Injecting Innovation into The Rule of Reason: A Comment on Evans and Hylton

Richard Gilbert, Nov 01, 2008

The Evans and Hylton paper on The Lawful Acquisition and Exercise of Monopoly Power and its Implications for the Objectives of Antitrust arrived in my in-box at about the same time as the U.S. Department of Justice´s report on Competition And Monopoly: Single-Firm Conduct Under Section 2 Of The Sherman Act (DOJ Report). The two documents have much in common. Both place the historical development of the legal treatment of monopoly in an historical context and consider appropriate tests to evaluate when single-firm conduct should run afoul of the Sherman Act. The DOJ Report generated considerable controversy. The Federal Trade Commission co-organized hearings on Section 2 enforcement with the Department of Justice, but did not endorse the final report. Among other criticisms, Commissioners Harbour, Leibowitz, and Rosch faulted the DOJ Report for relying too heavily on economic theory in the consideration of applying antitrust law.

Evans and Hylton would appear to agree with this critique if economic theory is interpreted to be a static analysis of competitive effects. The authors fault economists for a . . . focus on issues that pertain to static competition, not because they are more important than dynamic competition, but because that is what they are able to work out mathematically. This leads to a tractability bias that emphasizes static competition concerns at the expense of potentially more important dynamic effects. I am sympathetic with the concern that dynamic considerations are often neglected in competition analysis. Dynamic competitive effects, while complex to analyze, are too important to ignore and I have emphasized dynamic competition in my own evaluations of the state of competition policy. Dynamic considerations influence competition policy in two general ways. The first is the role of dynamic competition in identifying the types of conduct that should raise antitrust concerns under the antitrust laws. The second is the role of dynamic competition in evaluating the effects of conduct that is challenged under the antitrust laws.

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