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John Vickers, Mar 22, 2007
Introduction When contemplating competition law and policy, many economists, I suspect, are somewhere in the Atlantic Ocean. That is to say, they feel uncomfortable with aspects of EC competition law on the grounds that it is too interventionist, and with aspects of US antitrust on the grounds that it is too laissez faire. I confess that I indulged in some mid-Atlantic musings during my time at the Office of Fair Trading. Sometimes the longitude tended to be around the Azores, but curiously, when in Brussels, my mind occasionally drifted towards Bermuda.
My aim this evening, then, is to offer some mid-Atlantic thoughts – first about competition economics, then about law, which I know much less about. There will be two main themes. The first is that in some respects there has been a remarkable degree of convergence not just internationally but also between economics and the interpretation of the law. The second is that the Ocean remains wide in other respects , and might be about to widen further. This last point is a reference to vertical price-fixing agreements, and the Leegin case now before the United States Supreme Court, which I suggest deserves our close attention in Europe.
Competition economics – convergence My first proposition, which might sound unlikely to an audience of competition law practitioners, is that competition economists are largely in agreement about the relevant economic principles. On this I am with Milton Friedman:
The public has the impression that economists never agree. They have the impression that if three economists are in a room they will get at least four opinions. That is false. If scientific issues are separated from policy and value issues, there is widespread agreement among economists whatever their political views. Over and over again I have been in a group that includes both economists and practitioners of other disciplines. Let a discussion start about almost anything and, in ten minutes or so, you will find all the economists on the same side against all the rest, whether the economists are on the left or the right or in the middle.”
Indeed even on competition policy issues – as distinct from cases on which they may have been engaged – there is substantial agreement among competition economists. Thus Massimo Motta’s (2004) Competition Policy: Theory and Practice and Michael Whinston’s (2006) Lectures on Antitrust Economics – to name the two books at the top of the reading lists I give to economics students – have a common analytical basis and show no doctrinal differences. Likewise the articles on the reading list, which are by authors from Berkeley, Oxford, Stanford, Toulouse and so on. The same common economic framework is reflected in the report on “An economic approach to Article 82” by the European Commission’s Economic Advisory Group for Competition Policy (EAGCP, 2005). Its citations are trans-Atlantically diverse, yet its authorship “ Gual (Barcelona), Hellwig (Bonn), Perrot (Paris), Polo (Milan), Rey (Toulouse), Schmidt (Munich) and Stenbacka (Helsinki) – could hardly be accused of being Anglo-Saxon, still less Anglo-American. I could go on.
You might be thinking “But what about Chicago?”. Indeed in the 1970s and early 1980s there were rival schools of thought. Structuralist approaches to industrial economics, with their anti-concentration policy implications, that had held sway were subject to fierce attack from the ‘Chicago School’ and elsewhere. Robert Bork described antitrust as a policy at war with itself, and advocated per se lawfulness of a range of commercial conduct much of which had become close to per se illegal under prevailing standards. In US antitrust policy there followed the “Ascent of the Chicago School,” as Kovacic and Shapiro (2000) call it, through the 1970s and 1980s. European competition law and policy, of course, has had nothing like a Chicago period: the Great Lakes are far even from the Atlantic.
While Chicago was ascending in US antitrust law and policy, competition economics internationally was undergoing a broad-based analytic transformation. The application of game theory and contract theory, though they might sound abstract, enabled rigorous analysis of everyday market features that standard price theory (the basis for much of Chicago) left out, such as interdependent decisions between small numbers of firms, dynamics and imperfect information. The so-called “new industrial economics” gathered pace in the 1980s and was masterfully synthesized in Jean Tiroles (1988) book – Tirole of the Massachusetts Institute of Technology and Toulouse, I might add. This way of thinking, as well as being more rigorous, absorbed the Chicago critique by recognizing, for example, that market concentration and vertical contractual relationships can be natural and efficient, but beyond Chicago showed how, depending on the circumstances, harm to competition and consumers can result from various market practices – thereby highlighting the key questions of fact to address in cases. In economics, if not in policy, we now have what can reasonably be called a “post-Chicago synthesis,” again to use a term of Kovacic and Shapiro. Even Chicago is now post-Chicago, as Dennis Carlton illustrates, though he is now in Washington DC.
To a considerable extent, then, the economic principles and tools for competition analysis have converged. There is a broadly common way of thinking – a shared general framework in which to assess the facts and agree or disagree about what should happen in, say, a particular case.
