Posted by Social Science Research Network
By John M. Newman (University of Memphis)
Abstract: The rule of reason has come to dominate modern antitrust law. Rule-of-reason analysis takes into account both harmful and beneficial effects of defendants’ conduct. For decades, what qualifies as “harmful” has been the subject of intense academic and judicial debate. But what counts as “beneficial”? Despite its fundamental importance to antitrust enforcement, this has remained a surprisingly open question. The relevant case law is a disorganized and sometimes incoherent tangle of competing approaches.
This article identifies the “market failure” approach as the doctrinally correct — and economically optimal — basis for procompetitive-justification analysis. Under this approach, restraints of trade may be justified if — but only if — they increase consumer surplus. With that in mind, this article establishes a novel taxonomy of market failures and corresponding procompetitive justifications. “Structural” justifications alleviate market failures that do not result from irrationality, whereas “behavioral” justifications correct irrational marketplace conduct. “Nonwelfare” justifications, on the other hand, achieve moral or ethical ends not related to the economic concept of market failure.
These distinctions shed new light on antitrust case law and commentary. The concept of behavioral justifications, in particular, allows this article to contribute more insightful readings of multiple canonical Supreme Court decisions. On both doctrinal and consequentialist grounds, this article demonstrates that antitrust should continue to relax the rationality assumption so as to recognize behavioral justifications. Moreover, discretely analyzing non-welfare justifications reveals some surprising — and disturbing — examples of courts blessing restraints for reasons altogether foreign to antitrust law. The article concludes by identifying the proper rule-of-reason framework, a more rigorous test that will minimize error costs and maximize consumer welfare.