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Richard Epstein, Apr 05, 2007
A Cautionary Note on Antitrust I very much appreciate the opportunity to present my views to this Joint Committee of the Department of Justice and the Federal Trade Commission on the use of structural remedies in Sherman Act Section 2 cases. To set the stage for the analysis, the Section 2 cases that I shall examine are those which are concerned with unilateral practices that are intended to, or have the effect of, creating monopolies within given industries. The common practices that are usually addressed under this heading include exclusive dealing and tie-in arrangements, and predation claims. The various types of remedies that may be imposed in these cases include damages, including treble damages, the invalidation of particular contractual provisions, and structural changes in the dominant corporation, including its break up into smaller units that may compete with each other, at least in certain markets.
In dealing with this issue, I put aside the question of whether there should be any remedies in these monopolization cases at all. In general, I am very skeptical about the success of these cases, because they raise issues of efficiency that are usually far more difficult than those associated with Section 1 cases that deal with cartels and the division of markets. In those cases the restraint in output and the increase in price is usually associated with a loss of overall social (consumer + producer) welfare which makes some form of relief appropriate. In addition, most Section 1 cases involve secret conduct, which makes it appropriate to think of treble damages as an offset for the difficulty in detecting the violation. The situation is in fact more difficult than this account might suggest, because there are often powerful efficiency justifications for certain kinds of horizontal arrangements, which means that a per se rule of illegality must in practice be tempered by a series of exceptions for those practices with demonstrated efficiency properties. Bank clearing services among competitors are one example. In addition, Section 1 cases often give rise to serious difficulties at the level of proof. There are in my view cases where gossamer evidence has been allowed to take matters to the jury, and there are other cases where powerful proofs of collusive behavior have been overlooked by judges. But for both this issues, on balance, it seems as though modest correctives should be sufficient to put the entire field on a firmer footing.
Section 2 practices are harder on the issue of liability because there is no clear theory as to why or how unilateral practices allow a single firm to increase the profits that it could obtain from its, often supposed, dominant position simply by raising the prices over its key goods and services over which it enjoys a monopoly position. In addition, many Section 2 cases create an odd form of discrimination such that certain practices are allowed to smaller players in the marketplace but denied to the dominant firm. Hence, even if the practice in question does have some potential to capture monopoly power, the effort to quash that practice exacts a higher toll in efficiency than is normally found in Section 1 cases. It is, I think, wise, therefore, to tread softly on Section 2 matters when it comes to the design of remedies.
Five Consent Decrees
General Considerations. This basic presumption is I think borne out by the particular government actions in the various consent decrees that I discuss in my recent book, Antitrust Consent Decrees in Theory and Practice. The general theme of that book is that the remedy in question should be narrowly tailored to the violation. It should not be used to enjoin practices that are not in themselves illegal. In addition, the use of various injunctive remedies should be limited to relatively short time periods “usually five years or under” lest they impede the flexibility of the regulated firm which has to labor under a set of restrictions that are not imposed on any of its competitors. And third, the break up remedy (which may make some sense in some Section 1 cases) should be used only in extraordinary circumstances, given the adverse consequences that can follow.
