Theory Competition law

1 theory

1.1 classical perspective
1.2 neo-classical synthesis
1.3 chicago school

theory

classical perspective

under doctrine of laissez-faire, antitrust seen unnecessary competition viewed long-term dynamic process firms compete against each other market dominance. in markets firm may dominate, because of superior skill or innovativeness. however, according laissez-faire theorists, when tries raise prices take advantage of monopoly position creates profitable opportunities others compete. process of creative destruction begins erodes monopoly. therefore, government should not try break monopoly should allow market work.

john stuart mill believed restraint of trade doctrine justified preserve liberty , competition.

the classical perspective on competition agreements , business practice unreasonable restraint on individual liberty of tradespeople carry on livelihoods. restraints judged permissible or not courts new cases appeared , in light of changing business circumstances. hence courts found specific categories of agreement, specific clauses, fall foul of doctrine on economic fairness, , did not contrive overarching conception of market power. earlier theorists adam smith rejected monopoly power on basis.

a monopoly granted either individual or trading company has same effect secret in trade or manufactures. monopolists, keeping market under-stocked, never supplying effectual demand, sell commodities above natural price, , raise emoluments, whether consist in wages or profit, above natural rate.

in wealth of nations (1776) adam smith pointed out cartel problem, did not advocate specific legal measures combat them.

people of same trade seldom meet together, merriment , diversion, conversation ends in conspiracy against public, or in contrivance raise prices. impossible indeed prevent such meetings, law either executed, or consistent liberty , justice. though law cannot hinder people of same trade assembling together, ought nothing facilitate such assemblies; less render them necessary.

by latter half of 19th century had become clear large firms had become fact of market economy. john stuart mill s approach laid down in treatise on liberty (1859).

again, trade social act. whoever undertakes sell description of goods public, affects interest of other persons, , of society in general; , conduct, in principle, comes within jurisdiction of society... both cheapness , quality of commodities effectually provided leaving producers , sellers free, under sole check of equal freedom buyers supplying elsewhere. so-called doctrine of free trade, rests on grounds different from, though equally solid with, principle of individual liberty asserted in essay. restrictions on trade, or on production purposes of trade, indeed restraints; , restraint, qua restraint, evil...

neo-classical synthesis


paul samuelson, author of 20th century s successful economics text, combined mathematical models , keynesian macroeconomic intervention. advocated general success of market backed american government s antitrust policies.

after mill, there shift in economic theory, emphasized more precise , theoretical model of competition. simple neo-classical model of free markets holds production , distribution of goods , services in competitive free markets maximizes social welfare. model assumes new firms can freely enter markets , compete existing firms, or use legal language, there no barriers entry. term economists mean specific, competitive free markets deliver allocative, productive , dynamic efficiency. allocative efficiency known pareto efficiency after italian economist vilfredo pareto , means resources in economy on long run go precisely willing , able pay them. because rational producers keep producing , selling, , buyers keep buying last marginal unit of possible output – or alternatively rational producers reduce output margin @ buyers buy same amount produced – there no waste, greatest number wants of greatest number of people become satisfied , utility perfected because resources can no longer reallocated make better off without making else worse off; society has achieved allocative efficiency. productive efficiency means society making as can. free markets meant reward work hard, , therefore put society s resources towards frontier of possible production. dynamic efficiency refers idea business competes must research, create , innovate keep share of consumers. traces austrian-american political scientist joseph schumpeter s notion perennial gale of creative destruction ever sweeping through capitalist economies, driving enterprise @ market s mercy. led schumpeter argue monopolies did not need broken (as standard oil) because next gale of economic innovation same.

contrasting allocatively, productively , dynamically efficient market model monopolies, oligopolies, , cartels. when 1 or few firms exist in market, , there no credible threat of entry of competing firms, prices rise above competitive level, either monopolistic or oligopolistic equilibrium price. production decreased, further decreasing social welfare creating deadweight loss. sources of market power said include existence of externalities, barriers entry of market, , free rider problem. markets may fail efficient variety of reasons, exception of competition law s intervention rule of laissez faire justified if government failure can avoided. orthodox economists acknowledge perfect competition seldom observed in real world, , aim called workable competition. follows theory if 1 cannot achieve ideal, go second best option using law tame market operation can.

chicago school

robert bork

a group of economists , lawyers, largely associated university of chicago, advocate approach competition law guided proposition actions considered anticompetitive promote competition. u.s. supreme court has used chicago school approach in several recent cases. 1 view of chicago school approach antitrust found in united states circuit court of appeals judge richard posner s books antitrust law , economic analysis of law.

robert bork highly critical of court decisions on united states antitrust law in series of law review articles , book antitrust paradox. bork argued both original intention of antitrust laws , economic efficiency pursuit of consumer welfare, protection of competition rather competitors. furthermore, few acts should prohibited, namely cartels fix prices , divide markets, mergers create monopolies, , dominant firms pricing predatorily, while allowing such practices vertical agreements , price discrimination on grounds did not harm consumers. running through different critiques of antitrust policy common theme government interference in operation of free markets more harm good. cure bad theory, writes bork, better theory. late harvard law school professor philip areeda, favours more aggressive antitrust policy, in @ least 1 supreme court case challenged robert bork s preference non-intervention.