Antitrust laws are a collective of federal and state
government laws that regulates the conduct and organisation of business
corporations, generally to promote fair competition for the benefit of
consumers. They are more generally known as competition laws in the UK, and aim
to restrict the formation of cartels and prohibit other collusive behaviours
and practices. There long standing mantra is that their function is to ‘defend
competition not competitors’. In the US
the first antitrust law was passed in 1890 and called the Sherman Act, it
originally focused on illegalising restraints on trade as committed by the
larger railroad trusts towards small businesses.
In this article Davies, seeks to trace the pre-history and
history of the Chicago ‘revolution’ as well as explain the three areas of
transformation which lead to an essentially unchallenged authority for
neo-classical economic logic in the decision- making procedure of the US antitrust
authorities. He suggests these areas to be, 1; the Law and Economic movement in
the University of Chicago during the 1930’s, 2; the change in understanding of
economic competition and 3; the adoption of the Chicago paradigm by the
antitrust authorities, which began in the Supreme Court in the mid-1970’s.
The Chicago school of economics is regarded as part of the
neoclassical school of economic thought, however Friedrich von Hayek, who is
considered the father of neo-liberalism was considered to unorthodox to be hired by Chicago's economics depepartment but was hired instead by the Law school, in hindsight he considered one of the key figure heads within
the school. As a school they’re known for their willingness
to take neo-classical economics into areas it had previously never been, in
this case law.
Until the mid-1970’s antitrust policies had been used to
pursue various political and moral goals for example the redistribution of
wealth or attacking organised crime, but these were abandoned due to the
Chicago definition of efficiency being recognised as the only coherent
objective regarding maintenance and regulation of the market. The school’s main
critique was that the sole goal of antitrust policies should be economic
efficiency. Ronald Coases (a lecturer at the school) is once quoted to have
jokingly said when speaking about how sick he was of teaching antitrust, “When
the prices went up the judges said it was monopoly, when the prices went down,
they said it was predatory pricing, and when they stayed the same, they said it
was tacit collusion” implying the courts to be making ‘nonsensical’ decisions.
The Chicago University proposed that some actions
that were originally seen as anti-competitive could actually promote
competition. For example, a monopoly is in the eyes of the antitrust
authorities seen as extremely uncompetitive, however it could actually be an
outcome of higher efficiency, in that very efficient firms will inevitably
outshine the inefficient ones, or according to Schumpeter, a risk taking firm
can create a wholly new market, in which they may have a monopoly purely
because they are the first firm to enter said market.
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