John B. Kirkwood

The Great Depression: A Structural Analysis

DURING THE GREAT DEPRESSION, gross national product in real terms declined almost 30 percent, and money GNP fell over 45 percent. Private investment sank below the level needed for replacement. The effect on employInent was no less severe. Only 3.2 percent of the labor force was unemployed in 1929. Yet by 1933, one man out of every four who wanted work could not fvlnd it. Recovery from this shock was slow. Output regained its 1929 level in 1937, but at that time over 7.7 million people were still unemployed. By 1941, as the nations war machine gathered itself into gear, 9.9 percent of the labor force remained without jobs. Despite its magnitude, economists have been reluctant to study this catastrophe. Although it is relatively easy to specify the half-dozen or so probable causes of the Depression, it is diffvlcult indeed to assess their relative contributions. A few scholars, to be sure, have isolated some particular economic magnitude whose path they claim is of paramount signifvlcance for 1lnderstanding the Depression. Yet their interpretations usually account poorly or not at all for other factors of plausible, if lesser, importance. The fvlrst aim of this paper therefore is to assess the relative potencies of several major causes of the Depression. A model of the economy will

Powerful Buyers and Merger Enforcement

Although large buyers like Walmart and Tyson Foods occupy important positions in the American economy, antitrust law remains focused on the conduct of sellers. Moreover, when mergers of buyers have been challenged, the cases have been based on a single theory – that the merger would create a dominant buyer (or group of buyers) that would exploit small, powerless suppliers. Most powerful buyers, however, face suppliers with power of their own, and in such cases, the buyers exert “countervailing power,” which can also be anticompetitive. Yet buyer mergers that reduce competition through the exercise of countervailing power are not addressed by the government’s guidelines, the leading treatises, or the case law. This article provides a comprehensive analysis of the role of buyer power in merger enforcement. It defines the types of buyer power, describes their competitive effects, and reviews an array of evidence. It also discusses the traditional approach to buyer mergers, suggesting modifications to better reflect the true dynamics of buyer power. Most important, it recommends that courts and enforcement agencies halt mergers that enhance anticompetitive countervailing power. Because many buyer combinations that increase such power are beneficial, the article identifies ten situations in which a merger that augments countervailing power would reduce competition and diminish the welfare of consumers, suppliers, or society.

Rethinking Antitrust Policy Toward RPM

Resale price maintenance is a particularly dangerous vertical intra-brand restraint. Because of its direct impact on price competition, it is likely to harm consumers in a substantial number of cases. At the same time, RPM is likely to benefit consumers in a significant number of other cases. Given these mixed effects, the ideal legal standard would distinguish between those instances in which RPM is anticompetitive and those in which it is procompetitive. While Leegin thought that the full rule of reason could play this role, it did not acknowledge what every scholar who has looked at the issue has found—that the full rule of reason has operated in practice as a standard of virtual per se legality, absolving almost every restraint examined. This article proposes an alternative approach—a presumption of illegality combined with safe harbors—and explains why it is likely to produce better results at lower cost.

Collusion to Control a Powerful Customer: Amazon, E-Books, and Antitrust Policy

A federal judge recently held that Apple violated antitrust law by conspiring with leading publishers to raise e-book prices. While the Justice Department characterized the case as routine, many commenters argued it should not have been brought. In their view, the real villain was Amazon, whose power and aggressive behavior threatened to create a monopoly, reduce consumer choice, and diminish the vitality of book publishing. In the face of such a powerful customer, the publishers should have been allowed to collude. This article addresses that issue, in the e-books case and in general. In the e-books case, collusion was almost certainly unwarranted. Amazon appeared to be engaged in loss leading, not predatory pricing, and fears of an eventual Amazon monopoly were largely unfounded. Amazon’s buyer power, moreover, was not monopsony power, which is frequently harmful, but countervailing power, which can lead to lower consumer prices. There was no evidence it had caused a reduction in the variety of new books.In some circumstances, however, collusion to control a powerful customer would be justified. This article identifies the most important situations and develops a defense to the per se rule to protect them. While the defense would rarely be satisfied, when it is, it would provide a remedy for anticompetitive buyer power that would otherwise persist.

Reforming the Robinson-Patman Act to Serve Consumers and Control Powerful Buyers

The Robinson-Patman Act suffers from two major flaws. First, its fundamental goal is not to promote competition and benefit consumers but to protect small business. Second, it frequently fails to protect either consumers or small business. In particular, the Act’s defenses for meeting competition and cost justification ordinarily allow large buyers to extract discriminatory concessions from suppliers, even when the concessions harm both small competitors and consumers. To eliminate these flaws, three changes are needed. First, the Act’s injury language should be amended: a plaintiff should have to show harm to competition, not just injury to a competitor. Second, the Act’s meeting competition and cost justification defenses should be curtailed. Finally, though not the focus of this article, conforming changes should be made in the Act’s treatment of promotional discrimination. These reforms would create a statute that is much more likely to serve consumers and control powerful buyers. Indeed, if a large buyer such as Amazon or Wal-Mart induces a concession that threatens to harm competition, a reformed Robinson-Patman Act would provide the most desirable remedy. As a general rule, neither structural relief nor common carrier regulation is likely to be preferable. For this reason, the Robinson-Patman Act should be reformed, not repealed.

CONSUMERS, ECONOMICS, AND ANTITRUST

This is the first paper in a volume devoted exclusively to antitrust law and economics. It summarizes the other papers and addresses two issues. First, after showing that the federal courts generally view consumer welfare as the ultimate goal of antitrust law, it asks what they mean by that term. It concludes that recent decisions appear more likely to equate consumer welfare with the well-being of consumers in the relevant market than with economic efficiency. Second, it asks whether a buyer must possess monopsony power to induce a price discrimination that is not cost justified. It concludes that a buyer can often obtain an unjustified concession simply by wielding bargaining power, but the resulting concession may frequently – though not always – improve consumer welfare.

The Meaning and Determination of Market Power

Antitrust has returned to the national agenda. Leading Senators, progressive organizations, and many scholars are calling for stronger antitrust enforcement. One important step, overlooked in the discussion to date, is to reform how market power—an essential element in most antitrust violations—is determined. At present, the very definition of market power is unsettled. While there is widespread agreement that market power is the ability to raise price profitably above the competitive level, no consensus exists on how to determine the competitive level. Moreover, courts virtually never measure market power (or, its larger variant, monopoly power) by identifying the competitive level and comparing a defendant’s price to it. Rather, courts define a relevant market and calculate the defendant’s market share, a process that is often complex and misleading. This Article proposes a new approach that would infer market power from the likely effects of the challenged conduct. Courts ought to identify market power by asking whether the challenged conduct is likely to enable the defendant(s) to raise price above the prevailing level or maintain price above the but for level (the level to which price would fall absent the challenged conduct). This method would not only close the definitional gap, it would simultaneously enable courts to resolve two critical elements of most antitrust offenses—market power and anticompetitive effects— while inferring the relevant market from the result. By reducing the cost and improving the accuracy of antitrust enforcement, this step would enhance its impact.

The Predictive Power of Merger Analysis

This article looks first at the process courts use to resolve merger challenges and finds that in the area of product market definition, merger analysis is reasonably strong. Market definition remains complex and subjective, however, and could be improved, or avoided altogether, through econometric techniques such as merger simulation. Judicial analysis of entry is much weaker. Courts ask whether the market is protected by entry barriers but rarely ask whether the barriers are high enough to make entry unprofitable. The article also examines the results of “marginal” mergers, mergers that would have been blocked had the government and courts been somewhat more aggressive. Measured in this way, merger analysis is not seriously off target: the merger retrospectives find that very few transactions led to sharp price changes. They also find, however, that a large proportion of marginal mergers resulted in small price increases, which suggests that in appropriate cases, enforcement agencies and courts should be more willing to predict anticompetitive effects.