. In the United States, it is never illegal simply to have or even to use market power once obtained. So, for example, a firm may be found to have acquired a powerful and unchallenged position not through exclusion but by having competed well or enjoyed large-scale economies or the like. Under U.S. law it would not then be illegal for the firm simply to raise its prices, even to a monopoly price-maximizing level.

Debate on monopolization matters is extensive and centers mainly on what kinds of conduct can be “exclusionary” and therefore illegal. Courts have found any number of kinds of conduct potentially exclusionary, and many courts emphasize that, as of yet, no definitive list or comprehensive theory of exclusionary acts can be stated. Rather, because “the means of illicit exclusion, like the means of legitimate competition, are myriad,” the courts still approach cases on a case-by-case basis (United States v. Microsoft Corp., 253 F.3d 34, 58 [D.C. Cir. 2001]). Nevertheless, certain kinds of conduct are routinely asserted in monopolization cases, and they are each the subject of their own academic literatures. They include predatory pricing (e.g., Hemphill & Weiser, 2018); exclusionary product innovations; exclusive contracting; refusals to deal or denial of necessary assets (Shelanski, 2009); tying, bundling, and volume discounts (Elhauge, 2009); actions designed to “raise rivals’ costs” (Krattenmaker & Salop, 1986), and various kinds of conduct referred to as “cheap exclusion” (Creighton, Hoffman, Krattenmaker, & Nagata, 2005). They occasionally include more exotic actions such as physical destruction of competitors’ promotional displays or other acts of violence or criminal or tortious coercion (e.g., Conwood Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768 [6th Cir. 2002]).

But there also has been extensive academic debate over whether there may be some more comprehensive, generalizable theoretical definition that could govern all exclusion claims, and the search for some such standard has been something of a holy grail effort. (For just a few of the major entries in this large body of literature, see Elhauge, 2003; Salop, 2006; Werden, 2006). All such efforts remain controversial, however, presumably because the adoption of any proposed standard could have significant consequences on litigation. Many proposals, for example, would amplify the reasoning of the U.S. Supreme Court’s case law in predatory pricing (most importantly Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 [U.S. 1993]) and refusals to deal (most importantly Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 [1985]) and require that all claims of exclusion require proof of some sacrifice of profits or even of sales at overall loss (e.g., Werden, 2006). Critics claim such tests would be substantially underinclusive and make monopolization too difficult to prove, without good reason (e.g., Salop, 2006).

Merger and Acquisition

Interestingly, there have not always been corporate acquisitions or growth by consolidation, at least not in large numbers (Taylor, 1998). However, a large wave of mergers occurred around the turn of the 20th century in conjunction with the American industrial revolution, a period known as “the Great Merger Movement.” Since then mergers and acquisitions have remained common, and a half-dozen or so major waves of them, occurring every few decades, have reshaped whole industries.

Mergers and acquisitions can be challenged as anticompetitive under most competition laws. Typically, parties to larger transactions must file notice with a government agency within a jurisdiction in which one of them does business, and the agency then has some authority to approve or deny the transaction, perhaps conditioning it on divestitures of particular assets or other terms. That prospective review is thought to be necessary because the agencies find after-the-fact legal challenge to consummated mergers difficult. While they may be no less able to demonstrate to courts that a given merger is anticompetitive, the courts are much more reticent to enter effective relief after a merger has been consummated, and they often refuse to enter any relief at all (Elzinga, 1969). Accordingly, when the United States adopted one of the first merger-review laws in 1976, it was the result of many decades of agitation for such a law (Sullivan, Grimes, & Sagers, 2016).

For much of law’s modern life, controversy surrounding mergers was mainly theoretical. There had been a relevant empirical literature up until the early 1970s. American merger policy between World War II and the early 1970s came to be dominated by the structure-conduct-performance paradigm (SCP), discussed in “Concentration for Its Own Sake,” above. In part because of it, American antitrust treatment of mergers grew to be quite aggressive by about the mid-20th century, such that virtually any horizontal, vertical, or conglomerate deal was at risk. In particular, any horizontal deal involving even small concentration increases was likely illegal. Much controversy surrounded that policy, and among other things it generated probably the most famous single quotation in antitrust history. Dissenting from a 1966 Supreme Court decision finding a merger illegal—though the parties were comparatively small and the market unconcentrated—Justice Potter Stewart complained that “the sole consistency” he could find in the merger law of that era was that “the Government always wins.” (United States v. Von’s Grocery Co., 384 U.S. 270, 301 [1966] [Stewart, J., dissenting]).

That state of the law began to unravel with academic attacks on the SCP literature itself, as discussed in “Concentration for Its Own Sake,” above. For some decades thereafter, merger policy was made largely without empirical input, until a new econometric literature began to appear in the mid-2000s. In the meantime, taking SCP’s place were two bodies of theoretical critique that arose during the 1960s and 1970s, and they largely drove all merger policy during that period. First, various writers began more systematically to theorize possible efficiency gains from merger (most importantly Williamson, 1968), and they tended to imply that gains would frequently outweigh harms. Second, a theoretical claim came to be influential that mergers and acquisitions operate within a “market for corporate control” that generates social benefits when it functions properly. The argument is that firms under ineffective management will tend to be underpriced, and acquirors by definition are those who believe they can operate them more efficiently (Manne, 1965). For a time, the market-for-corporate-control hypothesis attracted its own empirical support (e.g., Jensen & Ruback, 1983), though it was fairly short lived, as contrary evidence soon emerged and serious flaws were explained in the “event-study” approach on which it was based (see, e.g., Gugler, Mueller, Yurtoglu, & Zulehner, 2003). Meanwhile, however, critique of those theoretical bases, on which merger law was made more limited and permissive, was sustained and vigorous (e.g., Fisher & Lande, 1983).

As mentioned, a new empirical literature began to emerge in the 2000s that provided some of the first evidence of the competitive effects of mergers since SCP was abandoned in the 1970s. On the whole, the evidence suggested that mergers may be harmful at lower levels of concentration than previously thought. Most important has been work by the economist John Kwoka, especially a book-length 2014 study comprising meta-studies of existing difference-in-difference estimates of the effects of individual mergers (Kovacic, 2014). Kwoka found that on average horizontal mergers caused harmful price and output effects at concentration levels lower than those at which American enforcers currently bring challenge. Kwoka also finds that merger remedies routinely imposed by the U.S. federal enforcement agencies are not very effective.

Because Kwoka’s work has been to some extent a critique of the American enforcement agencies, it drew a harsh reply on methodological grounds from staff economists at the U.S. Federal Trade Commission (Vita & Osinski, 2016; Kwoka’s response is in Kwoka, 2017). Some also question the use of empirical merger studies in making policy rules, since they are necessarily imperfect methodologically, and given the possibly very fact-dependent, idiosyncratic nature of individual mergers, it may be difficult to generalize policy guidance even from large numbers of studies (Simpson & Schmidt, 2008; Werden, 2015). For what it may be worth, in any case, Kwoka’s work has been corroborated by a number of studies from the agencies themselves (see, e.g., Pautler, P. W., Federal Trade Commission 2001; Saltzman, Levy, & Hilke, 1999) and from other researchers (see, e.g., Ashenfelter, Hosken, & Weinberg, 2014; Ashenfelter & Hosken, 2010; Blonigen & Pierce, 2016).

One wholly separate problem is that in addition to the horizontal mergers with which almost all of the foregoing is concerned, and that have been virtually the sole concern of merger policy for some decades, firms can also engage in vertical and conglomerate mergers—and in principle either can be challenged under the law. A “vertical” merger is between firms that do not compete head to head but who buy or sell some product or service to one another. A “conglomerate” merger is between two firms that are in neither a horizontal nor vertical relationship. They may produce the same products but in different geographical markets, or wholly unrelated products. There is persistent theoretical discussion of vertical mergers and some consensus that they can sometimes cause harm (e.g., Hovenkamp, 2010; Salop, 2018). There is comparatively little discussion of conglomerate mergers (however, see Church, 2008). Challenge to either kind of merger, in any case, is now extraordinarily rare and has been for decades.

Finally, there also has been some criticism of the separate policy of pre-consummation merger review. While it is in general a widely accepted and supported component of contemporary enforcement, critics object to the fact that filing can be expensive and burdensome for merging parties and that overall the system is large but results in few actual challenges. In the United States, for example, essentially all large mergers require filing, but only about 1% are subjected to any meaningful review or challenge (Sims & Herman, 1997). There also has been criticism that overlapping and sometimes conflicting regimes in different jurisdictions have come to cause unnecessary burden. Some 80 different countries now maintain pre-consummation review systems, such that large border-crossing mergers may require separate filings, and compliance with different waiting periods, in dozens of countries (Fox, 2015).

Scope, Exemptions, and Clemencies

A problem common to most competition systems is that by their nature they apply broadly. Most such laws apply in principle to all private commercial conduct and, depending on the jurisdiction, to some state conduct as well. Moreover, they typically purport to apply the same relatively simple rules of competition law, in more or less the same way, to all conduct to which they apply. In other words, national competition laws may subject huge economies, comprising many millions of persons and billions or trillions in wealth, to a handful of simple rules and expect them all to comply. Separately, however desirable it may or may not be for the policy to apply in any given context, defendants have strong incentives to urge that special circumstances of their particular markets require exceptions or special treatment.

And so a problem common to all competition systems, and one that they all have addressed through complex, contested, and problematic solutions, is that sometimes exemptions are required for special cases. In the United States the problem is addressed through dozens of statutory exemptions and a range of special judge-made rules worked out through thousands of judicial opinions. Europe likewise has had a special exemption system since the beginning of its competition law. For many years it has been administered through a “block exemption” process, by which the European Commission provides general exemption for particular markets or kinds of conduct. As in the United States, the process has been complex and generated much controversy (see Sagers, 2015).

The question whether antitrust should apply in any given context tends to resolve to whether that context should itself be subject to competition and to whether some special feature or market failure requires protection from price rivalry. In the early U.S. history it was widely thought that utilities, transportation, and other infrastructure industries faced destructive competition or natural monopoly risks, and so they were largely removed from antitrust and subjected to regulation instead (Hawley, 1966; Kahn, 1971). Even as those exemptions were largely repealed or limited in the 1970s and 1980s, during a period known as “deregulation,” various other exemptions were adopted over time for specific markets or specific kinds of conduct. However, they generally have become fairly strongly disfavored, both in the United States and elsewhere, and the trend in most jurisdictions has been to repeal or limit them wherever possible (Sagers, 2015).

Meanwhile, wholly separately from industry or conduct-specific exemptions based on claims of economic idiosyncrasy, most jurisdictions also provide special exemptions for reasons of political structure or for other social reasons. Most jurisdictions exempt collective labor organization from antitrust, for example. It is in these other areas that some interesting differences among jurisdictions arise. For example, most jurisdictions have special rules governing how antitrust should apply to actions of government organs. Government entities frequently take action that could restrain competition, perhaps to serve other social goals or perhaps the parochial interests of the groups that requested it. Depending on whom one asks, for example, either explanation could apply to the many rules that most jurisdictions apply to the licensing and conduct of the learned professions. In any case, the way that a competition regime will deal with these kinds of restraints will tend to reflect the particular structures and history of the jurisdiction’s political institutions. In the United States, the state governments have traditionally enjoyed a powerful and privileged policymaking position, and so U.S. antirust gives them broad freedom to structure their internal trade policies as they see fit (Elhauge, 1991, 1992). In Europe, by contrast, where European Union law was devised precisely to limit the ability of member states to privilege their own domestic industries, the competition law is intolerant either of direct aid to domestic industries or of national laws that purport to exempt them from competition rules (Fox, 2015).

Private Enforcement

By far the most discussed and controversial enforcement matter for many years has concerned private lawsuits to recover money damages.

While private enforcement has always been part of the U.S. system—a private, treble damages provision appeared in the original Sherman Act of 1890—the United States was until fairly recently almost alone in authorizing it. Only Europe has made significant strides toward creating vigorous private enforcement, but the movement even there bore no real fruit until about the 1990s, and it remains only a relatively small part of the European law. A smattering of European states had recognized private damages actions under their national competition laws during the 1990s (Woods, Sinclair, & Ashton, 2004). It was not until a 2001 decision of the European Court of Justice (Judgment of the ECJ of 20 September 2001 in Case C-453/99 Courage Ltd v. Bernard Crehan and Bernard Crehan v. Courage Ltd and Others [2001] ECR 1) that a private cause of action was recognized under European Union law itself. Private enforcement was given attempted boosts in a European Commission regulation of 2003, which was meant to decentralize competition enforcement to the member states and their courts (Council Regulation [EC] No 1/2003, O.J. L 1 [April 1, 2003]), and again in a 2014 directive meant to clear away procedural and other obstacles within various member states that were thought to impede private enforcement (Directive 2014/104/EU of the European Parliament and of the Council, O.J. L 349 [Nov. 26, 2014]). For all that, however, private enforcement has widely been thought to be ineffective in Europe (European Commission, 2008), and as a means of enforcement it appears to remain distantly secondary there (OECD, 2015).

The delay in the spread of private enforcement may owe something to the controversy it has suffered in the United States. Criticism of private enforcement actually drove much of the Chicago movement. Antitrust critics of the 1960s through the 1980s were deeply preoccupied by the purportedly perverse incentives of private antitrust plaintiffs. Critics believe antitrust is susceptible to private abuse for several reasons. Traditionally a major concern was that antitrust challenge is tempting to competitor plaintiffs who may try to persuade courts that lost profits resulting from nothing more than competition were in fact caused by some illegal restraint. Whether or not that was a meaningful problem, it has been probably fairly neutralized by latter-day court rulings, particularly concerning standing to sue, that make it much more difficult for competitor plaintiffs to sue (e.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 [1977]).

The more significant concern now is that private enforcement incentivizes the filing of frivolous suits and coercive settlement of unmeritorious claims. Both problems arise from the availability of treble damages and collective enforcement by the class-action device. As for treble damages, interestingly, the 1890 Congress authorized them only because it was thought at the time that antitrust injuries would ordinarily be so small that they could not justify the filing of a lawsuit. The typical injury, it was thought, would be the overcharge in purchase price of a retail consumer good, resulting from cartel or monopolization, and the individual consumer would find such a recovery smaller than the cost of suit. Since then, however, class actions have become available. Moreover, some individual actions, particularly between large firms, can involve serious injuries. Accordingly, antitrust recoveries in the tens and hundreds of millions of dollars are now common, and occasionally they reach into the billions.

And indeed, in a variety of ways American law entered a sharply reactionary period against private enforcement in the 1980s. Stressing the purported danger of frivolous suits and coercive settlements, Congress imposed new restraints on class actions (see Class Action Fairness Act of 2005, Pub. L. No. 109–2, Feb. 18, 119 Stat. 4 [2005]), while the courts imposed a whole series of substantial limits, concerning pleading, forced arbitration (without opportunity for class treatment), class certification, and other matters (Waller & Popal, 2016).

These same issues have been at the heart of European debate. There has been substantial concern whether European courts should permit collective enforcement, multiple damages, extensive discovery, and so on (see, e.g., Woods, Sinclair & Ashton, 2004; European Commission, 2008; Rüggeberg & Schinke, 2006).

Competition and Innovation

Innovation poses policy issues in antitrust in two different ways. First, competition policy goals can sometimes conflict with other policies meant to encourage innovation, most significantly the intellectual property laws. The tension is obvious. Competition law requires firms to compete and takes market power as its most basic evil. Intellectual property on some level is the opposite. It purports to create a period of market power, to protect fixed cost recoupment, and to encourage innovation by rewarding it with a bounty of supra-competitive profit. For the most part, that tension in itself poses no real problem of conflict with antitrust law: where conduct involves protected intellectual property, it is much more broadly permissible under antitrust. That is, antitrust rules just provide that conduct involving intellectual property is broadly permissible, even in circumstances in which it may be illegal in the absence of intellectual property. Some issues at the interface of antitrust and intellectual property, however, are uncertain and have been controversial.

In any case, innovation poses a second issue for competition policy, and it has generated significant debate. Competition itself serves not only the goal of static allocational efficiency, but at least in principle it can also encourage innovation. Firms vying for one another’s customers may compete not only on price but also by devising new and better goods. But whether or when this really happens is an open question. The debate has been framed mainly by two famous works. Schumpeter (1942) argued that monopoly could drive innovation. In a process he described as “creative destruction,” he thought that the race for monopoly spurs innovation and that when one firm gets monopoly, it invites others to unseat it by innovation to set up their own monopolies. By contrast, Arrow (1962) argued that for several reasons, vigorous competition pressures firms to innovate. And thus innovation concerns have informed competition policy as well as intellectual property policy, and some argue that the prospect of spurring more innovation is a reason for more aggressive antitrust. However, while vast theoretical and empirical literatures attempting to answer whether more or less competitive conditions are better for innovation, there still are no compelling answers. The best-known and most comprehensive survey of the evidence to date concludes that there is no more support for one position that for the other (Gilbert, 2006).

Competition in Developing and “Small Market” Economies

Most nations’ economies are now, at least in principle, market based, and most of them have adopted competition laws. Even China, the world’s most significant remaining Communist nation, now has a competition law. As mentioned above, along with the wide and rapid global diffusion of these laws has come strong pressure toward “convergence.” That is, nations favoring competition policies have not only urged other nations to adopt them but have also urged that all nations’ laws be harmonized in substance and goals.

While convergence is generally said to have been a substantial success and enjoys fairly wide support, it has faced resistance on at least two grounds. First, developing nations have often objected. For one thing, until the late 20th century, most developing nations had no such law. So, to comply with demands for convergence, they had to adopt new laws, and setting up meaningful competition programs tends to be resource intensive. Moreover, if pursued vigorously, competition laws can cause disruptive change in economies. Often they entail norms—rough rivalry and scrupulous care to avoid improper collaboration—that in developing economies may seem culturally alien. Probably a more important problem for developing nations is that in fact they consider development policy more important than competition, and they find development goals to conflict with vigorous domestic competition policies (see Woolcock, 2007).

A second basis for objection, even among developed nations, has been that the antitrust ideal may not be well suited to small economies. In particular, the Israeli scholar Michal Gal has argued that special circumstances of Israel’s small internal markets make the model of vigorous competition ill-suited (Gal, 2003).

Further Reading

General legal authorities

Areeda and Hovenkamp (2018) is far and away the leading authority on specific legal issues within U.S. antitrust law. It holds extensive sway with U.S. courts, having been cited hundreds or thousands of times in federal judicial opinions, including many by the U.S. Supreme Court. It has been cited countlessly within academic literature. However, its massive size—in its current edition it is about three-dozen volumes—and the extraordinary detail of its treatment make it useful mainly for experts. The one-volume Hovenkamp (2015) and Sullivan, Grimes, and Sagers (2016) are more manageable and generally accessible to non-lawyer readers. Student-oriented works such as Crane (2014) and Sagers (2014) are also generally useful and more accessible yet. Motta (2004) and Whish and Bailey (2015) are both excellent, accessible surveys of European Union law.

Areeda, P. E., & Hovenkamp, H. (2018). Antitrust law: An analysis of antitrust principles and their application. Alphen aan den Rijn, The Netherlands: Wolters-Kluwer.Find this resource:

Crane, D. A. (2014). Antitrust. Alphen aan den Rijn, The Netherlands: Wolters-Kluwer.Find this resource:

Hovenkamp, H. (2015). Federal antitrust policy: The law of competition and its practice (5th ed.). St. Paul, MN: West Academic Publishing.Find this resource:

Motta, M. (2004). Competition policy: Theory and practice (5th ed.). Cambridge, UK: Cambridge University Press.Find this resource:

Sagers, C. L. (2014). Antitrust examples & explanations (2nd ed.). Alphen aan den Rijn, The Netherlands: Wolters-Kluwer Publishers.Find this resource:

Sullivan, L. A., Grimes, W. S., & Sagers, C. L. (2016). The law of antitrust: An integrated handbook (3rd ed.). St. Paul, MN: West Academic Publishing.Find this resource:

Whish, R., & Bailey, D. (2015). Competition law (8th ed.). Oxford, UK: Oxford University Press.Find this resource:

General Histories

Gerber, D. J. (2001). Law and competition in twentieth century Europe: Protecting Prometheus. Oxford, UK: Oxford University Press.Find this resource:

Hofstadter, R. (1996). Whatever happened to the antitrust movement. In The paranoid style in American politics and other essays. Cambridge, MA: Harvard University Press.Find this resource:

Letwin, W. (1956). Law and economic policy in America: The evolution of the Sherman Antitrust Act. Chicago, IL: University of Chicago Press.Find this resource:

Thorelli, H. B. (1954). The federal antitrust policy: Origination of an American tradition hardcover. Crows Nest, Australia: Allen & Unwin.Find this resource:

Policy Monographs

Bork, R. H. (1978). The antitrust paradox: A policy at war with itself. New York, NY: Basic Books.Find this resource:

Hovenkamp, H. (1991). Enterprise and American law, 1836–1937. Cambridge, MA: Harvard University Press.Find this resource:

Hovenkamp, H. (2008). The Antitrust enterprise: Principle and execution. Cambridge, MA: Harvard University Press.Find this resource:

Posner, R. A. (1978). Antitrust law: An economic perspective. Chicago, IL: University of Chicago Press.Find this resource:


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Baker, J. B. (2013a). The competitive consequences of most-favored-nation provisions. Antitrust, 27, 20–26.Find this resource:

Baker, J. B. (2013b). Exclusion as a core competition concern. Antitrust Law Journal, 78, 527–590.Find this resource:

Baker, J. B. (2015). Taking the error out of ‘error cost’ analysis: What’s wrong with antitrust’s right. Antitrust Law Journal, 80, 1–38.Find this resource:

Baker, J. B. (2017).Market power in the U.S. economy today. Washington, DC: Washington Center for Equitable Growth.Find this resource:

Blonigen, B. Q., & Pierce, J. R. (2016). Evidence for the effects of mergers on market power and efficiency. NBER Working Paper no. 22750.

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Competition and Markets Authority, Government of the United Kingdom. (2017). Market studies and market investigations: Supplemental guidance on the CMA’s approach.

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Crandall, R. W., & Winston, C. (2003). Does antitrust policy improve consumer welfare? Assessing the evidence. Journal of Economic Perspectives, 17, 3–26.Find this resource:

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Fox, E. M. (2008). An anti-monopoly law for China: Scaling the walls of government restraints. Antitrust Law Journal, 75, 173–194.Find this resource:

Fox, E. M. (2014). Monopolization and abuse of dominance: Why Europe is different. Antitrust Bulletin, 59(1), 129–152.Find this resource:

Fox, E. M. (2015). Antitrust without borders: From roots to codes to networks. Geneva, Switzerland: International Centre for Trade and Sustainable Development and Geneva: World Economic Forum.Find this resource:

Gal, M. S. (2003). Competition policy for small market economies. Cambridge, MA: Harvard University Press.Find this resource:

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Grimes, W. S. (2009). The path forward after Leegin: Seeking consensus reform of the antitrust law of vertical restraints. Antitrust Law Journal, 75, 467–504.Find this resource:

Grimes, W. S. (2010). A dynamic analysis of resale price maintenance: Inefficient brand promotion, higher margins, distorted choices, and retarded retailer innovation. Antitrust Bulletin, 55, 101–149.Find this resource:

Gugler, K. P., Mueller, D. C., Yurtoglu, B. B., & Zulehner, C. (2003). The effects of mergers: An international comparison. International Journal of Industrial Organization, 21, 625–653.Find this resource:

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Hemphill, C. S., & Wu, T. (2013). Parallel Exclusion. Yale Law Journal, 122, 1182–1253.Find this resource:

Hovenkamp, H. (1991). Enterprise and American law, 1836–1937. Cambridge, MA: Harvard University Press.Find this resource:

Hovenkamp, H. (2008). The Antitrust enterprise: Principle and execution. Cambridge, MA: Harvard University Press.Find this resource:

Hovenkamp, H. (2009). United States competition policy in crisis: 1890–1955. Minnesota Law Review, 94, 311–367.Find this resource:

Hovenkamp, H. (2010). The law of vertical integration and the business firm: 1880–1960. Iowa Law Review, 95, 863–918.Find this resource:

Jacobs, M. S. (1995). An essay on the normative foundations of antitrust economics. North Carolina Law Review, 74, 219–266.Find this resource:

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Klein, B. (2009). Competitive resale price maintenance in the absence of free-riding. Antitrust Law Journal, 76, 431–481.Find this resource:

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Kovacic, W. E. (1989). Failed expectations: The troubled past and uncertain future of the Sherman Act as a tool for deconcentration. Iowa Law Review, 74, 1105–1150.Find this resource:

Kovacic, W. E. (2007). The intellectual DNA of modern U.S. competition law for dominant firm conduct: The Chicago/Harvard double helix. Columbia Business Law Review, 2007, 1–82.Find this resource:

Kovacic, W. E. (2010, December 6). Dominance, duopoly, and oligopoly: The United States and the development of global competition policy. Global Competition Review, 39–42.Find this resource:

Kovacic, W. E. (2015). The United States and its future influence on global competition policy. George Mason law Review, 22, 1157–1204.Find this resource:

Krattenmaker, T. G., & Salop, S. C. (1986). Anticompetitive exclusion: Raising rivals’ costs to achieve power over price. Yale Law Journal, 96, 209–294.Find this resource:

Kwoka, J. E., Jr. (2003). The attack on antitrust policy and consumer welfare: A response to Crandall and Winston. Northeastern University Department of Economics Working Paper 03–008.Find this resource:

Kwoka, J. E. (2017). Mergers, merger control, and remedies: A response to the FTC critique.

Kovacic, W. E. (2014). Mergers, merger control, and remedies. Cambridge, MA: MIT Press.Find this resource:

Lande, R. H. (1999). Wealth transfers as the original and primary concern of antitrust: The efficiency interpretation challenged. Hastings Law Journal, 50, 871–958.Find this resource:

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Sagers, C. L. (2015). Handbook on the scope of antitrust. Washington, DC: ABA Section of Antitrust Law Publishing.Find this resource:

Salop, S. C. (2006). Exclusionary conduct, effect on consumers, and the flawed profit-sacrifice standard. Antitrust Law Journal, 73, 311–374.Find this resource:

Salop, S. C. (2018). Invigorating vertical merger enforcement. Yale Law Journal, 127, 1962–1995.Find this resource:

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(1.) A comprehensive list of world competition laws currently in force is maintained by the George Washington University Competition Law Center.

(2.) The name “antitrust” itself is an anachronistic coincidence. During the period in which such a law was first advocated in America (at a time when monopolies were a major public concern) business firms were in a diligent and rapidly evolving struggle to evade state laws that restrained their size and conduct. In particular, some U.S. states limited the size or capital value of corporations organized under their laws or prohibited them from owning subsidiaries. One means by which corporation lawyers evaded those laws was simply by organizing large businesses as “trusts,” in which voting stock in individual firms was contributed to a trust and managed by trustees. The term “trust” for some time was used in America as synonymous with “monopoly,” whether or not the particular firm was formally organized as a trust. Accordingly, the Sherman Act was known as an “anti-trust” law. While “trust” is no longer commonly used to describe large businesses, the term “antitrust” has survived.

(3.) The rules are contained in what is now known as the Robinson-Patman Act, a 1936 amendment to section 2 of the Clayton Act of 1914, which had also prohibited some price discrimination. See Robinson-Patman Act, ch. 592, 49 Stat. 1526 (1936), now codified at 15 U.S.C. §§ 13-13c.