Continuing my reading of legal scholarship on Antitrust, I came across a very good discussion of the history of the early days of the Sherman Act: Page, Ideological Conflict and the Origins of Antitrust Policy, 66 Tul. L. Rev. 1 (1991).
It characterizes the evolution of the Sherman Act as the tension between two competing ideological views of the world. In what the author calls the "evolutionary vision,"
market outcomes are viewed as the spontaneous and unintended result of countless interactions of self-interested individuals; the resulting order is presumptively a social optimum; and state intervention to alter these outcomes according to some rational plan is likely to do more harm than good. In this view, market transactions are inherently noncoercive, and true monopoly requires some form of government support.
In this view, the government's role in antitrust enforcement should be
primarily negative, removing governmental impediments to the market's own self-correcting mechanisms. Government should remove limitations on entry like tariffs, exclusive licenses, or franchises for various services. Less obviously, government should not enforce private cartel agreements. Beyond this, the government should intervene only to protect the process of voluntary exchange by defining property rights and enforcing contracts.
Opposed to this view is what the author calls the "intentional vision."
In the intentional vision . . . social outcomes are the result of the conscious intent of powerful firms and individuals; the order resulting from unregulated exchange is suspect; and rational democratic state intervention is necessary to assure legitimacy and fairness. In this view, market transactions between parties with differing endowments of wealth and knowledge are inherently coercive, and unregulated monopolies tend predictably toward monopoly.
And, the intentional vision's view of the role of antitrust is predictably different:
The intentional vision typically sees monopoly as the result of private conduct. Markets have no particular tendency toward efficiency; indeed their tendency is toward vast imbalances of wealth and economic power because the widely varying endowments of the participants permit the stronger to dictate outcomes. Those with greater endowments of wealth may use the market to their own ends by effective exclusion of competition and manipulation of consumer preferences. Rivals may effectively limit competition among themselves by forming stable combinations or by merely recognizing their joint self-interest. Vastly unequal outcomes confirm this tendency of markets toward monopolistic control. This tendency toward monopoly is sometimes expressed as a belief in the existence of two parts of the economy, one monopolistic and one competitive. The monopolistic sector is able to prevent competition from eroding its position by judicious use of its power, while the competitive sector is disorganized and subject to exploitation. It is therefore the role of government to correct the imbalances by direct intervention.
It is clear that Page categorizes the Chicago School as the modern manifestation of the "evolutionary vision," and places certain other strands of modern economic thought in the "intentional vision" camp:
Just as the Chicago view has formalized the intuitions of the freedom of contract era, recent work in game theory and raising rivals' costs has begun to do the same for the intuitions of the intentional vision. It is probable that these approaches will contend with the current evolutionary vision for influence on antitrust courts well into antitrust's second century.
So, where does "Network Externalities" fall in this framework?
I would argue that it falls squarely into the "intentional vision," or state-interventionist camp. First, the picture of barriers to entry painted by the Network Externalities theorists seems to fit nicely into the interventionist view that the economy tends toward monopoly. Indeed, the Network Externalities theory of barriers to entry would arguably make no sense at all to an advocate of Page's evolutionary vision, since there is no connection between the alleged network-based barriers to entry and any form of government intervention. (This, of course, might explain Page's own skepticism of the network externalities theory. He states up front that he is an advocate of the "evolutionalry vision." See Lopatka and Page, Microsoft,monopolization and Network Externalities: Some Uses and Abuses of Economic Theory in Antitrust Decsion Making, 40 Antitrust BUlletin 317, 340-370 (1995), for a critical look at Network Externalities as applied to the 1994-95 Consent Decree case.) Instead, it would seem to be consistent with the intentional vision's world view that barriers to entry are either unnecessary for monopoly to occur or arise naturally from the nature of the market itself.
Second, Network Externalities theory seems to share the intentional vision's skepticism of market outcomes:
[In an increasing returns market such as that for software] there is more than one equilibrium point and there is no reason to expect the free market to reach equilibrium at a point that most efficiently allocates resources. The markets in such industries can easily be manipulated by a company with a large 'installed base,' with the result that superior products of competitors are not likely to prevail in the free market. Indeed, in 'increasing returns' industries, there is every reason to believe that consumers will get 'locked into' the first product that appears on a new platform, even if the product is technologically inferior. Similarly, a company with a large installed base in one market can give its inferior product in a second market an insurmountable advantage over competitors in the second market by integrating the products from the two markets together technologically.
This, from the Amici Brief in the 1995 Consent Decree case, as quoted in Loptaka and Page, 40 Antitrust Bulletin at 336.
So, we end up going back to Bork, whose expressed view is that courts should limit their interventions to those cases in which judicial intervention will enhance "consumer welfare" or "efficiency." Under the traditional Chicago view, which is based on traditional neoclassical economics, those interventions are going to be rare, consistent with the "evolutionary vision" of which Chicago style neoclassical economics is the latest expression. However, it seems that Bork does not base his view that antitrust should be limited to enhancing efficiency entirely on a love of neoclassical economics. Instead, he appears to ground it in his conception of the judicial role in interpreting the intent of the Congress when it passed the Sherman Act.
So, it may be possible to remove the Chicago School's grounding in neoclassical economics from Bork's analytical frame of reference and replace it with a different set of assumptions about the behavior of markets. If underlying economic assumptions are changed, the "limitation" of antitrust to enhancing efficiency or consumer welfare takes on a very different cast indeed, with a whole new set of perhaps more interventionist policy prescriptions. (Is this what Barksdale meant when he said Bork would be applying his analytical expertise to the area of Network Externalities?)
It will be interesting to see how a case based on the "intentional vision" Network Externalities theory fares, once the theory's intellectual roots and characteristics are exposed, in an appellate court system populated by "evolutionary vision" judges. |
