By John M. Yun (George Mason University)
Antitrust analyses relegate efficiencies to a second-class status. Not only are they often an after-thought when assessing conduct within a relevant market, but the Supreme Court, in 1963 with its Philadelphia National Bank (PNB) decision, established that efficiencies realized outside of the relevant market construct, that is, “out-of-market” efficiencies, are not even counted. While the PNB case involved a horizontal merger between two Philadelphia banks, many interpret the PNB precedent as establishing a prohibition of out-of-market efficiencies in non-merger cases as well. The precedent and associated out-of-market efficiencies principle have had an immense influence on the enforcement of antitrust laws. Yet, the principle is increasingly out of step with sound assessments of business conduct—particularly in digital markets with network effects. Further, the principle unreasonably handicaps defendants, which is an increasing concern due to the current policy movement to severely tilt antitrust enforcement in favor of plaintiffs. Consequently, this Article argues that the out-of-market efficiencies principle needs serious reform—but in a specific way. Rather than considering ‘within market’ and ‘out-of-market’ efficiencies under different standards (including outright exclusion), there should be one unified, “relevant” efficiency classification. Out-of-market efficiencies must be “interdependent” with the relevant market to be a relevant efficiency—which this Article demarcates based on established economic principles. This reformed approach has the advantage of providing more flexibility to courts to consider adjacent, or related, markets that are not strictly within a relevant market, while also mitigating the administrative burden of assessing all possible efficiency claims. Relevant efficiencies must still be verifiable, and plaintiffs can show that there are less restrictive alternatives available to achieve the same benefit. This proposal seeks to harmonize scholarship that has been highly critical of PNB with scholarship that believes in preserving the precedent.