Senator Amy Klobuchar and I graduated from the same law school, the University of Chicago. My favorite course in law school was called “Competition and Monopoly,” which dealt with American antitrust law and the economics behind that body of law. It was taught jointly by three distinguished professors: Edward Levi, who later became Attorney General of the United States in Gerald Ford’s presidency; Phil Neal, who later became dean of the law school; and Aaron Director, an eminent economist who was one of the principal founders of the “Chicago School” of economics.

I mention this course because the legal analysis in the first third of Amy Klobuchar’s Antitrust could have been written from my class notes. But her book is not pure legal analysis (for which there is a relatively limited market); indeed, she augments her narrative with important political and (somewhat) relevant personal family history. A strength of the book is that it relates the early history of federal antitrust law (the late 19th century) when “robber barons” like John D. Rockefeller and James J. Hill are thought to have dominated the American economy through the use of “trusts,” i.e., agreements that eliminated competition between the largest producers either through merger or less formal agreements to refrain from competing.

The early thrust of antitrust law, led by Presidents Teddy Roosevelt and William Howard Taft, was to stimulate competition among producers by dismantling uncompetitive agreements among large companies. Indeed, the government was able to break up monopolies in large industries like oil, railroads, steel, sugar, and tobacco, among others. Klobuchar’s legal analysis and history about that era are accurate — at least they agree with my understanding and with what was taught at the University of Chicago Law School.

The Great Depression changed the way many scholars, judges, and economic regulators viewed antitrust law. Things were so bad that even monopolists and price fixers had a hard time making money. In an effort to forestall some firms from going out of business, FDR’s New Dealers under the National Recovery Act actually encouraged price fixing to prevent prices from plummeting. With the passage of the Robinson-Patman Act in 1936, emphasis of antitrust enforcement had switched from preventing monopolistic industry structure to protecting “small businesses” from ostensibly uncompetitive practices of larger firms.

This change of emphasis led to some very confused thinking. Should competitors compete hard, but not too hard? If low prices are obviously good for consumers, how do we determine whether a price is “too low”? How can we protect vigorous competition and still protect weak competitors? These kinds of considerations led to some very confusing court decisions.

A group of economists and legal scholars, most of whom taught at or were associated with the University of Chicago, often referred to as the “Chicago School,” led the way out of the intellectual morass that had become antitrust law. They argued that consumer welfare would be maximized through economic efficiency. They applied rigorous economic analysis to various business practices to determine whether those practices had the effect of constraining production, which is the principle method by which monopolists reap “monopoly profits.” They have been severely criticized, however, for ignoring issues of distributive justice. For example, they had little to say about income inequality. Nonetheless, they should be credited for demonstrating the salutary effects of vertical integration and for showing that some forms of exclusive dealing and price discrimination benefit both producers and consumers by giving incentives for increasing production.

Two of the leading legal scholars associated with the Chicago School were Richard Posner and Robert Bork. Posner, a very influential federal appellate judge and author, was educated at Harvard, but taught at Chicago. He became famous by applying economic analysis not only to antitrust, but many other fields of law. Bork, another influential federal appellate judge, was educated at Chicago (both undergraduate and law school) and taught at the Yale Law School before ascending to the bench.

In Amy Klobuchar’s telling, Bork is a bete noire of antitrust law. His 1978 book, The Antitrust Paradox, subtitled A Policy at War with Itself, pointed out how confusion about the ends of antitrust had produced a mishmash of case law by encouraging a costly form of protection for inefficient and uncompetitive small businesses. Although the book is very well written, has been cited more than 100 times in federal court cases, and is often thought of as ground breaking, it contains very little that was not already covered in the Competition and Monopoly course I took in 1967. I suspect that Bork learned a lot of his economic analysis of law from the same course a few years before me.

Bork’s book, although not particularly original, did eloquently and succinctly summarize a large corpus of law review articles (many by Posner) and less trenchant books that had preceded it. Whether Bork or his predecessors were the cause, antitrust law changed significantly in the 1980s and thereafter. For example, the Robinson-Patman Act was interpreted very narrowly by the courts, and the federal regulators (the Justice Department and the Federal Trade Commission) pretty much ignored it. Moreover, many mergers and acquisitions that would have been challenged even a few years before were allowed to take place.

Despite her own academic background, Senator Klobuchar rejects the basic outlook and many of the conclusions of the Chicago School. For example, she seems more concerned with the basic fairness of specific business practices than with fundamental market structure. She maintains that the Chicago School’s conservative orthodoxy is unequal to the very different challenges of the 21st century economy. In fact, she specifically contrasts the Chicago School with the “Harvard” approach, and sides with the Crimson over the Maroon.

One of her principal recommendations is to amend Section Seven of the Clayton Act to make it easier for the government to forestall uncompetitive mergers or acquisitions. She would ease the standard of proof of harm to competition and shift the burden of proof from the government to the parties to the proposed transaction. Here she would find herself in agreement with the Chicago School if the proposed merger were “horizontal” (i.e., among direct competitors), but opposed to the Chicago School if the proposed transaction were “vertical” (i.e., among suppliers and customers) or “conglomerate” (i.e., among unrelated parties).

She also spends significant ink on her desire to protect competition in the beer market. As she explained in a news release from her Senate office:

“Because major wholesalers typically carry either Anheuser-Busch InBev (ABI) or SABMiller products, ABI might be able to curb the growth of craft brewers by limiting access to wholesalers. ABI has acquired seven craft brewers since 2014 and four since merger negotiations with SABMiller began. Further, ABI’s incentive program seems to penalize wholesalers for carrying a craft brewer that has achieved more than a modest level of success.”

My own experience as general counsel for a consumer products company showed me that what Senator Klobuchar avers indeed takes place. Wholesalers and retailers can be “persuaded” by large companies through profits and incentive programs not only to limit access to competing products, but even to affect shelf placement if they continue to carry the competitor’s products, which of course affects sales.

In Senator Klobuchar’s view, reinvigorated enforcement of the antitrust laws could accomplish a great many things, some or which go beyond the usually understood purpose of those laws. For example, she asserts that antitrust enforcement helps to raise wages. That’s possible, but certainly not inevitable. Increasing competition among firms incentivizes them, ceteris paribus, to minimize costs — and wages are a cost of doing business. Moreover, near-monopolists like Google of today and General Motors of the 1950s are known to pay very high wages. On the other hand, she correctly asserts that breaking up today’s tech giants would reduce their inordinate influence on opinions and politics, whether or not it had any effect in their respective industries.

In general, I agree with much of what Senator Klobuchar says and recommends, e.g., for antitrust nerds, the Illinois Brick case definitely should be overturned. [See Illinois Brick Company et al., v. State of Illinois et al., 431 U.S. 720, 1977.] However I have to express my disagreement on three issues of significant importance.

First, she recommends increased enforcement against “predatory pricing.” Despite the Herculean efforts of Professor Phillip Areeda of the Harvard Law School to define it, the concept of predatory, as opposed to just plain competitive, pricing remains elusive in practice.

I think the law’s current skepticism toward the concept is justified. Indeed, the classic case of alleged predatory pricing, Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911), has undergone significant reevaluation beginning with John S. McGee’s article, Predatory Price Cutting: The Standard Oil (N. J.) Case, in the Journal of Law and Economics. [John S. McGee, “Predatory Price Cutting: The Standard Oil (N.J.) Case,” 1 J. Law & Econ. 137 (1958)] It turns out that Rockefeller built the Standard Oil monopoly not by driving his competitors out of business, but rather by the more benign method of eliminating competition by purchasing those competitors. The case was rightly decided because it found a series of anti-competitive contracts (the acquisition of competitors), not because it found that Standard Oil’s pricing practices were illegal.

Second, the Senator casts a wary eye on vertical mergers, i.e., mergers between producers and their customers or suppliers. But the Chicago School pointed out that vertical mergers do not increase either party’s share of its own market. Rather, such mergers do reduce the transaction costs between the parties, making both of them more efficient.

Third, Senator Klobuchar asserts that monopsonies (single buyers) or oligopsonies (very few buyers) are as harmful as monopolies (single sellers) or oligopolies (very few buyers). Monopolists harm consumers and the economy as a whole by restricting production in order to charge non-competitive prices. Monopsonies, on the other hand, have no such power, unless they are also monopolies. Monopsonies actually tend to increase production by exerting their buying power to obtain competitive (low) prices from their suppliers.

I commend the Senator for her thorough research and her heart-felt efforts to improve the functioning and fairness of the economy. Her book provides a valuable lesson in revealing how relaxed (or should I say, lax) enforcement of the antitrust laws has allowed significant concentration in some industries such as telecommunications. E.g., T-Mobile and Sprint were allowed to merge. And consumers are well-acquainted with the deleterious effects of cable mergers.

Her book is a worthwhile effort to acquaint the general reading public with some important issues of public policy. For a more rigorous academic treatment and a more traditional perspective on the same issues, see Richard Posner’s Antitrust Law, Second Edition (2001), the University of Chicago Press.

(JAB) ( )