The Chicago School of Antitrust

[Cross-posted at Organizations and Markets]

Josh Wright of GMU Law and Truth on the Market was on our campus this afternoon to present his paper “The Roberts Court and the Chicago School of Antitrust: The 2006 Term and Beyond” (thanks to Thom for hosting). The paper provides a nice overview of the evolution of antitrust theory and practice over the last several decades. Josh describes three historical phases of antitrust thinking: the Harvard approach (Bain’s structure-conduct-performance paradigm), the Chicago approach, and the modern “post-Chicago” approach (based on game-theoretic industrial organization).

Josh defines “Chicago” broadly to include not only Demsetz, Peltzman, B. Klein, Bork, Posner, and Easterbrook but also Williamson and others who in the 1970s and 1980s challenged the conventional wisdom that deviations from perfect competition (resale price maintenance, exclusive dealing, block booking, and the like) are per se anticompetitive. I think this is a reasonable taxonomy (though Williamson would be horrified to be included as a Chicagoan). Note that this definition rejects the caricature of Chicago economists as laissez-faire ideologues (indeed, Chicagoans are viewed by Austrians as wishy-washy interventionists on competition policy [1, 2]). Instead, it defines the Chicago approach as the “rigorous application of price theory,” “the centrality of empiricism,” and the “emphasis on the social cost of legal errors in the design of antitrust” (as emphasized by Easterbrook).

The body of the paper focuses on recent cases and argues that the Roberts court, in its antitrust rulings, seems strongly influenced by the Chicago approach. I asked if this was because the post-Chicago approach is too new, and that in a decade or so the Chicago approach would be as outmoded in antitrust law as it is in economic theory, or because the post-Chicago approach (which doesn’t seem to have strong empirical or policy implications) is intrinsically irrelevant to antitrust practice. He thinks it’s the latter, but time will tell.

Incidentally, Josh recently (2003) completed his PhD in economics at UCLA, where Ben Klein, Armen Alchian, and Harold Demsetz were on his dissertation committee. Josh is quite sure this committee had the highest median age of any dissertation committee on record. Almost certainly Josh is the last representative of the UCLA tradition in economics which, like the Chicago school from which it sprung, has been absorbed into the Borg-like consciousness of mainstream (MIT) economics.