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What Price Theory Can—And Cannot—Do For Antitrust

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  • DONALD DEWEY

Abstract

This paper examines the methodology and policy recommendations of Judge Robert Bork's writing on antitrust. It accepts as valid his premise that conventional price theory is the only appropriate organon for evaluating the welfare impact of an antitrust rule. However, it holds that in the analysis of cartels and mergers, Bork does not realize the full implications of his approach. Of the many prohibitions which antitrust law now contains, Bork wants to retain only two‐the prohibition of cartels and of large horizontal mergers. Even these two, however, cannot be maintained on pure price theory grounds. According to price theory, if price or merger agreements are inefficient, and i f entry and exit are free, then these agreements‐like other inefficient practices‐will be eroded by entry. Consistently applied, then, price the0 y provides no support for antitrust laws. A lack of support on price theory grounds does not imply that antitrust laws are unjustified. Most practices prohibited by anti‐trust law have closesubstitutes. Consequently, the law probably inflicts no great harm on economic efjiciency. Moreover, repeal of these laws could result in state‐owned monopolies or economic planning, both of which would be far worse for economic efficiency.

Suggested Citation

  • Donald Dewey, 1984. "What Price Theory Can—And Cannot—Do For Antitrust," Contemporary Economic Policy, Western Economic Association International, vol. 3(2), pages 3-11, December.
  • Handle: RePEc:bla:coecpo:v:3:y:1984:i:2:p:3-11
    DOI: 10.1111/j.1465-7287.1984.tb00791.x
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    1. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    2. Bittlingmayer, George, 1982. "Decreasing Average Cost and Competition: A New Look at the Addyston Pipe Case," Journal of Law and Economics, University of Chicago Press, vol. 25(2), pages 201-229, October.
    3. Letwin, William, 1981. "Law and Economic Policy in America," University of Chicago Press Economics Books, University of Chicago Press, number 9780226473536, September.
    4. Faith, Roger L & Leavens, Donald R & Tollison, Robert D, 1982. "Antitrust Pork Barrel," Journal of Law and Economics, University of Chicago Press, vol. 25(2), pages 329-342, October.
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