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The Antitrust Bulletin/Spring 1988
Divergent views
in antitrust economics
BY DAVID B. AUDRETSCH*
I. Introduction
That economic thinking toward antitrust policy lacks unanimity

is not a novel observation. For years, the literature has been
riddled with references to "the Chicago School" or "the Harvard
School." More recently, it has been suggested that a kind of
intellectual convergence between the two schools has transpired,
leaving little disagreement over the substantive areas of antitrust.'
Richard Posner, for example, claims that because "the diversity
in fundamental premises among economists studying antitrust
questions has substantially diminished . . . it is no longer worth
talking about different schools of academic antitrust analysis." '
Perhaps one of Posner's reasons underlying his pronounce-
ment that the antitrust debate is dead is his declaration of victory,
* Research Fellow, International Institute of Management, Berlin,

FRG.
1 See generally, Richard A. Posner, The Chicago School of Anti-
trust Analysis, 127 U. Pa. L. REv. 925 (1979).
2 Id. at 925.
@ 1988 by Federal Legal Publications, Inc.
136 : The antitrust bulletin
"The basic tenet of the Chicago School . . . has triumphed." 3

Yet, a reading of contemporary antitrust literature reveals that
any such claim to ascendency is premature; there is as yet no
singular antitrust paradigm. Discordance is alive and well in
antitrust.
In fact, the lack of agreement in assessing antitrust in the
mainstream treatises is both striking and a source of confusion
for students. Consider an evaluation of the efficacy of the Brown
Shoe4 case. While Robert Bork concludes, "Brown Shoe was a
disaster for rational, consumer-oriented merger policy," 5 A.D.
Neale defends the ruling as exemplary, "It may indeed be that the
case will come to be regarded as the high-water mark of judicial
interpretation of Section 7. " 6 Like Brown Shoe, most of the
substantive antitrust laws and enforcement policies elicit stark
contradictory evaluations, Posner notwithstanding.
What is apparent from the literature is that two distinct views
have emerged-one representing the mainstream and the other
representing the neo-Chicago School.7 And while areas of overlap
3 Id. at 933-4.
4 Brown Shoe Co. v. U.S., 370 U.S. 294 (1962).
5 ROBERT H. BOPRK, THE ANTITRUST PARADOx: A POLICY AT WAR
WITH ITSELF 216 (1978).
6 A.D. NEALE, THE ANTITRUST LAWS OF THE U.S.A. 190 (1970).
7 The recent literature using models of contestable markets to dem-
onstrate the ubiquity of competition perhaps represents an emerging
third view of antitrust. See William J. Baumol, Contestable Markets:
An Uprisingin the Theory of Industry Structure, 72 AM. ECON. REV. 1
(March 1982), WILLIAM J. BAUMOL, JOHN PANZAR, and ROBERT D. WIL-
LIG, CONTESTABLE MARKETS AND THE THEORY OF INDUSTRY STRUCTURE
(1982). However, because the empirical applicability has been limited to
the recently deregulated markets (see Elizabeth E. Bailey and William J.
Baumol, Deregulationand the Theory of ContestableMarkets, YALE J.
REG. 111 [Spring, 1984], and Elizabeth E. Bailey, Economic Deregula-
tion: Transportation and Communications, unpublished manuscript
[July 1, 1985]), and the theoretical criticisms (see William A. Brock,
Contestable Markets and the Theory of Industry Structure: A Review
Article, 91, J. POL. ECON. 1055 (December 1983), and William G.
Shepherd, "Contestability" versus Competition, 74 AM. ECON. REv. 572
Divergent views : 137
and agreement exist, each view claims that it exclusively and

uniquely provides the logical economic viewpoint. To further
complicate the confusion students must experience trying to
understand antitrust, within the literature of any one view there is
often little or only minimal acknowledgment of the existence and
claims of the other.
This article presents these distinct views which have emerged
in the antitrust literature. In section II, the boundaries defining
each view are identified along with the shared principles common
within each school. In section III the general positions of each
view toward the major substantive areas of antitrust-horizontal
restraints, monopolization, mergers, and vertical restraints-are
compared.
II. Two views toward antitrust
A. The mainstream view
While the mainstream view in antitrust economics has its or-

igins dating back to Alfred Marshall8 and possibly earlier,9 the
roots in the U.S. emanated from writers such as John Bates
Clark"0 around the turn of the century. Laissez faire and eco-
nomic Darwinism dominated thinking in the economics profes-
sion shortly after the Civil War." According to Hans Thorelli, 2
(September 1984), the impact and future of this literature is still uncer-
tain. Thus, the contestability literature cannot yet be considered to con-
stitute an established view toward antitrust.
8 ALFRED MARSHALL, PRINCIPLES OF ECONOMICS (8th ed. 1920).
9 For example, Adam Smith expressed explicit concern about the

abuses of collusion in ADAM SMITH, THE WEALTH OF NATIONS (1937).
10 JOHN BATES CLARK, THE CONTROL OF TRUSTS-AN ARGUMENT IN
FAVOR OF CURBING THE POWER OF MONOPOLY BY A NATURAL METHOD
(1901).
11 For an excellent discussion of the prevailing conservative thought
and the evolution of early economic writing on antitrust, see HANS B.
THORELLI, THE FEDERAL ANTITRUST POLICY: ORGANIZATION OF AN AMERI-
CAN TRADITION (1955).
12 Id. at 313.
the distinguishing feature of Clark and Charles Bullock, and

others was a deviation from the laissez faire policies implied by
economic Darwinism toward favoring government action to pre-
serve the competitive market. Because he recognized that a
".. . combination of parties produces a monopoly,"'" Clark
advocated an interventionist policy constraining market power:
"What is needed is a laissez faire policy in one sense of the
term, but not in another sense. It involves no dull letting alone
of an evil tendency, but it does involve allowing a natural devel-
opment to go on unhindered. Clear the decks for action; re-
move all obstacles which stand in the way of a healthy rivalry in
production. ... ,
By the time that the "Harvard School" had solidified in the
1950s, the mainstream thinking in antitrust had evolved to ac-
cepting the need for government intervention to maintain and
promote competitive markets. The original Harvard view, best
characterized by Kaysen and Turner, 6 was that market power
per se is harmful and therefore should be illegal. The focus of
analysis was on market structure rather than on business con-
duct as the source of adverse economic performance. 7 Because
it was argued that market forces were insufficient to stimulate
the entrenched power of a firm's or oligopoly's dominant posi-
tion, the Harvard School emphasized structural solutions. Even
George Stigler was sympathetic with this view in the early
1950s, "An industry which does not have a competitive struc-
ture will not have a competitive behavior. '"8
13 Charles J. Bullock, Trust Literature:A Survey and Criticism, 15

Q. J. ECON. 167 (1901).
14 John Bates Clark, The Nature and Progressof True Socialism,
38 NEW ENGLANDER 565 (July 1879), quoted from THORELLI, supra note
11, at 122.
15 CLARK, supra note 10, at 81.
16 CARL KAYSEN and DONALD F. TURNER, ANTITRUST POLICY: AN

ECONOMIC AND LEGAL ANALYSIS 91 (1959).
17 Id. at 82.
18 George J. Stigler, The Case Against Big Business, FORTUNE, 167
(May 1952).
In the 1960s and particularly in the 1970s the preoccupation

with market structure evolved into a wider concern incorporat-
ing exclusionary conduct-business behavior that may create
market power where it otherwise would not exist or may enable
existing market power to realize economic rents. Alfred Kahn
has described this evolution, "Industrial organization economics
has discarded the notion that structure is to be regarded exclu-
sively as the exogenous determinant of behavior. . . . There
has been an increased concentration on behavior-on advertis-
ing, product-quality variations, research and development, and
limit pricing, and of the ways in which they may affect struc-
ture in general and the condition of entry in particular."' 9 In
this new version an oligopolistic market structure may not be
sufficient to enable economic rents. The question which F.M.
Scherer characterizes as "the jugular of structural antitrust" is
how can supracompetitive prices be sustained over time in
highly concentrated markets?'0 The answer provided by the
mainstrem is exclusionary practices.
The most onerous of these exclusionary practices is business
conduct erecting barriers to entry. Joe Bain identified as barri-
ers to entry the economies of large scale and the advantages of
established firms over potential rivals in terms of absolute cost
and product differentiation.' While most contemporary mem-
bers of the mainstream typically do not advocate antitrust inter-
vention based on large-scale economies, great attention has been
directed toward practices creating "artificial" barriers. For ex-
ample, Comanor and Wilson found that a 50 percent differen-
tial exists in profit rates between firms with and without
differentiated products and that, "much of this profit rate dif-
ferential is accounted for by the entry barriers created by adver-
tising expenditures and by the resulting achievement of market
19 Alfred E. Kahn, The Relevance of IndustrialOrganization,in IN-

DUSTRIAL ORGANIZATION, ANTITRUST AND PUBLIC POLICY 4, 3-18 (John V.
Craven ed. 1983).
20 F.M. Scherer, The Posnerian Harvest: Separating Wheat from
Chaff, 86 YALE L. J. 974, 990 (1976).
21 JOE S. BAIN, BARRIERS TO NEw COMPETITION (1951).
power."' Scherer extended this concern with how conduct af-

fects structure and ultimately performance to the use of trade-
marks and brand names, ". . . no amount of semantic
waffling can paper over the fact that the possession of a well-
received brand image is a form of monopoly power. It permits
a firm to elevate its price over long-run costs, perhaps by a sub-
stantial margin.' Other types of barrier-creating conduct iden-
tified by the mainstream include all types of vertical restrictions,
such as certain tying agreements, leasing contracts, and exclu-
sive dealing.' Oliver Williamson suggests that internal financing
and being first in a field also erect entry barriersY
At the heart of the contemporary mainstream view is the ac-
knowledgment that effective market structure is endogenous to
firm conduct through exclusionary practices. Thus, unlike the
old Harvard School, the contemporary mainstream emphasizes
the influence specific business practices have on effective market
structure and ultimately performance. Most recently, the litera-
ture on strategic deterrence, strategic entry, limit pricing and
preemptive investment reflects the concern toward monopoly
power via business conduct.'
This position emanates from both a theoretical and empiri-
cal basis. The theory consists of the vast expanse of imperfect
competition models." There are two different strands of empiri-
22 William S. Comanor and Thomas A. Wilson, Advertising, Mar-

ket Structure and Performance, 49 REV. ECON. & STATISTICS 437 (No-
vember 1967).
23 See Scherer, supra note 20, at 998.
24 See generally, DON E. WALDMAN, ANTITRUST ACTION AND MARKET
STRUCTURE (1978).
25 OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND
ANTITRUST IMPLICATIONS 111-113 (1975).
26 See generally, Richard Schmalensee, Antitrust and the New Eco-

nomics, 3 AM. ECON. REV. 72 (1982) and Richard Schmalensee, Entry
Deterrence in the Ready-to-Eat Breakfast Cereal Industry, 9 BELL J.
ECON. 305 (Autumn 1978).
27 See generally, chapter five in F.M. SCHERER, INDUSTRIAL MARKET
STRUCTURE AND ECONOMIC PERFORMANCE (2d ed. 1980).
cal evidence that mainstream economists use to support their

position: (1) the plethora of studies relating profitability to oli-
gopolistic market structure and (2) the incipient literature meas-
uring the actual effects of antitrust enforcement on market
structure and performance. The first category includes the ob-
served relationship between concentration and price-cost mar-
gins, and the observed relationship between entry barriers and
price-cost margins. In his review of 46 studies on the relation-
ship between concentration and profits or price-cost margins in
the U.S., Britain, Canada, and Japan, Weiss concluded that the
bulk of these studies yielded significant and positive relation-
ships.'
While Donald Waldma 2 9 examined specific antitrust cases
and found positive results in most areas, William Shepherd" un-
dertook a cross-section of industries and found that between
1939-1980 competition in the U.S. had greatly increased. And,
according to Shepherd, antitrust policy has been the greatest
single catalyst responsible for this increase in competition, hav-
ing twice the impact of increased import competition and signif-
icantly exceeding the effect of deregulation.
Finally, a last characteristic common to the mainstream, that
has remained unchanged from its earlier tradition, is a relatively
broad interpretation of the goals of antitrust.' While allocative
efficiency is viewed as an important goal, income distribution
and the decentralization of aggregate concentration are also rec-
28 Leonard W. Weiss, The Concentration-ProfitsRelationship and

Antitrust, in INDUSTRIAL CONCENTRATION: THE NEw LEARNING 184-232
(Harvey J. Goldschmid, H. Michael Mann and J. Fred Weston eds.
1974).
29 WALDMAN, supra note 24.
30 William G. Shepherd, Causes of Increased Competition in the
U.S. Economy, 1939-1980, 64 REv. ECON. & STATISTICS 613 (November
1982).
31 See generally, Walter Adams, Corporate Power and Economic
Apologetics: A Public Policy Perspective, in INDUSTRIAL CONCENTRA-
TION: THE NEW LEARNING (H. Goldschmid, H. Mann and J. Weston eds.
1974).
ognized as valid goals of antitrust. Unlike their neo-Chicago

counterparts,3 2 allocative efficiency is not held to be the sole
goal. According to Weiss, "It seems doubtful whether Congress
gave much, if any, weight to allocative efficiency when formu-
lating the antitrust laws, while the prevention of large gains to
those who organized monopolistic cartels or mergers is probably
a major concern of the public in its commitment to competi-
tion."'33
B. The neo-Chicago School
The neo-Chicago School, which emanated from the work of

Director, Bowman, Bork, McGee, Posner, and Stigler," was a
reaction to the Harvard orthodoxy. According to Posner, in the
early days the neo-Chicago School was regarded as "little better
than a lunatic fringe." 3 Neo-Chicago could always be counted
on for a sharp critique of the mainstream, and the most caustic
criticism was directed at the lack of theory in Harvard's version
of industrial organization, which consisted of "Casual observa-
tion of business behavior, colorful characterizations (such as the
term 'barriers to entry'), eclectic forays into sociology and psy-
chology, descriptive statistics, and verification by plausibility
which took the place of the careful definitions and parsimo-
nious logical structure of economic theory. The result was that
industrial organization regularly advanced propositions that
contradicted economic theory." 36 Posner, for example, charges
the Harvard School with discarding the basic tools of economic
32 See generally, R. POSNER, ANTITRUST LAW: AN ECONOMIC PERSPEC-

TIVE chapter 1 (1976), and BORK, supra note 5.
33 L. Weiss, An Analysis of the Allocation of Antitrust Division
Resources, in THE ANTITRUST DILEMMA 35 (James A. Dalton and Stan-
ford L. Levine eds. 1974).
34 See generally, Edmund W. Kitch, The Fire of Truth: A Remem-
brance of Law and Economics at Chicago 1932-1970, 71 J. LAW &
ECON. 163 (April 1983), and Posner, supra note 1, at 926.
35 Posner, supra note 1, at 931.

36 Id. at 929.
theory. As a substitute to theory, according to Posner, concepts

such as the kinked demand curve were offered, all of which
were inconsistent with the principle of profit maximization.3"
George Stigler's38 work in the late 1950s and early 1960s pro-
vided the neo-Chicago School with what the old Harvard
School had not-a significant theory of collusion. Stigler ana-
lyzed the likelihood of collusion based on profit maximization
in a benefit-cost framework. His work played a crucial role in
crystallizing the neo-Chicago reaction to Harvard, because while
his analysis did not foreclose the possibility of collusion, it em-
phasized the difficulties in maintaining collusive agreements,
rendering them profitable only at the highest levels of concen-
tration.
As a result of Stigler's work the neo-Chicago School does
not assign much importance to the empirical relationship be-
tween concentration and monopoly power. In fact, Bork flatly
denies the existence of any such relationship, "I doubt that
there is any significant output restriction problem arising from
the concentration of any industry." 39
The rationale underlying Bork's position is that any ob-
served correlation between concentration and profitability could
be spurious, the result of other unmeasurable factors such as ef-
ficiency: "Even if it could be demonstrated (and it probably has
not been) that there is a persistent correlation between industry
concentration and profitability, that fact would be utterly am-
biguous. High rates of return are consistent with other factors
besides restriction of output, primarily superior efficiency, so
that if these debatable correlations could be made to stand up,
37 Id. at 931.
38 GEORGE J. STIGLER, THE ORGANIZATION OF INDUSTRY (1968), G.
STIGLER and J. KINDAHL, THE BEHAVIOR OF INDUSTRIAL PRICES (1970), and
G. Stigler, A Theory of Oligopoly, 72 J. POL. ECON. 44 (1964).
39 BORK, supra note 5, at 178.
144 : The antitrustbulletin
they would prove nothing of interest to antitrust policy." ' Un-

der neo-Chicago doctrine, persistent market concentration is not
at all synonymous with market power; rather, it indicates either
that the market has been rendered concentrated by large-scale
economies, or that, through cost reductions and product im-
provements, some firms have been able to attain persistent eco-
nomic profits. The relevant question for neo-Chicago is not
how concentration can cause collusion, but rather how can eco-
nomic rents persist over time without being eroded by new
4
entry. '
Of course, the mainstream reply is barriers to entry. Here, a
sharp chasm separates the neo-Chicagoans from the main-
stream. While the mainstream literature is filled with descrip-
tions of the impact, a host of questionable business practices
have on entry barriers, neo-Chicago questions whether artificial
entry barriers actually exist.4 2
At the heart of this difference is the assessment over what
exactly constitutes an entry barrier. Stigler43 defines an entry
barrier as any cost of production that must be borne by poten-
tial entrants but is not incurred by firms already in the industry.
Thus, no capital barriers exist because even the firms already in
the industry have raised and must continue to raise the requisite
capital.
In fact, much of the business conduct that the mainstream
condones as exclusionary, neo-Chicago argues is precisely the
opposite-competitive. According to Bork, "All of the 'artifi-
cial barriers' complained of in antitrust are, in fact, activities
that create efficiency . . . .Bain mentions physical product dif-
ferentiation as a barrier to entry, but I'm unable to understand
40 Id. at 33.
42 BoRK, supra note 5, at 311.
43 STIGLER, supra note 38 (1968), at 70.
from his writings or anybody else's, why it is not clearly a form

of efficiency.''44
While the mainstream considers advertising expenditure as
investment creating an entry barrier by requiring even greater
advertising expenditures from potential entrants to overcome
the established image, neo-Chicago views image creation as
mapping exactly into costs. Posner,4 5 for example, argues that
the advertising expenditure required of a new entrant exactly
equals that required of existing firms in the market to maintain
their share. Brozen,' 6 acknowledges that a cost differential does,
in fact, occur. He refers to the greater expenditures for advertis-
ing new products and models as evidence that advertising is ac-
tually a vehicle for entry, enabling new firms to inform the
customers of changes in the market. Either way, neo-Chicago
clearly considers product differentiation, along with most other
types of conduct classified as exclusionary by the mainstream
view to be "the ghosts that inhibit antitrust theory. Until the
concept of barriers to entry is thoroughly revised, it will remain
impossible to make antitrust law more rational or indeed to re-
strain the growth of its irrational elements." '47
Thus, unlike the mainstream view, which considers market
structure to be endogenous to conduct, the neo-Chicago School
considers market structure to be exogenous of conduct. Instead,
two sole determinants of market structure are offered-scale
economies and superior skill, foresight and management.
Much of the objection to the mainstream view results from
what neo-Chicago considers to be a misguided interpretation of
the goals of antitrust. Where the mainstream assigns a multi-
tude of goals, providing the basis for a more interventionist pol-
icy, neo-Chicago acknowledges just one unequivocal goal of
44 BoRiK, supra note 5, at 196, 312.

46 Yale Brozen, Advertising and Product Differentiation, in INDUS-
TRIAL CONCENTRATION: THE NEW LEARNING 115, 115-136 (H. Gold-
schmid, H. Mann, and J. Weston eds. 1974).
antitrust policy-the pursuit of economic efficiency. According

to neo-Chicago doctrine: (1) consumer welfare was the only ma-
jor goal intended by Congress in enacting the antitrust statutes,
(2) consumer welfare is the only value that should therefore be
pursued, and (3) most of antitrust's current problems are the
result of erroneously pursuing goals other than economic effi-
ciency. Thus, Bork laments, "Failure to consider efficiency-or
worse, the tendency to view it as pernicious by calling it a 'bar-
rier to entry' or a competitive advantage-is probably the major
reason for deformation of antitrust's doctrines." '
III. The substantive areas of antitrust
A. Horizontal restrictions
Of all the antitrust statutes, there is probably the strongest

agreement over section 1 of the Sherman Act. Yet, even here
the controversy is considerable. The neo-Chicago School advo-
cates a harsher stance toward a much narrower range of restric-
tions than is currently practiced. A rule of reason is advocated
where a per se rule currently exists. A two-stage judiciary proce-
dure would then be applied to collusion cases.
First, the court would rule on the economic effect of any al-
leged collusion. For possible criteria of evidence, Posner offers
a list, including stability of market shares, patterns of profits,
and output and capacity changes.49 Posner and Bork disagree
about the second stage. Bork requires evidence that some collu-
sion had, in fact, occurred. But, unless both conditions are met,
Bork does not advocate a conviction. Even if there is explicit
price fixing or market division, if the restraint is not marked-
that is, if it is ancillary to cooperative production activity-the
collusion would be legal. Only in those cases where it can be
demonstrated that both a restrictive agreement was made and
48 Id. at 310.
49 POSNER, supra note 32, at ch. 13.
economic performance subsequently deteriorated would Bork

hold the agreement illegal."
Posner, on the other hand, does not require the same second
stage as Bork. Once the first stage has been demonstrated,
Posner would not require specific intent of any agreement, "I
believe that in some cases the economic evidence of collusion
may be sufficiently convincing to enable dispensing with evi-
dence of actual communication. . . . The absence of such
proof is a detail if the economic evidence is sufficiently convinc-
ing to stand alone."'" While both Bork and Posner suggest they
are proposing a per se approach to price fixing, they are, in
fact, offering a rule-of-reason. Their first stage dictates that, re-
strictive agreements will not be held illegal unless some obvious
deleterious economic effect can be observed. As Bork says,
"Many price-fixing and market-division agreements make coop-
erative productive activity more efficient, and these should be
judged according to the circumstances . . 2
However, both Posner and Bork recommend allocating rela-
tively more resources toward identifying collusion where it ad-
versely affects economic performance. Of all the antitrust areas,
the neo-Chicago School is most concerned about prohibiting
harmful collusion.
The mainstream rejects the neo-Chicago proposal for re-
forming section 1 on two grounds. First, it is argued that the
courts are incapable of effectively monitoring economic per-
formance in suspect industries. They cite the reason given by
Justice Stone's opinion in Trenton Potteries,4 "The reasonable
price fixed today may . . . become the unreasonable price of
50 BORK, supra note 5, at 263-4.

51 POSNER, supra note 32, at 76.
52 BORK, supra note 5, at 263-4.
53 POSNER, supra note 32, at 983 and BORK, supra note 5, at 406.
54 U.S. v. Trenton Potteries Co., 273 U.S. 392 (1962).
tomorrow." 55 According to Scherer, "the Courts of the 1890s

recognized more clearly than Professor Posner the difficulty of
ascertaining whether prices have been elevated unreasonably.
• . . Implementing Posner's policy would require a continuous
monitoring of prices and the repeated, excruciatingly difficult
determination of whether an unreasonable elevation had oc-
curred."5"
The second point of disagreement is that, contrary to Bork's
assertions, price fixing rarely yields efficiency gains. And since
it is believed that section 1 enforcement provides a substantial
deterrent effect, a business practice that is rarely beneficial and
frequently harmful, such as price fixing, should be illegal per
57
se.
B. Monopolization
The original Harvard position toward monopoly, posited by

Kaysen and Turner,58 was a proposed statute designed to iden-
tify and dissolve firms found to possess, singularly or jointly,
unreasonable market dominance. During the last several dec-
ades, the mainstream has been more sympathetic than their neo-
Chicago counterparts toward the various deconcentration
schemes, such as the Hart and Neal proposals. 9 The inclination
toward restructuring industries emanates from the belief that
concentration inherently possesses a tendency toward monopoli-
55 Id. (cited in PHILLIP AREEDA, ANTITRUST ANALYSIS: PROBLEMS,
TEXT, CASES 268 [2d ed. 1974]).

56 Scherer, supra note 20, at 984.
57 See generally, WILLIAM G. SHEPHERD, PUBLIC POLICIES TOWARD
BUSINESS chapters 9 and 11 (7th ed. 1985), and Weiss, supra note 33.
58 KAYSEN and TURNER, supra note 16, at 82.
59 Senate bill S.1167, 92d Cong., 2d Sess. (1972) and White House
Task Force on Antitrust Policy, The Concentrated Industries Act,
CONG. REC. (May 27, 1969).
zation. Weiss,' for example, offers a pure structuralist

proposal-divestiture or dissolution for all dominant firms pos-
sessing a market share exceeding 50 percent. No exclusionary
conduct would need to be established. Similarly, Williamson6 '
argues that the existence of dominant firms should be regarded
as a manifestation of market failure justifying government in-
tervention.
The mainstream does not think that significant efficiency
losses would accompany divestiture. They offer empirical work
demonstrating that, in most industries, the MES is only a small
percentage of total industry sales.62 Divestiture could effectively
expand the number of competitors without sacrificing scale
economies. Thus, Scherer concludes, "I believe there is persua-
sive evidence that in many situations substantial divestiture
could be accomplished with little or no sacrifice of scale econo-
mies or other efficiences."63
While Shepherd' recognizes that antitrust has tended to pre-
serve the existing order and limit change, he advocates a greater
emphasis on restructuring concentrated industries as the solu-
tion. In fact only dissolution or divestiture will mitigate the
monopoly problem, because, "If oligopolists behave noncom-
petitively because of the very market structure in which they op-
erate, punishing them without altering the underlying structural
conditions may do little to improve economic performance." 6' 5
Scherer similarly applauds the shared monopoly case that the
FTC instigated in the 1970s against the leading firms in the
60 L. Weiss, The Structure-Conduct-PerformanceParadigm and

Antitrust, 127 U. Pa. L. Rnv. 1104, 1140 (April 1979).
61 WILLIAMSON, supra note 25, at 212.
62 SCHERER, supra note 27 and see generally, F.M. SCHERER, ALAN
BECKENSTEIN, ERICH KAUFER, and R.D. MURPHY, THE ECONOMICS OF
MULTI-PLANT OPERATION: AN INTERNATIONAL COMPARISON (1975).
63 Scherer, supra note 20, at 1000.
64 SHEPHERD, supra note 57, at 314.

65 SCHERER, supra note 27, at 540.
ready-to-eat breakfast cereal industry as being correctly con-

cerned about an oligopolistic industry structure."
The neo-Chicago School accuses the mainstream of being
misguided. Where the mainstream offers stronger enforcement
of section 2 of the Sherman Act, they offer repealing the Act it-
self. Any deconcentration policy depends upon the supposition
of significant entry barriers. Because neo-Chicago considers en-
try barriers to be "vague notions" from the "scribbling of aca-
demics," '67 monopoly power is considered to be unattainable to
any one firm.
While Posner concludes from Stigler's model of collusion
that high levels of concentration are conducive to price fixing,
he advocates employing only section 1 to counter monopoly
power.68 And Bork is not even convinced that any monopoly
problem exists, "I am not persuaded that such behavior occurs
69
outside of economics textbooks.
Neo-Chicago argues that not only are there no allocative ef-
ficiency gains to be rendered from deconcentration ° but that
significant productive inefficiency would accompany divestiture.
While the mainstream minimizes the significance of scale econo-
mies beyond a relatively small level of output, neo-Chicago ar-
gues that virtually any reduction in size is a concomitant loss in
efficiency. According to Harold Demsetz, "To break up a supe-
rior team merely because it is successful is fraught with the
danger of destroying the source of such productivity. . . .Pro-
66 Id. at 540.
67 Harold Demsetz, Economics as a Guide to Antitrust Regulation,
19 J. L. & EcoN. 374 (August 1976), at 383.
68 R. Posner, Oligopoly and the Antitrust Laws: A Suggested Ap-
proach, 21 STANFORD L. Rav. 1562 (1969).
69 BORK, supra note 5.
70 Actually Posner does acknowledge that deconcentration would
raise the costs of collusion and therefore lower its incidence, but not to a
significant degree. See POSNER, supra note 32, at 79.
posals to deconcentrate industries whose structures (without

government aid) have remained concentrated for long periods
are likely to penalize consumers by constraining firms to uneco-
nomical sizes and by removing incentives to grow through effi-
cient performance. .. .
C. Mergers
Nowhere is the substantive disagreement sharper than to-

ward merger policy. Neo-Chicago views enforcement of section
7 of the Clayton Act to range from an unfortunate by-product
from inadequately confronting collusion, '2 to an outright ineffi-
cient policy. In his chapter titled, "The Crush of Merger Pol-
icy," Bork charges, "The career of Section 7 of the Clayton
Act, subsequent to its amendment in 1970, provides a fascinat-
ing example of the trends that have made large areas of modern
antitrust a harmful policy. . . . It would be easy enough to
parade the horrors of Clayton 7 case law in this field almost
73
indefinitely.1
The mainstream, on the other hand, considers merger en-
forcement not only laudable, but perhaps the strongest, most
decisive component of antitrust. A toughening of section 7 en-
forcement is generally favored.74 Shepherd, for example, attrib-
utes merger policy in particular for not only preventing high
levels of concentration but for also eroding them." The main-
stream view favors a relatively strict prohibition against hori-
zontal acquisitions. This is based largely on the empirical
71 Demsetz, supra note 67, at 382, 375.

74 See generally, Weiss, supra note 28 and Scherer, supra note 20, at
989 and SCHERER, supra note 27.
152 : The antitrustbulletin
studies relating concentration to prices and profits.76 The impli-

cation is that prohibiting a large horizontal merger prevents an
increase in concentration along with a subsequent increase in
price-cost margins. According to Weiss, "Altogether there is
still plenty of reason to believe on both theoretical and empiri-
cal grounds that high concentration facilitates tacit or overt col-
lusion. To me this means that the present policy of prohibiting
horizontal mergers among viable firms wherever significant con-
centration is present or in prospect is well founded.""
The neo-Chicago School is disdainful of the Supreme
Court's interpretation in precedent cases, particularly the appar-
ent emphasis on halting trends in concentration in their incipi-
ency and the lack of respect for efficiency gains. For example,
"It would be overhasty to say that the Brown Shoe opinion is
the worst antitrust ever written . . . still, all things considered,
Brown Shoe has considerable claim."" Bork argues that the
Court's applying the incipiency concept to halt the trend in con-
centration was especially unfortunate, since that trend reflects
only that greater concentration was more efficient.79
But Williamson supplies the mainstream response, "That a
trend necessarily implies emerging efficiencies is incorrect; it
may also indicate an emerging awareness that market power ad-
vantages might be realized through a series of combinations.
Moreover, whereas they seem to suggest that to disallow a
merger is to prevent the realization of scale economies alto-
gether, ordinarily it is not a question of whether economies will
be realized but when and with what market power effects.""
76 See generally, Norman R. Collins and Lee E. Preston, Price-Cost

Margins and Industry Structure, REV. ECON. & STATISTICS (August 1969)
and Weiss, supra note 28.
77 Weiss, supra note 28, at 232.
79 Id. at 130.
Neo-Chicagoans, consider scale economies resulting from

merger to be paramount and the loss of such efficiency to be es-
pecially deleterious. Armentano accuses the "rigid and lockstep
enforcement" of section 7 with causing inefficiency." In advo-
cating stronger enforcement, mainstream economists refer again
to empirical studies. They cite the "impressive accumulation of
evidence"" concluding that mergers rarely yield any substantial
economies. According to Scherer, "In short, although excep-
tions surely exist, most mergers at a scale large enough to
attract antitrust attention yield inappreciable efficiency bene-
fits." 83
Even if an occasional horizontal merger yields scale efficien-
cies, the mainstream economists, unlike their neo-Chicago coun-
terparts, argue that the same economies could be realized by
substituting internal growth for merger. Because it never de-
creases the number of competitors, internal growth is always the
preferred route to achieving production efficiency, "The main
way to attain economies of scale is to build larger plants.
Merger may facilitate this in some cases, but if the gains from
scale are large, industries can probably be counted on to move
84
to optimal scale plant with or without merger.
The disagreement over merger policy extends to vertical
acquisitions. Once again, the mainstream advocates an interven-
tionist policy while neo-Chicago recommends abandoning en-
forcement. It is argued that through vertical integration, market
control can be extended into either an upstream or downstream
market. By requiring potential entrants to acquire additional
capital and knowledge of additional stages of the production
process, entry barriers are created. According to Williamson,
"integration by an established firm into a second stage will
rarely make access to a potential entrant into either stage easier;
81 DOMINICK T. ARMENTANO, ANTITRUST AND MONOPOLY: ANATOMY

OF A POLICY FAILURE 40 (1982), at 1.
83 Scherer, supra note 20, at 987-8.
84 Weiss, supra note 28, at 232.
and impeded entry, ceteris parabus, generally has disadvanta-

geous welfare consequences." 85
Neo-Chicagoans consider vertical integration to yield both
efficiency gains and increases in competition. 6 They argue that,
"Antitrust's concern with vertical mergers is mistaken. Vertical
mergers are means of efficiency, not of injuring competition.
• . . The law against vertical merger is merely a law against the
creation of efficiency.""s Economies in management are thought
to be generated through vertical consolidation, by reducing sales
and distribution costs, and accelerating information flow be-
tween production stages.
The mainstream also advocates stronger intervention into
product- and geographic-extension mergers. Shepherd considers
the potential entrant and entry de novo doctrines used by the
Court in cases such as Chlorox Bleach88 and Falstaffl to be
"roughly correct."' Turner argues that, in preventing such
mergers, no potential competition is lost, and entry de novo is
encouraged, resulting in either an increase or maintenance in
competition.9'
The neo-Chicago School rejects the potential competition
doctrine as misguided, because the number of potential compet-
itors is virtually unlimited. Posner argues that, because new
firms can earn monopoly profits, the likelihood of entry is di-
rectly related to price-cost margins. Therefore, decisions like

86 See generally, WARD S. BOWMAN, PATENTS AND ANTITRUST LAW: A
LEGAL AND ECONOMIC APPRAISAL 59 (1973).
88 Federal Trade Commission v. Procter and Gamble Co., 386 U.S.
568 (1968).
89 United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973).
91 Donald F. Turner, Conglomerate Mergers and Section 7 of the
Clayton Act, 78HARV. L. REV. 1313 (April 1965).
Chlorox Bleach, which are based on the potential competition

doctrine, are judicial errors.92
Neo-Chicago is equally adamant about efforts to halt con-
glomerate mergers, "It seems quite clear that antitrust should
never interfere with any conglomerate merger. . . . Whatever
their other virtues or sins, conglomerates do not threaten com-
petition and they may contribute valuable efficiencies. '
Conglomerate mergers are considered to be potentially procom-
petitive since large diversified firms constitute the pool of most
likely entrants into any given market.
Some mainstream economists, like Shepherd, concur that
conglomerate mergers should remain outside the realm of anti-
trust.94 Williamson, for example, argues that conglomeration
performs the crucial role of allocating capital, since the actual
capital market contains imperfections impeding efficiency.95
Others, such as Waldman,' advocate that conglomerate mergers
be aggressively contained through antitrust. This is at least par-
tially the result of attributing broader goals to antitrust. Willard
Mueller97 warns that conglomeration may lead to mutual for-
bearance and reciprocity. Those medium- and smaller-sized
firms unable to practice reciprocity will frequently find them-
selves foreclosed from the market. Scherer similarly cites a non-
economic goal justifying prohibiting conglomeration, ". . . a
case can be made for congressional intervention to stop or at
least retard this game that confers little social benefit but con-

96 WALDMAN, supra note 24, at 108.
97 Willard F. Mueller, The Celler-KefauverAct: The First27 Years,
Staff Report to the Subcommittee on Monopolies and Commercial Law,
95th Cong., 2d Sess., 100 (1979).
flicts with the goal of decentralizing economic power to the

maximum practical extent." 98
In general, the mainstream argues that it is preferable to
block some mergers and deter many others to avoid confronting
later the problem of entrenched market power: "It is much eas-
ier to nip the growth of market concentration in the bud
through a hard line against mergers than it is to correct abuses
or atomize market structure once monopoly or tight oligopoly
has emerged. To stop a merger before it is consummated means
at most quenching an opportunity, while tampering with an al-
ready integrated monopolistic organization is sure to cause con-
siderable pain and might even lessen efficiency. Once the eggs
are scrambled it is hard to unscramble them.'' 9
D. Vertical restrictions
Vertical restrictions include tying arrangements, exclusive

dealing and territorial contracts, and resale price maintenance."
Unlike the other major substantive antitrust areas, there is both
considerable overlap between each school's position, as well as
significant disagreement within each school. Rather than distinct
demarcations, there exists a spectrum of attitudes. At one ex-
treme is a subgroup of the mainstream advocating a per se pro-
hibition of all nonancillary vertical restrictions. At the opposite
end of the spectrum is a subgroup of neo-Chicago, advocating

99 Id. at 540.
100 For a general discussion of vertical restrictions see Benjamin
Klein and Lester F. Saft, The Law and Economics of Franchise Tying
Contracts,78 J. L. & ECON. 345 (May 1985), Robert L. Steiner, The Na-
ture of Vertical Restraints, 30 ANTITRUST BULL. 143 (Spring 1985), Frank
H. Easterbrook, Vertical Arrangements and the Rule of Reason, 53 AN-
TITRUST L. J. 135 (1984), Posner, The Next Step in the Antitrust Treat-
ment of Restricted Distribution:Per Se Legality, 48 U. CHI. L. REv. 6
(1981), Robert Baxter, Vertical Restraints and Resale Price Mainte-
nance: A "Rule of Reason" Approach, 14 ANTITRUST L. & ECON. REV.
13 (1982).
the per se legality of all vertical restrictions. In the center, the

remaining mainstream and neo-Chicago economists agree that a
rule of reason is preferable, but the mainstream view tends to-
ward a more interventionist policy requiring a weaker burden of
proof, while the neo-Chicagoans tend toward a less interven-
tionist policy, requiring a stronger burden of proof.
Kaysen and Turner proposed a very strict per se illegality for
all vertical restrictions. For example, tying arrangements should
always be prohibited, because "A tie-in always operates to raise
the barriers to entry in the market of tied good to the level of
those in the market for the tying good."'' 1 Marks and Johnson
similarly advocate a per se prohibition against resale price main-
tenance, arguing that it "has only one sure effect; it guarantees
that prices will be higher."'0 2 The concern these mainstream
economists have is that, through restrictions, market power can
be extended from one level to another vertically related level.
According to Comanor,' 3 vertical restraints (1) enhance car-
telization among dealers, (2) enhance cartelization among manu-
facturers, (3) facilitate market segmentation, and (4) restrict
output through increased costs. Because he finds few efficien-
cies to be gained from vertical restrictions, Comanor also advo-
cates the per se rule, to facilitate enforcement. Even where
market power is relatively small, Comanor does not think the
opportunity cost from prohibiting such restrictions is signifi-
cantly high.
Large elements of both the neo-Chicago and mainstream
agree that a rule of reason should be applied toward vertical re-
straints. While both views acknowledge that restraints are some-
times procompetitive and other times anticompetitive, an
important difference distinguishes them. The mainstream re-
quires much smaller market shares involved to warrant prohibi-
101 KAYSEN and TURNER, supra note 16, at 150.

102 David H. Marks and Johnathan M. Johnson, Price-Fixing: An
Overview, 30 ANTITRUST BULL. 199, 245 (Spring 1985).
103 William S. Comanor, Vertical Territorialand Customer Restric-
tions: White Motor and Its Aftermath, 81 HARV. L. REV. 1419 (1968).
tion than does neo-Chicago. Shepherd"° suggests barring all

tying arrangements where market shares exceed 20 percent.
Even then, he does not consider the per se rule to be inappro-
priate, since cases have rarely involved market shares below 10
percent. Shepherd essentially advocates a per se statute com-
bined with a discretionary enforcement policy, bringing only
cases where "unreasonable" restraints exist.
Steiner suggests applying a presumption of illegality, but
placing the burden of proof on the manufacturer to demon-
strate that a restriction is not anticompetitive. If the manufac-
turer was successful, the restraint would stand. Steiner's view is
representative of the mainstream position, "On the whole, but
with important exceptions, vertical restraints tend to be eco-
nomically injurious to society. ... "
Neo-Chicago requires much more stringent proof by the
plaintiff demonstrating that a vertical restraint is harmful. This
is the position represented in the Justice Department's amicus
brief submitted to the Court in the Monsanto'" case, "there is
no sound basis for assuming . . . that resale price maintenance
is so invariably anticompetitive as to justify per se condemna-
tion . . . resale price maintenance-like other vertical restric-
tions is unsuitable for per se treatment."' 7 Thus, Betty Bock 8
argues for a presumption of legality unless there is an excep-
tionally distorted market imperfection. Phillips and Mahoney
concur, "the circumstances in which price and non-price vertical
restraints are efficient substitutes for vertical integration are nei-

105 Steiner, supra note 100, at 197.
106 Monsanto Co. v. Spray-Rite Service Corp., 104 U.S. 1964 (1984).
107 Brief for the United States as Amicus Curiae, Monsanto Co. v.
Spray-Rite Service Corp., No. 82-914, at 6, 19.
108 Betty Bock, An Economist Appraises Vertical Restraints, 30 AN-
TITRUST BULL. 117 (Spring 1985).
ther rare nor of trivial importance."'" And Marvel and McCaf-

ferty suggest that the only harm resulting from resale price
maintenance is in facilitating horizontal collusion, which could
be better enforced using section 1 of the Sherman Act. "'
Finally, there is a contingency of neo-Chicagoans who advo-
cate a per se legalization of all vertical restraints. Bork, who is
in this group, has an unequivocal position, ". . . every vertical
restraint should be lawful.""' Much of this view emanates from
Lester Telser's article,"' providing an argument that resale price
maintenance is procompetitive because it prevents dealers from
free riding on service standards. Marvel and McCafferty"' ex-
panded Telser's reasoning to include a quality certification ex-
planation. Vertical restrictions are viewed as an instrument for
firms to improve their efficiency and survive in the market.
Thus, "all vertical arrangements between a single manufacturer
and those reselling his product are seen as ways of competing
that should not exist if the manufacturer did not believe they
would increase his profit by increasing his efficiency, as well as
the profit and efficiency of his distributors and/or dealers-
and, therefore, in the end, achieve pro-consumer goals.""' 4
109 Almarin Phillips and Joseph Mahoney, UnreasonableRules and

Rules of Reason: Economic Aspects of Vertical Price-Fixing, 30 ANTI-
TRUST BULL. 99, 112 (Spring 1985).
110 Howard P. Marvel and Stephen McCafferty, The Welfare Ef-
fects of Resale PriceMaintenance, 73 J. L. & EcoN. 363, 368-9 (May
1985).
112 Lester G. Telser, Why Should Manufacturers Want FairTrade?
3 J. L. & ECON. 86 (1960).
113 H. Marvel and S. McCafferty, Resale Price Maintenance and
Quality Certification, 15 RAND J. ECON. 346 (1984).
114 Bock, supra note 108, at 120-1.
IV. Conclusion
Both the mainstream and neo-Chicago views of antitrust have

a unique set of underlying theoretical principles- and prescribed
policies. And each view claims to be the sole representative of a
rational approach to antitrust economics. Considering the dissen-
sion and lack of dialog, it is not surprising that both students and
policy makers find economic advice in antitrust to be in such
disarray. Kenneth W. Dam, Dean of the Chicago Law School,
looking to antitrust economists for guidance, finds only "...
the opinion on nearly all of the major issues-concentration,
vertical foreclosure, barriers to entry, and the like-is perhaps
best characterized as confused . . . the legal profession has not
been able to sort them out of the static of conflicting messages
sent by people calling themselves economists."' 5' Recognition that
virtually all antitrust analysis and opinion emanates from one of
these well-defined schools of thought should help to restore some
order to the seemingly chaotic field of antitrust.
115 Kenneth W. Dam, Economies as a Guide to Antitrust Regula-

tion: A Comment, 19 J. L. & ECON. 385 (August 1976).

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That economic thinking toward antitrust policy lacks unanimity

* Research Fellow, International Institute of Management, Berlin,

"The basic tenet of the Chicago School . . . has triumphed." 3

and agreement exist, each view claims that it exclusively and

II. Two views toward antitrust

A. The mainstream view

While the mainstream view in antitrust economics has its or-

9 For example, Adam Smith expressed explicit concern about the

the distinguishing feature of Clark and Charles Bullock, and

13 Charles J. Bullock, Trust Literature:A Survey and Criticism, 15

16 CARL KAYSEN and DONALD F. TURNER, ANTITRUST POLICY: AN

In the 1960s and particularly in the 1970s the preoccupation

19 Alfred E. Kahn, The Relevance of IndustrialOrganization,in IN-

power."' Scherer extended this concern with how conduct af-

22 William S. Comanor and Thomas A. Wilson, Advertising, Mar-

26 See generally, Richard Schmalensee, Antitrust and the New Eco-

cal evidence that mainstream economists use to support their

28 Leonard W. Weiss, The Concentration-ProfitsRelationship and

ognized as valid goals of antitrust. Unlike their neo-Chicago

B. The neo-Chicago School

The neo-Chicago School, which emanated from the work of

32 See generally, R. POSNER, ANTITRUST LAW: AN ECONOMIC PERSPEC-

35 Posner, supra note 1, at 931.

theory. As a substitute to theory, according to Posner, concepts

they would prove nothing of interest to antitrust policy." ' Un-

from his writings or anybody else's, why it is not clearly a form

44 BoRiK, supra note 5, at 196, 312.

antitrust policy-the pursuit of economic efficiency. According

III. The substantive areas of antitrust

Of all the antitrust statutes, there is probably the strongest

economic performance subsequently deteriorated would Bork

50 BORK, supra note 5, at 263-4.

tomorrow." 55 According to Scherer, "the Courts of the 1890s

The original Harvard position toward monopoly, posited by

55 Id. (cited in PHILLIP AREEDA, ANTITRUST ANALYSIS: PROBLEMS,

TEXT, CASES 268 [2d ed. 1974]).

zation. Weiss,' for example, offers a pure structuralist

60 L. Weiss, The Structure-Conduct-PerformanceParadigm and

64 SHEPHERD, supra note 57, at 314.

ready-to-eat breakfast cereal industry as being correctly con-

posals to deconcentrate industries whose structures (without

Nowhere is the substantive disagreement sharper than to-

71 Demsetz, supra note 67, at 382, 375.

studies relating concentration to prices and profits.76 The impli-

76 See generally, Norman R. Collins and Lee E. Preston, Price-Cost

Neo-Chicagoans, consider scale economies resulting from

81 DOMINICK T. ARMENTANO, ANTITRUST AND MONOPOLY: ANATOMY

and impeded entry, ceteris parabus, generally has disadvanta-

85 WILLIAMSON, supra note 25, at 115.

Chlorox Bleach, which are based on the potential competition

92 POSNER, supra note 32, at 117.

flicts with the goal of decentralizing economic power to the

Vertical restrictions include tying arrangements, exclusive

98 SCHERER, supra note 27, at 563.