The Antitrust Enterprise: Principle and Execution

Citation

Hovenkamp, H. (2008). The Antitrust Enterprise: Principle and Execution. Harvard University Press.

Chapter Summary

Context and Argument

The book starts from the observation that the long argument over what antitrust is for has largely been settled: most scholars and courts now accept that protecting consumer welfare is the aim of the antitrust laws. Hovenkamp's concern is execution. The rules that courts apply are, in his view, unfocused, too complex and inconsistent, and rules matter more than principles in the short run. Antitrust is worth having only if it makes markets work better after the costs of running the system are counted. The book therefore asks how doctrine can be made simpler, more predictable and easier for judges, juries and agencies to administer while remaining faithful to the consumer welfare principle, and it gives particular attention to the disorder of the rule of reason.

Introduction

The introduction traces how the goals of antitrust changed: from a mid-twentieth-century concern with protecting small and inefficient rivals, associated with the Warren Court, to the economics-driven approach that the Chicago School made influential in the 1970s and 1980s. It sets out the consumer welfare principle that the rest of the book takes as its starting point.

Part I: Limits and Possibilities

Chapter 1: The Legal and Economic Structure of the Antitrust Laws. Presents the statutory framework and the economic ideas behind it, including competition, market power and innovation, and the place of cooperation among firms.

Chapter 2: The Design of Antitrust Rules. Considers how rules should be built: broad per se rules against detailed case-by-case inquiry, and the difficulty of turning economic theory into standards that courts can apply.

Chapter 3: The Promises and Hazards of Private Antitrust Enforcement. Weighs private lawsuits as a supplement to public enforcement against the costs of weak claims and heavy litigation.

Chapter 4: Expert Testimony and the Predicament of Antitrust Fact Finding. Looks at the dependence of antitrust cases on economic experts and at the problems courts and juries face in evaluating that evidence.

Part II: Traditional Antitrust Rules

Chapter 5: Unreasonable Exercises of Market Power. Introduces market power and the conduct that makes its exercise unlawful.

Chapter 6: Combinations of Competitors. Covers agreements among rivals, from price-fixing cartels to joint ventures, and the tests for deciding when they are unlawful.

Chapter 7: Dominant Firms and Exclusionary Practices. Examines how a dominant firm may lawfully compete and when its conduct excludes rivals unlawfully.

Chapter 8: Antitrust and Distribution. Treats vertical arrangements between manufacturers and distributors, such as resale price maintenance and exclusive dealing.

Chapter 9: The National Policy on Business Mergers. Explains merger policy and the balance between blocking consolidations that reduce competition and allowing those that create efficiencies.

Part III: Regulation, Innovation, and Connectivity

Chapter 10: Antitrust under Regulation and Deregulation. Looks at the relationship between antitrust and sector regulators, and at the shift of regulated industries toward competition.

Chapter 11: The Conflict between Antitrust and Intellectual Property Rights. Addresses the tension between rights that confer exclusivity to encourage innovation and a law that restrains exclusionary conduct.

Chapter 12: Network Industries and Computer Platform Monopoly. Considers industries with network effects and the problems of monopoly in computer platforms.

Antitrust Reform

The closing chapter returns to the book's theme and sets out proposals for improving the design and administration of antitrust. It is followed by notes (about fifty pages) and an index.

Key Concepts

Introduction and Part I

• Consumer welfare principle: the view that antitrust should aim at low prices, good quality and innovation, not at shielding competitors.
• Market power: a firm's ability to profit by raising price above the competitive level, the central concern of most antitrust doctrine.
• Rule design: the choice between simple, predictable rules and detailed inquiries, judged by the administrative costs of each.
• Private enforcement: damages suits by injured parties, valuable as a supplement to government action but costly if weak claims proceed.

Part II

• Per se rule and rule of reason: categorical condemnation of some practices versus a balancing of their effects; the book treats the latter as in need of repair.
• Exclusionary practices: conduct by a dominant firm that raises rivals' costs or keeps them out, as distinct from vigorous competition.
• Vertical restraints: agreements between a manufacturer and its distributors that can serve competition or harm it.
• Merger review: the assessment of whether a combination is likely to reduce competition, weighed against efficiencies.

Part III and Reform

• Regulation and antitrust: the division of work between sector regulators and general competition law.
• Intellectual property and antitrust: the limits that competition law places on the use of patents and similar rights.
• Network effects: the feature of some markets in which a product becomes more valuable as more people use it.

Critical Analysis

Strengths

• A clear thesis about execution. Because the book assumes the goals debate is over, every chapter asks the practical question of how a rule will work in court. The publisher presents it as a compact exposition of antitrust law offering coherent, workable solutions rather than a catalogue of cases.
• Economics used in service of doctrine. The Chicago and post-Chicago schools are discussed as tools for designing rules, so a law student can see why the leading cases came out as they did.
• A balanced treatment of enforcement. The chapters on private enforcement and expert evidence deal with the institutions that apply the rules, not only the rules themselves. These are topics that many shorter introductions leave out.
• Compact scope. Twelve chapters in three parts, about 310 pages of text, cover monopolization, collusion, distribution, mergers, regulation, intellectual property and networks.

Limitations

• Not a beginner's primer. The book is an argument about how to reform doctrine, and it expects readers to know the main statutes (the Sherman and Clayton Acts) and the leading cases, or to look them up as they go. A first-time reader will find a conventional textbook easier.
• Dated on digital markets. It was published in 2008, and its treatment of network industries and computer platforms predates the later enforcement actions and policy debates about large technology firms.
• United States only. The book concerns United States federal law. It does not compare European or other competition regimes.
• Takes a side. Its proposals reflect the author's own view of how antitrust should be simplified. Readers should compare them with other accounts.

Where It Fits in the Course

Within this course list, the other competition titles are Whish and Bailey's Competition Law, a comprehensive textbook on the competition law of the European Union and the United Kingdom, and Jones and Dunne's EU Competition Law: Text, Cases, and Materials, a detailed casebook-style treatment of EU law. Hovenkamp is the only one concerned with the United States. It is therefore best read alongside them for comparison: the same problems of cartels, dominance, vertical restraints and mergers are handled under a different statute and with a different enforcement structure. The two regulation titles, the Oxford Handbook of Regulation and Baldwin and others' Understanding Regulation, approach the subject from the theory and practice of regulation in general. They supply the background for Hovenkamp's Chapter 10 on regulated industries.

A sensible sequence is to read a general textbook for the vocabulary of competition law, then Hovenkamp for the argument about rule design, then the casebook or handbook for depth in a particular area.

How to Use This Book

The book suits upper-level law students and economics students, and also practitioners who already know the outline of antitrust law and want a reasoned view of how its rules might be better designed. Some familiarity with basic microeconomics (market power, price and output, marginal cost) will make it easier to follow.

A practical plan:

• Core: the Introduction and Chapters 1 and 2 give the thesis and the vocabulary. Then read Chapters 5 to 9 as the working account of monopolization, collusion, distribution and mergers.
• Choose by interest: Chapters 3 and 4 for litigation and evidence; Chapters 10 to 12 for regulation, intellectual property and networks; the final chapter for the author's reform proposals.
• Alongside the reading: keep the text of the Sherman and Clayton Acts open and look up a few of the cases that each chapter discusses, so the argument about rules can be checked against actual decisions.
• Notes: the end notes are extensive and are the route to the case law and the academic literature for essays.