The US antitrust jurisprudence through the lens of Chicago School and the Transaction Costs Economics

• Author: Sónia De Carvalho
• Position: Department of Law, Portucalense Infante D. Henrique University; Researcher at IJP - Portucalense Institute for Legal Research, Porto, Portugal
• Pages: 93-109

The US antitrust jurisprudence through the lens of Chicago School

and the Transaction Costs Economics

Assistant professor Sónia De CARVALHO1

Abstract

In the mid-70s, the US antitrust jurisprudence finally embraced the economic

approaches developed at the University of Chicago on the 30s. The Chicago School of

Economics has as its main characteristic the defence of the private economy and of a

limited interventio n of the government, which underlies the idea that individual freedoms

depend on the existence of a system based on private initiative and market economy,

affirming the interdependence of capitalism and democracy. This School was fiercely

against the excessive intervention of competition a uthorities and courts in competition, to

which attributed as final goal purpose efficiency maximization. F rom a methodological

point of view, Chicago School will be renowned by the importan ce of neoclassical price

theory and empirical a nalysis. Later, within New Institutional Eco nomics, will rise a nother

economic analysis, such us Transaction Costs Economics and Property Rights Theory, that

even though receiving minor attention from the literature, being until n ow strangely

excluded from the economic and legal mainstream of the competition, will also inspire

Antitrust Law. The Transaction Costs Economics will demonstrate that the transactions

that make up the market are conditioned by the constraints of behaviour and information,

giving rise to transaction costs that make markets imperfect. The institutions in this School

are, therefore, structures that, by influencing individuals' behaviour, mitigate market

imperfections, becoming indispensable in economic analysis. Th e analysis of these

economic approaches will reveal that both g ave the utmost importance to transaction costs,

as Chicago School, without explicitly mentioning transaction costs, also considered it in

antitrust analysis. In this paper, we aim at demonstrating that this proximity between

Chicago School an d Transaction Costs Economics is reflected in US antitrust

jurisprudence. Therefore, it is pertinent to begin by summarizing the main arguments

developed by these economic theories, which later received merits by the courts, th us

making more evident the effect they had on US antitrust ju risprudence, often ignored by

literature. As we will conclude the US antitrust an alysis is performed by the Courts through

lens of Chicago School and Transaction Costs Economics.

Keywords: Chicago School, antitrust jurisprudence, Transaction Cost Economics,

Property Rights Theory.

JEL Classification: K22

1 Sónia de Carvalho - Department of Law, Portucalense Infante D. Henrique University; Researcher at

IJP - Portucalense Institute for Legal Research, Porto, Portugal, scarvalho@upt.pt.

94 Volume 9, Special Issue, October 2019 Juridical Tribune

1. Introduction

“Since its inception, antitrust policy has been forged by economic

ideology”

Herbert Hovenkamp, The Sherman Act and the Classical Theory of

Competition, Iowa L. Rev., Vol. 74, 1988-1989, p. 1019.

The evolution of competition law reveals that the competition policies

underlying US competition law and jurisprudence are a complex product of

economic theory and group pressure. When the theory is robust, like the classical

one, it is adopted by the power, giving no margin for the affirmation of special

interests. However, when it was fragile, the pressure of the groups tended to

determine the policies2.

Nevertheless, this close relationship between competition law and

economics, in some issues, such us vertical restraints, there is a substantial time

gap between the advances of economic theory and the respective absorption of

jurisprudence.

The evolution of the normative and jurisprudential framework of

competition law also shows that the general perception in the United States, but

especially abroad, that the debate on competition policy is centred on the Chicago

School and the School Post-Chicago3.

This perspective, however, is incomplete by not mentioning the influence

of New Economic Institutionalism, especially Transaction Costs Economics and

Property Rights Theory in US antitrust law.

The contributions given by the New Economic Institutionalism about the

limits and nature of the company are essential in the understanding of vertical

integration and vertical restraints, taking into account the explanation given by the

Transaction Costs Economics.

As we will see, the solutions advocated by the Chicago School are largely

based on an analysis of transaction costs, which is why, although autonomous, we

identify between Transaction Costs Economics and the Chicago School a

continuity relationship4.

2 Herbert Hovenkamp, The Sherman Act and the Classical Theory of Competition , p. 1019 refers that

“One of the great myths about American antitrust policy is that courts first began to adopt an

"economic approach" to an titrust problems in the relatively recent p ast -perhaps as recently as the

late 1970s. At most, this "revolution" in antitrust policy represented a change in economic models.

Since its inception, antitrust policy has been forged by economic ideology.”

3 This view ignores the extraordinary in fluence of the modern Harvard school in US jurisprudence on

matters such as predatory pricing, unilateral refusal to deal or administrabilit y of competition legal

rules. William E. Kovacic, The Intellectual DNA of Modern U.S. Competition Law for Dominant

Firm Conduct: pp. 45.

4 Hovenkamp, Harvard, Chicago, and Transaction Cost Economics, Antitrust Bull, Vol. 55, Nº 3,

2010, p. 622, Meese, Property Rights and Intrabrand Restraints, Cornell Law Review, Vol. 89,

2004, p. 556, idem, Price Theory and Vertical Restraints: A Misunderstood Relation, UCLA L

Rev., Vol. 45, 1997, p. 151.