Friday, December 21, 2012

Robert Bork, Antitrust Revolutionary

Economic Subversive

This week brought the sad news that Robert Bork has died, at the age of 85.  Bork had a long and varied career.  (See here and here for remembrances.)  He served in the Marine Corp from 1945-46 and graduated from the College at the University of Chicago in 1948.  He then matriculated at the University of Chicago Law School, which he left to rejoin the Marines during the Korean War.  After Law School he served as a fellow in Law and Economics for one year, practiced law at Kirkland and Ellis in Chicago and then joined the faculty at Yale Law School.  While at Yale, President Nixon nominated and appointed Bork to serve as Solicitor General of the United States in 1973, where Bork served until the end of the Ford Administration in January 1977.  President Reagan nominated Bork to the United States Court of Appeals for the District of Columbia Circuit in 1981 and appointed him after Senate confirmation in 1982.   He retired from that court in 1988.  President Reagan nominated Bork to the Supreme Court in 1987, but the U.S. Senate ignominiously refused to confirm him.  This essay, by former Tenth Circuit Judge Michael McConnell, now Director of the Stanford Constitutional Law Center, explains why the Senate's rejection of Judge Bork helped politicize the Court and diminish the Rule of Law.

Most of the punditry and analysis following Judge Bork's death has focused on his views on the Constitution, particularly his strong and articulate support for an "originalist" approach to constitutional.  These commentaries have ignored Bork's tremendous influence in another field, namely, Antitrust Law.  For instance, the main piece in the New York Times on Bork's passing, while over 2,000 words long, contains only a brief paragraph about his contributions to antitrust law.  CNN's story on the occasion of Bork's death does not mention Bork's contributions to antitrust law at all, aside from a brief quote of Justice Scalia, who lauds Bork's influence over the field.  Other essays have, like Judge McConnell's, focused on the implications of Bork's nomination and rejection for the confirmation process and the integrity of the courts.  (See here and here.)  These oversights are unfortunate.   Simply put, Bork helped revolutionize the way that scholars, judges and enforcement officials view the appropriate scope of antitrust regulation and thus the role of the federal government in the nation's economy.  More precisely, no individual scholar had a greater influence on antitrust law and policy than Robert Bork.

Many know Bork from his classic book, The Antitrust Paradox, published in 1978.  For instance, one remembrance states "The Antitrust Paradox, published in 1978, shifted the entire focus of antitrust policy toward consumer welfare," without mentioning any previous work.  (See also several similar statements by various participants in this National Review symposium.)   However, Bork's campaign to revolutionize Antitrust started more than a decade and a half before publication of the Antitrust Paradox.   In particular, while at Yale (ironically?) Bork laid the foundation for the so-called "Chicago Revolution" in antitrust law and policy with a series of articles published between 1961 and 1968.  The Antitrust Paradox drew upon these arguments.     In these works, Bork made two broad and fundamental contributions to antitrust analysis, one normative and one technocratic.

As a normative matter, Bork argued that the antitrust laws should have one goal and one goal alone, namely, the maximization of consumer welfare, which Bork equated with allocative efficiency and thus total economic welfare.  To be sure, other scholars embraced a "total welfare" approach before Bork did.  In particular, and as I explained in this article, Harvard-school economists Edward Mason, Donald Turner, and Carl Kaysen also embraced "total welfare" as an exclusive goal of antitrust regulation.  However, Bork's work differed from the work of these scholars in two ways.  First, Bork expressly linked "total welfare" and "efficiency" to "consumer welfare," whereas the Harvard School had not employed the latter term, choosing instead to focus only on "efficiency" as the appropriate goal.  Second, unlike these Harvard scholars, Bork offered a legal defense of total welfare/consumer welfare as an antitrust goal.  In particular, after a thorough review of the legislative history of the Sherman Act, Bork argued that the Congress that passed the Act only "intended" to ban those restraints that reduced total welfare, thus leaving those that enhanced efficient resource allocation unscathed.  See Robert H. Bork, Legislative Intent and the Policy of the Sherman Act, 9 J. L. & Econ. 7 (1966).  Bork also argued that, even if Congress's goal was unclear, courts should nonetheless pursue "consumer welfare" exclusively, because the pursuit of any other goal (e.g., a fair distribution of income) or combinations of goals (e.g. protection of small businesses and efficiency) would require courts to make value choices and trade-offs that were properly left to the legislature.  See  Robert Bork, The Goals of Antitrust Policy, 57 American Econ. Rev. (Papers and Proceedings) 242 (1967).  Some scholars have taken issue with Bork's equation of "consumer welfare" with total welfare, with one scholar referring to this claim as "something [Bork] made up." (See also here for an argument that Congress meant to ban all restraints that increased consumer prices in a relevant market, even if the practice increased total welfare.)    Correct or not, Bork's claim was highly influential.  Indeed, in Reiter v. Sonotone, 442 U.S. 330, 343 (1979) the Supreme Court announced that Congress intended the Sherman Act as a "consumer welfare prescription," citing the Antitrust Paradox for this proposition.

As a technocratic matter, Bork proposed the sort of radical reform in antitrust doctrine necessary to make "consumer welfare" as he defined it the exclusive priority of antitrust law.   Perhaps most famously, Bork rehabilitated the distinction, made famous by William Howard Taft, between "naked" and "ancillary" restraints.  See Addyston Pipe and Steel Co. v. United States, 85 F. 271 (6th Cir. 1898).  Like Taft, Bork argued that naked restraints should be unlawful per se, while ancillary restraints should be analyzed under a forgiving rule of reason.   Moreover, Bork also contended that early Sherman Act case law followed Taft's template, even though courts sometimes used different formulations when articulating antitrust doctrine.  In particular, Bork concluded that Taft's formulation anticipated the "Rule of Reason," articulated in Standard Oil v. United States, 221 U.S. 1 (1911) (discussed here), which banned only those restraints that "unduly restrain trade" by producing "monopoly or its consequences."  See Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, 74 Yale L. J. 775 (1965).  Moreover, employing the latest economic theory of the time (and theory that is still adequate for such purposes today), Bork explained why this distinction between "naked" and "ancillary" restraints would produce results that would maximize "consumer welfare" as he defined it.  See Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, part II, 75 Yale L. J. 373 (1966).   Thus, Bork explained that ancillary restraints could align the incentives of individual venture participants with the welfare of the overall venture and thus produce significant efficiencies and enhance the allocation of resources.  In so doing, he argued persuasively for the expansion for the category of restraints deemed "ancillary" to otherwise lawful objectives.  For instance, relying upon the work of Lester Telser, Bork explained how minimum resale price maintenance or exclusive territories imposed by manufacturers or joint ventures could ensure that dealers or venture partners made adequate investments in promotion, instead of "free riding" on the efforts of other dealers or partners. (Unlike Telser, who had focused only on vertical minimum rpm, Bork focused on horizontal and vertical price and non-price restraints.)   In so doing, Bork drew on the work of Ronald Coase, whose 1937 article on the Nature of the Firm would help Coase earn the Nobel Prize in Economic Science in 1991.  Thus, Bork was an early pioneer in applying transaction cost economics to antitrust problems.   (See here, at pp. 53-54 for an account of Bork's early invocation of Coase and transaction cost considerations).  During this same period, Richard Posner, a later convert to Chicago thinking, contended that non-price vertical restraints rarely produced benefits and should this be presumptively unlawful.

The Supreme Court endorsed Bork's reasoning in Continental T.V. v. GTE Sylvania, 433 U.S. 36 (1977), holding, contrary to previous precedent, that non-price vertical restraints could prevent "free riding" and thus may produce "redeeming virtues" of the sort that preclude per se condemnation.  Instead, the Sylvania Court said, courts should analyze such agreements under a forgiving rule of reason.  (Note that the Court issued Sylvania before publication of the Antitrust Paradox.)  Less than a decade later, the Court applied similar reasoning in the context of horizontal restraints, invoking Sylvania and subsequent work of Judge Bork for the proposition that horizontal agreements between members of  sports leagues could enhance the quality of the league's product, thereby preventing per se condemnation of such restraints.    See NCAA v. Board of Regents of the University of Oklahoma, 464 U.S. 85 (1984).  Shortly thereafter, the Court extended Sylvania, holding that an agreement between a manufacturer and a dealer to terminate another dealer for price cutting was not unlawful per seSee Business Electronics v. Sharp Electronics, 485 U.S. 717 (1988).  Nearly a decade later, the Court unanimously reversed the per se ban on maximum resale price maintenance.  See State Oil v. Khan, 522 U.S. 3 (1997).  More recently, in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), the Court overturned a 96 year old ban on minimum resale price maintenance, relying upon the work of Bork and others for the proposition that such agreements could combat free riding and thus facilitate promotion of a manufacturer's product.  Each of these decisions, from Sylvania through Leegin, cited Bork's academic work with approval.  To be sure, these decisions cited the work of other scholars as well, but at least some such work simply repeated what Bork had already said a decade or more earlier.

Bork's influence was not confined to the definition and treatment of ancillary restraints.  He also leveled powerful critiques at the Supreme Court's hapless and wealth-destroying merger doctrine, exemplified by cases such Vons Grocery v. United States, 384 U.S. 270 (1964) and Brown Shoe Co. v. United States, 370 U.S. 294 (1962).  See Robert H. Bork, Anticompetitive Enforcement Doctrines Under Section 7 of the Clayton Act, 39 Tex. L. Rev. 832 (1961).    In both decisions the Supreme Court banned, as contrary to section 7 of the Clayton Act, mergers between firms with small shares in markets characterized by ease of entry.  (In Vons, for instance, the firm created by the challenged merger would have had 8 percent of a market with over 3,000 remaining firms.)  As Bork explained, such mergers could not create or facilitate the exercise of market power.  It was thus logical to infer that parties to such transactions hoped to achieve efficiencies. Bork also leveled powerful critiques against overly intrusive standards governing alleged predatory activity, particularly often-unfounded claims that refusals to deal or vertical integration disadvantaged rivals without creating offsetting efficiencies and thus injured consumers.  See Robert Bork and Ward Bowman, The Crisis in Antitrust, 65 Columbia L. Rev. 363 (1965); Robert H. Bork, Vertical Integration and the Sherman Act, 22 U. Chi. L. Rev. 157 (1954).  In 1986, the Supreme Court, in a unanimous opinion by Justice Stevens, invoked Bork's test for evaluating alleged predatory conduct.  See Aspen Highlands v. Aspen Highlands Ski Co., 472 U.S. 585, 597 n. 33 (1986)(citing the Antitrust Paradox for the proposition that conduct was only predatory if it excluded rivals on some basis other than efficiency).

Obviously Bork was not the only participant in the Chicago Antitrust Revolution.   Moreover, many outside the Chicago School endorsed Chicago School critiques of current doctrine and proposals for reform.  For instance, Bork's work led Harvard School icon Donald Turner to reverse his views on vertical restraints.  However, the record shows that Bork led the way and employed reason, not force, to convince others to follow.