THE COMMENSURABILITY MYTH IN ANTITRUST
Rebecca Haw Allensworth*
INTRODUCTION ............................................................................................ 2
I. THE INCOMMENSURABILITY PROBLEM ..................................................... 5
A. The Commensurability Myth ....................................................................... 6
B. Incommensurable: Welfare Trade-offs......................................................... 9
1. Measuring consumer welfare ................................................................... 9
2. Cases trading off incommensurable measures of consumer welfare ...... 13
C. Incommensurable: Trade-offs to Competition as a Process ....................... 24
1. Interbrand versus Intrabrand competition ............................................. 25
2. Self-regulated market versus free market with failures .......................... 26
II. INCOMMENSURABILITY EXPLAINS THE PERSISTENCE OF SOME
ANTITRUST DEBATES ................................................................................. 39
A. Is the Rule of Reason About Balancing? ................................................... 39
1. The Rise of the Burden-Shifting Paradigm ............................................. 40
2. Burden-Shifting Comes Up Short ........................................................... 41
B. What Counts as a Procompetitive Effect? .................................................. 44
C. Does the Rule of Reason Embody a Consumer or Total Welfare Standard?
......................................................................................................................... 46
III. THE DANGERS OF THE COMMENSURABILITY MYTH ............................. 49
A. The Latency of Antitrust Value Judgments................................................ 49
1. Incommensurability in Other Areas of Law: Open for Debate............... 49
2. Incommensurability in Antitrust: Hidden Debates ................................. 52
B. The False Technocracy of Antitrust ........................................................... 53
CONCLUSION.............................................................................................. 55
*
Associate Professor of Law, Vanderbilt Law School; J.D., Harvard Law School; M.Phil,
University of Cambridge; B.A., Yale University.
HAW ALLENSWORTH
INTRODUCTION
At its heart, antitrust law believes it is exceptional. Unlike most
areas of regulation where rules must trade off costs and benefits different
in kind, antitrust seems to pursue one single goal: competition.1 Its cases,
rules, and especially its scholarship often endorse the idea that the values
traded off in competition regulation—the procompetitive effects and the
anticompetitive effects—are commensurate. Thus, for example, an
agreement that is, on net,2 procompetitive survives a §1 challenge, those
that are on net anticompetitive do not. This supposedly unitary goal of
antitrust—to facilitate competition—would seem to allow the law to avoid
the murky, value-laden compromises struck by other areas of regulation,
where free speech must be traded off for public safety, or biodiversity
must be traded off for GDP. This monolithic view of antitrust vindicating
“competition” has made room for arguments that antitrust law is better
handled by social scientists than by lawyers, by expert agencies rather than
generalist judges.3 And it has contributed to an increasingly technical
doctrine, and a belief, enshrined in antitrust rules, that there is at least a
theoretically “correct” answer in every case.
But this belief in antitrust’s exceptionalism is wrong. Even within
the now-dominant paradigm that antitrust pursues only economic goals,
value judgments are unavoidable. What we call procompetitive and
anticompetitive effects are not two sides of the same coin, and there is no
such monolithic thing as “competition” that is furthered or impeded by
competitor conduct. In fact, antitrust law must often trade off one kind of
competition for another, or one salutary effect of competition for another.
And in so doing, antitrust must make judgments between different and
incommensurable values. It is not wrong to say that antitrust is primarily
See, e.g., Gregory J. Werden, Antitrust’s Rule of Reason: Only Competition Matters, 79
ANTITRUST L. J. 713, 714 (2014) (asserting that “the impact of a challenged restraint on
the competitive process is the only issue the Court considers under the rule of reason”).
2
The very idea that there could be a “net” impact on competition implies the
commensurability of pro- and anticompetitive effects. See Steven C. Salop, Exclusionary
Conduct, Consumer Harm, and the Flawed Profit-Sacrifice Standard, 73 ANTITRUST L.J.
311, 329 (2006) (claiming that the Rule of Reason “generally is interpreted as an
anticompetitive effect test that focuses on the net impact on consumer welfare.”).
3
See, e.g., Rebecca Haw, Amicus Briefs and the Sherman Act: Why Antitrust Needs a
New Deal, 89 TEX. L. REV. 1247 (2011); Daniel A. Crane, Technocracy and Antitrust, 86
TEX. L. REV. 1159 (2008).
1
2
THE COMMENSURABILITY MYTH
concerned with the “impact on competitive conditions,”4 rather the all-toocommon error is in believing that the procompetitive effects and
anticompetitive effects trade in the same unit of measure.
The incommensurability problem is not entirely unrecognized in
antitrust discourse, but it is downplayed in a manner harmful to policy and
doctrine. Antitrust economists acknowledge—and sometimes even
highlight—the incomparability of the effects they measure. Judicial
opinions occasionally contain explicit discussions of the desperate
competitive values at stake, although more often these judgments are
implicit. Some antitrust scholarship wrestles with the incommensurability
problem, but more often scholars ignore it.5 For the most part, scholars
debate which is the competitive goal of antitrust and courts claim to
measure “net” competitive effect. The absence of attention to the fact that
procompetitive and anticompetitive effects are usually incommensurate,
and the absence of debate about how to trade them off means that antitrust
law is under-theorized.
This Article uses Sherman Act §1 liability to illustrate the
incommensurability of most pro- and anticompetitive effects. Although
the problem pervades antitrust law and policy, §1 doctrine nicely
illustrates the (false) exceptionalism of antitrust. The rhetoric of the Rule
of Reason6 (the dominant mode of §1 analysis) exemplifies the problem: it
claims to protect agreements that enhance competition and condemn those
that destroy it,7 as if “competition” referred to one single value that
Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 688 (1978). Phrases of this
ilk are ubiquitous. See also NCAA v. Bd. Of Regents of the Univ. of Okla., 468 U.S. 85,
104 n.27 (1984) (quoting N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958))
(observing that “the policy unequivocally laid down by the [Sherman] Act is
competition.”).
5
For example, Gregory Werden recognizes this problem, but declines to explore its
significance for his defense of “competition” as the unitary goal of antitrust. See Werden,
supra note 1, at 755. See also Philip C. Kissam, Antitrust Boycott Doctrine, 69 IOWA L.
REV. 1165, 1171–72 (1984).
6
The Rule of Reason under §1 of the Sherman Act is roughly analogous to the balancing
called for by Article 101 of the Treaty on the Functioning of the European Union. In the
United States, only hard-core price fixing and other cartel-like activities are condemned
without hearing defenses of their efficiency. All other agreements among competitors (in
EU terms, among undertakings) are evaluated under the Rule of Reason based on whether
their negative competitive effects (“anticompetitive effects”) are outweighed by their
benefits to competition (“procompetitive effects”). Those that are more “anti-” than “pro” fail the Rule of Reason, the others fail.
7
See, e.g., FTC v. Ind. Fed. of Dentists, 467 U.S. 447, 458 (1986) (quoting Chicago Bd.
of Trade v. United States, 246 U.S. 231, 238 (1918)) (Under the Rule of Reason, “the test
of legality is whether the restraint imposed is such as merely regulates and perhaps
4
3
HAW ALLENSWORTH
antitrust must promote. But below the surface, the cases and the rules
actually do struggle with how to trade off very different benefits and costs
of agreements among competitors. Examples include balancing intrabrand
competition with interbrand competition, choosing between a market with
failures and a self-regulated market with suppressed competition,
calibrating price against product quality, and even trading off one kind of
product for another. But they do so in a way that is at best implicit, and at
worst arbitrary.
I do not intend to argue that antitrust should take into account a
broader set of social goals, such as wealth redistribution, protection of
small businesses, or mitigating the evils of bigness.8 These are relatively
well-trod criticisms of antitrust that have for better or worse been put to
rest by over three decades of robust consensus that antitrust ought to
pursue only economic goals in the form of competition.9 What this
account intends to do is to point out that this consensus as it is often
presented by courts and commentators contains an important and
problematic hypocrisy. A focus on purely economic effects is sometimes
touted as avoiding difficult value judgments,10 but it does no such thing.
“Competition” has no single monolithic meaning; the values traded off in
a §1 case trade in different currencies, and balancing them thus requires
judgment beyond the realm of economics.
Nor does this Article argue that the upshot of most antitrust
doctrine is wrong-headed. I mean to observe that antitrust courts do trade
thereby promotes competition, or whether it is such as may suppress or even destroy
competition.”); Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. at 691 (“the inquiry mandated by
the Rule of Reason is whether the challenged agreement is one that promotes competition
or one that suppresses competition”); Wilk v. Am. Med. Ass'n. (Wilk I), 719 F.2d 207 (7th
Cir. 1983) (Under the Rule of Reason, the plaintiff should show an agreement “has been
to restrict competition, rather than promote it.”).
8
Roger D. Blair & D. Daniel Sokol, The Rule of Reason and the Goals of Antitrust: An
Economic Approach, 78 ANTITRUST L.J. 471, 475-76 (2012) (citing Richard A. Posner
ANTITRUST LAW ix (2d ed. 2001)); Robert Pitofsky, Antitrust Modified: Education,
Defense, and other Worthy Enterprises, 9-SPG ANTITRUST 23 (1995); Steven C. Salop,
Question: What Is the Real and Proper Antitrust Welfare Standard? Answer: The True
Consumer, 22 LOY. CONSUMER L. REV. 336, 350 (2010); Werden, supra note 1, at 719,
722 .
9
Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. at 695 (providing that the Sherman Act is
intended to promote competition, almost regardless of the consequences); MCI Commc’n
Corp. v. Am. Tel. and Tel. Co., 708 F.2d 1081, 1176 (7th Cir. 1983) (stating that the
primary aim of the Sherman Act is to promote competition, as opposed to efficiency or
consumer welfare).
10
ROBERT H. BORK, THE ANTITRUST PARADOX 114–15 (1978); Blair & Sokol, supra
note 8, at 475-76 (citing Richard A. Posner ANTITRUST LAW ix (2d ed. 2001)).
4
THE COMMENSURABILITY MYTH
off incommensurables in Rule of Reason cases, and that is as it must be.
Given that this is the inevitable project of antitrust law, I think a more
honest account of what kind of balancing is involved can only improve the
rationality, transparency, and legitimacy of the law. So although this
article suggests a significant change in the way we talk about antitrust law,
it does not suggest sweeping changes to doctrine or to the outcome of
cases. Rather I argue that recognizing the incommensurability of the
values in tension in an antitrust case can actually better explain existing
doctrine and academic debates, and light a clearer path forward.
Part I illustrates the incommensurability problem that pervades §1
analysis, arguing that neither popular formation of Rule of Reason policy
avoids it. Whether the rule is seen as vindicating competition as a process
or as maximizing the welfare effects of competition, pro- and
anticompetitive effects cannot be traded off mechanically. Part II
highlights some academic disputes about §1 policy and doctrine that have
stagnated partly because of the failure to fully confront the
commensurability problem. These include the debate about whether §1
requires balancing or burden shifting, the dispute over what are acceptable
“procompetitive” arguments in a §1 case, and the disagreement about
whether §1 embodies a total or a consumer welfare standard. Part III
identifies the dark side of the commensurability myth, arguing that eliding
the value judgments inherent in most Rule of Reason cases stifles
important debates about the different values of competition and how they
should be traded off. It also suggests that the commensurability myth has
led academics to exaggerate the technocratic nature of antitrust regulation.
I. THE INCOMMENSURABILITY PROBLEM
Rhetoric of commensurability is common in antitrust discourse
generally and §1 standards specifically. It is implicit in frequently-invoked
images of “net” effect on competition, and on the idea that a restriction’s
ultimate effect is either to promote or to suppress competition. Section A
identifies these themes, illustrates their dominance, and contrasts antitrust
with other areas of law where incommensurability is recognized and
openly debated.
Sections B and C seek to show that neither common interpretation
of the Rule of Reason avoids the incommensurability problem. There is
almost unanimous consensus among modern interpreters of the Sherman
Act that its purpose is to further economic welfare by protecting
5
HAW ALLENSWORTH
competition.11 There is, however, significant debate as two related points.
First, there is some disagreement in the literature as to whether the correct
welfare standard under the Sherman Act is total welfare, which would
include producer and consumer surplus, or consumer welfare alone, which
is typically equated with consumer surplus.12 According to the former
view, the antitrust laws should allow restrictions on trade that benefit
producers more than they harm consumers. According to the latter view,
any restriction that harms consumers should be condemned under the
antitrust laws. This Article takes no side in this debate, but rather argues,
in Section B of this Part, that even the most unitary-sounding welfare
goal—that of consumer welfare—involves trade-offs between apples and
oranges in the form of pro- and anticompetitive effects.
Section C addresses the second major debate regarding the welfare
standard. Some commentators argue that while welfare (consumer or
total) may be the ultimate goal of antitrust regulation, it plays no part in
the actual development and application of antitrust rules. On this view,
antitrust policy protects the process of competition as a means to
optimizing welfare, and therefore the competitive process—not welfare
itself—is the proximate concern of antirust law and policy.13 Section C
explains that even this view of the Sherman Act’s aim falls into the
commensurability trap; in the typical §1 case, the aspect of the competitive
process harmed by the challenged restriction is different in kind from that
benefitted by it.
A. The Commensurability Myth
It is virtually indisputable that modern antitrust vindicates
economic goals, not social or welfare goals unrelated to competition or
efficiency. Some critics have argued that antitrust should be, and perhaps
once was, designed to trade off desperate values such as fairness and
welfare or concentrations of political power and production efficiency.
11
See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 909 (2007)
(The goal of the Sherman Act is to “maintain a marketplace free of anticompetitive
practices,” in order to “bring about the lower prices, and more efficient production
processes that consumers typically desire.”); MCI Commc’n Corp. v. Am. Tel. and Tel.
Co., 708 F.2d 1081, 1196 (7th Cir. 1983) (“The Sherman Act rests on the premise that
our economy and the interests of consumers are best served by the unrestricted
interaction of competitive forces.”).
12
Werden, supra note 1, at 717, 722.
13
Werden, supra note 1, at 732, 737; Aaron Edlin & Joseph Farrell, Freedom to Trade
and the Competitive Process (Nat'l Bureau of Econ. Research, Working Paper No. 16818,
2011).
6
THE COMMENSURABILITY MYTH
These arguments, although sometimes still made from a position critical of
the modern-day antitrust paradigm, have not had much traction in courts
since the Posner-Bork revolution of the 1970s. Today the widely-accepted
mission of antitrust law is to vindicate economic values such as efficiency,
welfare, and competition. But a common error among those embracing the
economic paradigm is to assume that when economics won as the
dominant (and perhaps singular) mode of antitrust analysis, we solved the
commensurability problem once and for all.
Antitrust scholarship and legal opinions are rife with
characterizations of § 1 liability that imply symmetry between pro- and
anticompetitive effects. Courts will often discuss the “net” competitive
effect of a restriction,14 a concept that is encouraged by the oft-quoted
language from Chicago Board of Trade, that “the true test of legality is
whether the restraint imposed is such as merely regulates and perhaps
thereby promotes competition or whether it is such as may suppress or
even destroy competition.”15 Interpreting the Rule of Reason to be an
inquiry into net effects is a reasonable understanding of this language,
since if a restriction can suppress or promote “competition,” it would seem
that “competition” has a single meaning or value that can be increased or
destroyed. The Court’ language in its opinion in California Dental Ass'n v.
FTC16 is typical, and has been quoted repeatedly since then: “the
[challenged] restrictions might plausibly be thought to have a net
procompetitive effect, or possibly no effect at all on competition.” Where
the “net” effect was positive or neutral, the Court explained that
condemnation under the Rule of Reason would be inappropriate.17
In addition to ubiquitous judicial references to “net” competitive
effects, cases will often identify antitrust as serving a single goal—always
a variation of economic efficiency, competition, or wealth maximization.
14
See, e.g., Cal. ex rel. Harris v. Safeway, Inc., 651 F.3d 1118, 1138 (9th Cir. 2011)
(quoting Cal. Dental Ass'n v. FTC, 526 U.S. 756, 771 (1999)) (suggesting analysis of an
agreement should look to whether it “might plausibly be thought to have a net
procompetitive effect, or possibly no effect at all on competition.”); Cont'l Airlines, Inc.
v. United Airlines, Inc., 277 F.3d 499, 508 (4th Cir. 2002) (“a plaintiff must show that the
net effect of a challenged restraint is harmful to competition.”).
15
Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918). This language is
quoted in hundreds of federal antitrust cases. See, e.g., Am. Needle, Inc. v. Nat'l Football
League, 560 U.S. 183, 203 n.10 (2010); White Motor Co. v. United States, 372 U.S. 253,
261 (1963); United States v. Brown Univ., 5 F.3d 658, 668 n.8 (3d Cir. 1993);
Massachusetts Sch. of Law at Andover, Inc. v. American Bar Ass'n, 853 F.Supp. 837,
840 (E.D.Pa. 1994).
16
526 U.S. 756, 771 (1999).
17
Id.
7
HAW ALLENSWORTH
It has become so mainstream to simplify antitrust policy in this manner as
to be taken for granted. Thus the references to the single-mindedness of
antitrust policy are usually off-hand: “the sole aim of antitrust legislation
is to protect competition”18 is typical. And it is unexceptional to begin a
sentence in an antitrust case with something like the following clause:
“Assuming as I must that the sole goal of antitrust is efficiency or, put
another way, the maximization of total societal wealth…”19
The commensurability myth was encouraged, if not introduced, by
Robert Bork in writing that ultimately proved influential in the rise and
dominance of the economic paradigm in the courts. In an article that
would become a lodestar of the Posner-Bork revolution, Professor Bork
identified a virtue of the economic or wealth maximization paradigm of
antitrust: obviating value judgments. His language is emphatic, and now
archetypal of the many opinions and articles endorsing the
commensurability myth:
Because [antitrust] serves the single, unchanging value of wealth
maximization it does not require the courts to choose or weigh
ultimate values in the decision of individual cases or in the
continuing evolution of doctrine. Neither are the courts involved
in making comparisons of and choices between persons and
groups of persons.20
This perspective has endured a half a century. For example, in a 2013
article, Thomas B. Nachbar makes an almost identical point:
Another major benefit of a singular focus on efficiency is its
compatibility with the kind of balancing called for by the rule of
reason. Any restraint can be broken down into a number of
effects, and economics renders those effects perfectly
commensurable, and hence balanceable. Effects on efficiency
can be re-stated as scalars, which vastly simplifies rule-of-reason
balancing.21
This passage—a single example from the wealth of similar sentiments
found in modern antitrust scholarship—illustrates the endurance of
Professor Bork’s commensurability myth.
Note how different this language is from other instances of
balancing outside of the antitrust arena. Courts are often asked to
18
Gordon v. New York Stock Exch., Inc., 422 U.S. 659, 689 (1975).
Chicago Prof'l Sports Ltd. P'ship v. Nat'l Basketball Ass'n, 95 F.3d 593, 602 (7th Cir.
1996).
20
Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market
Division, 74 YALE L.J. 775, 838 (1965).
21
Thomas B. Nachbar, The Antitrust Constitution, 99 Iowa L. Rev. 57, 64 (2013)
19
8
THE COMMENSURABILITY MYTH
“balance” obviously incommensurable values in other contexts, perhaps
most prominently in constitutional law. First Amendment cases often ask
courts to trade off an individual’s interest in free speech against the
government’s interest in social order and safety. Similarly, Fourth
Amendment cases trade off interests in privacy for police interests in
solving crimes and keeping the peace. In these instances, the “costs” and
“benefits” of a rule are certainly considered and perhaps “balanced,” but
there is little pretense to commensurability between the sides of the scale.
B. Incommensurable: Welfare Trade-offs
Although it is relatively uncontroversial that antitrust’s ultimate
goal is economic welfare, there is some debate about whether the welfare
to be maximized is total (producer and consumer) welfare or just
consumer welfare. This article takes the best-case-scenario for
commensurability—the seemingly unitary goal of consumer welfare—and
shows that value trade-offs are required in most Rule of Reason cases
attempting to maximize consumer welfare.
A consumer welfare standard, as it is now understood,22 would
assess a restriction’s effect on consumer surplus, or the aggregate
difference between price and each consumers’ willingness to pay.23 If the
triangle of consumer surplus is enlarged by a restriction, then it has the net
effect of improving consumer welfare. But mathematical and graphical
simplicity of this concept, ubiquitously illustrated by supply-and-demand
curves in antitrust casebooks, treatises, and even opinions, conceals a
troubling incongruence between the costs and the benefits visited on
consumers by many restrictions challenged under §1. In most Rule of
Reason cases, the “net” effect on consumers is an incoherent concept
because typically what consumers gain and what they lose by a restriction
are different in kind.
1. Measuring consumer welfare
The two-dimensional supply-and-demand curves that dominate
antitrust textbooks depict only two axes of product attributes: quantity and
price. This abstraction makes very clean and obvious the nature of
consumer surplus: it is the excess in consumers’ aggregate willingness to
22
There is much controversy over what Robert Bork meant by using this term in THE
ANTITRUST PARADOX. Without taking a stand on that debate, I adopt the now-dominant
use of that term—the aggregate consumer surplus in a market for a particular product.
23
Werden, supra note 1, at 715.
9
HAW ALLENSWORTH
pay above the price offered by the market. If consumers can get more of
something for less money, then welfare is increased.
But this is neither how consumers actually engage with products,
nor is antitrust so limited in the aspects of consumer welfare that it can
consider. There are three major ways in which antitrust doctrine accounts
for consumer welfare beyond these x-and-y axes of price and output. First,
the law recognizes that demand is a function not only of price and output
but of product quality and the buying experience, broadly defined. Second,
the law recognizes that consumers demand and enjoy choice and variety in
markets. Third, antitrust doctrine recognizes that the simple supply-anddemand image is static, whereas real markets are dynamic. To this end,
antitrust law cares not only about allocative efficiency but also about
efficiency in innovation. All of these values: price, output, quality, choice,
and innovation are appropriate measures of consumer welfare, and all
potentially play a role in any §1 case.
a. Price & Output
Although the two-dimensional supply-and-demand curves
typically used to illustrate the economics of antitrust are oversimplified,
there is a good reason why those are two dimensions chosen for the
simplification. Price is an essential element of consumer welfare; all
things being equal, consumers want to pay less for the same products.
Paying more eats into their surplus, defined as the difference between their
willingness to pay for the product and the price they do pay. Quantity is
likewise an essential element of consumer welfare, because it is the flipside of price; all things being equal, a price increase will reduce output,
and a reduction in output will increase price. Thus price and quantity form
the bread-and-butter of consumer welfare analysis.
b. Quality
But the modifying phrase “all things being equal” is important in
recognizing the sacrifices made for the simplicity of the price-quantity
paradigm. The price-quantity model holds constant product quality, which
has obvious implications for consumer welfare. If quality is not held
constant, then the welfare effect of a price or output shift can no longer be
taken for granted. And outside of hard-core cartel activity, price changes
are often accompanied by a qualitative shifts, so this simplifying
assumption is an significant practical limitation on the price-quantity
model.
10
THE COMMENSURABILITY MYTH
Economists recognize this weakness in the simple supply-anddemand curves, and so account for quality by redefining “price” as
“quality-adjusted price.” Technically, this should solve the problem; if
quality deterioration or improvement could be captured by the “price”
variable, then the two-dimensional price-output paradigm would account
for consumer welfare impacted by quality issues. But one of the
advantages to emphasizing price is its objectivity and relative
measurability. Quality is very difficult to quantify and thus mechanically
to incorporate in the price term. In some cases, where data is available that
reveals consumers’ preferences about qualitative features of a product,
statistical techniques can be used to quantify quality.24 But this requires
products being offered with and without certain qualitative features; often
markets don’t offer that kind of variety and so the requisite data is
unavailable.
More often claims about product quality are addressed with gutlevel instincts about what consumers want from their products or with
qualitative data like surveys. This is entirely appropriate, and certainly
preferable to a system that ignores the effects of product quality on
consumer welfare. But it does create an apple-to-oranges problem in
trading off the welfare effects of restraints of trade aimed at improving
product quality.
c. Choice & Variety
Another limiting assumption in the price-quantity model is that the
product in question is entirely homogenous and fungible. If a market
consists of several products that compete with each other but that are also
different in salient ways, then the two-dimensional supply-and-demand
curves do not adequately capture the effect of competition or the welfare
implications of the market. Technically speaking, determining aggregate
consumer welfare in such a market would involve drawing separate curves
for each differentiated product, and adding up the consumer welfare from
each. But even this burdensome and impractical exercise would not
capture the inherent value in choice and variety on the market. Consumers
like product variety not only because it allows them to match their
idiosyncratic tastes, but because they find utility in having and exercising
choice in making purchases. Indeed, antitrust can and does recognize that
consumers benefit from choice, even if it creates a commensurability
problem with more easily-quantified values such as price and quantity.
24
See Roger D. Blair & D. Daniel Sokol, Quality Enhancing Merger Efficiencies, IOWA
L. REV. (forthcoming 2015) (manuscript at 18).
11
HAW ALLENSWORTH
d. Innovation
Finally, perhaps the most limiting simplification in the pricequantity model is that it is static in time. It depicts the welfare effects of a
single moment in the market, but economists and consumers alike see
markets as dynamic. A supply-and-demand curve cannot capture the
competitive and welfare effects of competitor entry or product innovation
over time. Yet if consumer welfare be defined as the benefit to consumers
over the long (or even medium) run, then a full measure of consumer
welfare must consider more than a single moment in the market.25
Thus antitrust, quite appropriately, seeks to maximize not only
static efficiency but efficiency of innovation over time.26 A market that
maximizes allocative efficiency but does not incentivize research into
cheaper and better modes of production, or higher-quality, more useful
products, is obviously less beneficial to consumer welfare than one that
both promotes efficiency given the present state of technology and induces
investment in lowering costs and inspiring demand. Thus courts are often
asked to trade-off short term consumer welfare measured by the priceoutput paradigm for long-term consumer welfare provided by lower costs
and better products in the future.27 Although the effect of competitive
conditions on innovation is speculative and thus difficult to measure,
courts are right to try; innovation is essential to consumer welfare and thus
to antitrust policy. But it does create a commensurability problem because
25
John B. Kirkwood & Robert H. Lande, The Fundamental Goal of Antitrust: Protecting
Consumers, Not Increasing Efficiency, 84 NOTRE DAME L. REV. 191, 237–39 (2008)
(there is often a tension between long-run consumer welfare and short-run allocative
efficiency).
26
M. Howard Morse, Statement before Antitrust Modernization Commission Hearing on
Antitrust and the New Economy 5 (Nov. 8, 2005) (citing F.M. Scherer & D. Ross,
INDUSTRIAL MARKET STRUCTURE AND PERFORMANCE 31, 613 (3d ed. 1990)) (“Everyone
should understand that small increases in productivity from innovation dwarf even
significant reductions in static efficiency over time.”).
27
See Barak Y. Orbach, The Antitrust Consumer Welfare Paradox, 7 J. COMPETITION L.
& ECON. 133, 156–57 (2010) (quoting Robert H. Bork, The Goals of Antitrust Policy, 57
AM. ECON. REV. 242, 251 (1967); Oliver E. Williamson, Allocative Efficiency and the
Limits of Antitrust, 59 AM. ECON. REV. 105, 116 (1969). For an example of a case
identifying innovation as a policy goal of antitrust, see Atari Games, Corp. v. Nintendo of
Am., Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990). See Orbach, The Antitrust Consumer
Welfare Paradox at 158 & n.139 & sources cited therein (“Firms in markets for durable
goods and fashion goods often must cannibalize past sales to generate revenues.”); see
also U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, ANTITRUST GUIDELINES FOR THE
LICENSING OF INTELLECTUAL PROPERTY § 1 (1995) (describing a goal of antitrust to be
“to promote innovation”).
12
THE COMMENSURABILITY MYTH
there is no simple conversion factor between short- and long-term
consumer welfare.28
2. Cases trading off incommensurable measures of consumer welfare
Many Rule of Reason cases implicitly ask courts to trade off
consumer welfare associated with low prices with consumer welfare that
results from higher quality products, more choice and variety, and better
conditions for innovation. This subsection reviews three areas of cases that
show courts trading off these incommensurable values.
a. Vertical Restraints on Resale
Today, it is generally accepted that restraints on vertical resale
terms can have consumer welfare-enhancing effects by improving the
quality of the buying experience and stimulating the provision of services
along with the product.29 But there is also significant evidence that it
raises consumer prices, which by itself would be a detriment to consumer
welfare.30 And because we cannot know the “but for” prices that
consumers would pay for the product with and without the restriction (and
thus with and without the enhanced purchase experience), we cannot
assume that the increase in price provides a conversion rate for the
enhanced quality experience. Quality and price are both important
dimensions of consumer welfare, and so courts are right to trade them off
in evaluating resale restrictions, but they are not directly commensurable.
To understand the incommensurate nature of vertical restrictions’
benefits and costs to consumer welfare, it is necessary to understand their
economic effects. Resale price maintenance, the practice of manufacturers
28
Innovation often sacrifices short-term consumer welfare. See Orbach, The Antitrust
Consumer Welfare Paradox, supra note 27, at 158 & n.139 & sources cited therein
(“Firms in markets for durable goods and fashion goods often must cannibalize past sales
to generate revenues.”).
29
Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (resale price
maintenance motivates retailers to provide additional customer services through
guaranteed margins, which improves the buyers’ experience and allows the manufacturer
to expand its market share).
30
Thomas R. Overstreet, FED. TRADE COMM’N, BUREAU OF ECONS., RESALE PRICE
MAINTENANCE: ECONOMIC THEORIES AND EMPIRICAL EVIDENCE 160 (1983) (“price
surveys indicate that [resale price maintenance] in most cases increases the prices of
products sold”); Hearings on H.R. 2384 Before the Subcomm. on Monopolies and
Commercial Law of the H. Comm. on the Judiciary. 94th Cong. 122 (1975) (statement of
Keith I Clearwaters, Deputy Assistant Att’y Gen.) (arguing that resale price maintenance
increases prices by 19% to 27%).
13
HAW ALLENSWORTH
restricting a reseller’s ability to discount the product below a certain price,
will serve as an example. Resale price maintenance restricts intrabrand
competition, or competition among resellers of a single brand. Limitations
on a reseller’s ability to discount has a rather straight-forward effect on
price; when retailers may not discount, higher prices typically ensue.31
By it is now well-recognized that restricting intrabrand competition
can stimulate interbrand competition, or competition between
manufacturers of different brands, and that can lead to enhanced consumer
welfare.32 Intrabrand restraints like resale price maintenance stimulate
interbrand competition by addressing a market failure that can lead to the
under-provision of sales services that consumers enjoy along with the
product itself.33 When ancillary services—such as sales efforts, use
demonstration, or display—can be consumed for free without purchasing
the actual product, low-cost, low-service dealers can free-ride on the
efforts of high-service retailers.34 For example, consumers can visit a nice,
service-oriented showroom to learn about a product and to comparison
shop, but then purchase the product from a no-frills retailer (or on the
internet) at lower prices. But if this low-service retailer takes a free ride on
its rival’s sales efforts, the high-service retailer will not sustain his efforts
to provide consumers with the intangibles that they desire because it
cannot also consummate transactions. In this state of affairs, the highservice retailer, unable to beat his low-service rival, will join him,
31
Leegin Creative Leather Prods., 551 U.S. at 910-11 (Breyer, J., dissenting) (arguing
that resale price maintenance reduces intrabrand price competition among dealers, which
limits the ability of retailers to provide lower prices or even raises prices of products
sold).
32
Id. at 891 (noting that reduced intrabrand competition and increased interbrand
competition provides consumers with more options between price and service, while also
promoting market entry for new firms who can provide additional services); see also
Benjamin Klein, Competitive Resale Price Maintenance in the Absence of Free Riding,
76 ANTITRUST L.J. 431 (2009) (offering economic analysis which counters Justice
Breyer’s concern about the potential infrequency of procompetitive benefits).
33
Alan J. Meese, Property Rights And Intrabrand Restraints, 89 CORNELL L. REV. 553,
553-54 (2004) (“Intrabrand restraints help overcome this market failure and thus facilitate
a strategy of decentralized distribution by granting dealers an effective property right
over the promotional information they produce, thus perfecting dealers' incentives to
identify and pursue optimal promotional strategies.”).
34
See id. at 557 (“Left to their own devices, it is said, individual dealers will refuse to
produce certain promotional services-- information--that enhance consumer demand for
the manufacturer's product, choosing instead to free ride on the promotional efforts of
fellow dealers.”).
14
THE COMMENSURABILITY MYTH
abandoning his sales efforts and lowering price.35 Thus free-riding in this
case creates a market failure by destroying the high-service package
altogether, a package some consumers may prefer to the same product sold
at a bargain basement.
Resale price maintenance solves this problem by preventing the
race-to-the-bottom scenario caused by the ability to discount. Setting a
floor for the retail price allows those high-service sellers to invest in sales
force, attractive display, and product demonstrations.36 Stripped of their
ability to discount, retailers can only compete with each other by offering
intangibles—in the form of buying experience and service—along with
the product.37 In this way, manufacturers can induce their retailers to
provide the kind of ancillary services that manufacturers believe will
stimulate consumer demand. Restrictions that induce these services are
regarded as promoting interbrand competition by giving the product a
competitive edge over other brands, at least among those high-end
consumers who value the extra services.38 Other brands may choose to
compete on price, and can be found by the bargain-hunter online or in a
discount store. Thus resale price maintenance promotes diversity of
consumer choice and rivalry between the brands, if not within the brand.
Thus, in the case of resale price maintenance, courts enforcing a
consumer welfare standard must trade off the benefit consumers get from
low prices for the benefit they get from enhanced product services and
buying experience.39 It may be that the premium paid by consumers for
the higher-quality purchasing experience reflects their willingness to pay
for the services. If that were true, then the commensurability problem
would be solved; the consumers would have converted the quality measure
into price through their buying behavior. But the nature of resale price
maintenance is that it must be brand-wide—or free-riding will occur.
Thus, for any branded product subject to resale price maintenance, there
See id. at 567 (“They simply indicate an economic truism: the production of special
services (information) costs money, and firms that produce this information must recoup
their costs to remain in business.”).
36
See Meese, supra note 33, at 564 (“For instance, a contract setting a price floor-minimum rpm--for dealers may prevent free riding dealers from undercutting a fullservice retailer.”).
37
See id. at 564 (“[S]uch an agreement will do more than prevent free riding; it will also
cause dealers to engage in various forms of nonprice competition.”).
38
See id. (“Interbrand competition--including actual or potential competition from
completely integrated firms--could deprive shirking dealers of the customers necessary to
support a strategy of passively pocketing the premium.”).
39
[important: following Leegin, have their been any rule-of-reason RPM cases? And do
they discuss the effect on price?]
35
15
HAW ALLENSWORTH
will be little data describing how consumers value the services because
there is no “but-for” world without those services. In some cases, where
products are offered at different price points by different brands, it may be
possible to estimate a conversion between the enhanced service quality
and price. But such an empirical investigation would be extremely
difficult, both because it would require holding constant all other reasons
for differences between brands, and because empirical data about resale
price maintenance is virtually non-existent.40
Instead, courts evaluating vertical restraints such as resale price
maintenance must rely on their intuition about whether consumers prefer
low prices or high service, and the value that consumers place on choice
and variety, which are likewise potentially stimulated by resale price
maintenance. And how these values should be traded off is highly
controversial, even among members of the Supreme Court. In Leegin
Creative Leather Products, Inc. v. PSKS, Inc.,41 the case that reversed the
century-old ban on resale price maintenance, the majority and dissent
seemed to disagree about this very issue.
The Leegin majority emphasized resale price maintenance’s ability
to combat the free-rider problem and to encourage point-of-sale services
and promotion. But Justice Breyer, writing in dissent, emphasized the data
showing that resale price maintenance raises prices by 19% to 27%,42
raising the average household’s annual retail bills by $750 to $1000.43
Such a price increase, of course, could be compatible with enhanced
overall consumer welfare if that price increase was offset by a larger
increase in consumer satisfaction with the sales services and buying
experience. But while the dissent expressed skepticism that this was the
case, the majority did not, implying different judgments about how
consumers value service quality, the brand experience, product variety,
and price.
b. Professional Self-Regulation
Rule of reason cases often confront the welfare effects of
professional groups’ attempts at self-regulation. Despite rhetoric to the
contrary, courts afford the professions some special treatment;
occasionally restraints that in other circumstances will be found to run
40
[this point is made in Leegin]
Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877 (2007).
42
Id. at 912
43
Id. at 926
41
16
THE COMMENSURABILITY MYTH
afoul of §1 will be permitted when created by professionals to improve the
quality of professional services.44 This special treatment derives from the
particular market failures that can plague the market for professional
services and from the notion that professional expertise makes selfregulation a necessary evil. In refereeing professional self-regulation,
courts must trade off the incommensurate values of price and quality.
Professional self-regulation, often styled as professional rules of
ethics, often limit the terms of competition and thus can have the effect of
raising prices.45 Many common self-regulatory actions—such as limiting
advertising, banning competitive bidding, or restricting how services can
be priced—relax price competition among professional and thus tend to
lead to higher consumer prices.46 Here, the negative effect on consumer is
rather straight-forward, as it was in the resale price maintenance example:
all things being equal, higher prices reduce consumer surplus. 47 But of
course not all things are equal, and professionals defend such restraints by
claiming that they lead to a higher-quality service experience for
consumers.48
Professional restrictions often aim to improve the consumer
experience by removing professionals’ incentives to provide low-quality
service or by increasing the value of information provided to consumers
about the service. The fact that the consumer then pays more for the
service does not indicate that his welfare is reduced, because in theory he
is getting more for the higher price. But whereas the increase in cost of
professional service is typically demonstrable and quantifiable, claims of
improved quality are often subjective. Perhaps more fundamentally,
quality benefits are different in kind from low prices. Thus, where courts
must determine the welfare effects of an act of professional selfregulation, they must trade off incommensurable values: quality for price.
Reading between the lines of the Supreme Court’s National
Society of Professional Engineers,49 one can see the Court trading off the
See Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. 679, 677–78; Goldfarb v. Virginia State Bar,
421 U.S. 773, 788–89 (1975).
45
See Aaron S. Edlin & Rebecca Haw, Cartels by Another Name: Should Licensed
Occupations Face Antitrust Scrutiny?, 162 U. PA. L. REV. 1093, 1102 (2014).
46
See id. at 1113.
47
See id. at 1114 n. 117.
48
Thomas L. Greaney, Quality of Care and Market Failure Defenses in Antitrust Health
Care Litigation, 21 CONN. L. REV. 605, 623 (1989) (“Defendants have also attempted to
introduce quality/harm evidence to demonstrate that their restrictive practices would
promote competition by improving the quality of care provided to consumers.”).
49
Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679 (1978).
44
17
HAW ALLENSWORTH
incommensurable values of engineering quality (and thus public safety)
and consumer prices. The case challenged a professional rule of ethics
created and enforced by the National Society of Professional Engineers, a
professional membership organization which counted the majority of
licensed engineers among its members. The rule of ethics banned
competitive bidding, defined as the submission of “estimates of cost or
proposals in terms of dollars… or any other measure of compensation
whereby the prospective client may compare engineering services on a
price basis.”50 The restriction had the obvious potential to raise prices of
engineering services, but the engineers argued against per se
condemnation of the practice by arguing that it had the procompetitive
effect of eliminating the negative effect competitive bidding had on
quality of engineering services. Specifically, the engineers argued that
“[e]xperience has… demonstrated that competitive bidding… results in an
award of the work to be performed to the lowest bidder, regardless of
other factors such as ability [and] experience… and that such awards in
the case of professional engineers endanger the public health, welfare and
safety.”51
Ostensibly, the Court rejected the proffered procompetitive
justifications as “nothing less than a frontal assault on the basic policy of
the Sherman Act,”52 but a close reading reveals that they at least
entertained the potential gains to quality that consumers may enjoy from
the restriction. The Court’s declaration that the Sherman Act’s “policy
precludes inquiry into the question whether competition is good or bad”53
is at odds with many rule of reason cases that accept procompetitive
justifications that cure market failures associated with unfettered rivalry
among competitors. And it is in tension with the Court’s decision in the
same case to use a standard somewhat less strict than per se
condemnation. Indeed, within the same paragraph, the Court explains their
intention to “adhere to the view expressed in Goldfarb that, by their
nature, professional services may differ significantly from other business
services, and, accordingly…[e]thical norms may serve to regulate and
promote… competition, and thus fall within the Rule of Reason.”54
In the end, the very serious potential for consumer harm in the
form of higher prices outweighed the arguable consumer benefit in the
form of better quality services. This decision is entirely reasonable—both
50
Id. at 683, n.3.
Id. at 685, n.7.
52
Id. at 695.
53
Id. at n.14.
54
Id. at 696.
51
18
THE COMMENSURABILITY MYTH
because a ban on competitive bidding is an extremely anti-competitive
measure, and because the presence of governmental regulation (state
licensing for engineers and state and local building codes) suggested that
such self-regulation was inappropriate. But the fact that the Court
entertained the procompetitive justification of higher-quality engineering
services implies that, in a less extreme case, courts should take seriously
claims that higher prices are offset by improvements in product quality.55
In these circumstances, courts will inevitably face an apples-to-oranges
problem in trading off consumer welfare effects of a restriction.
One such case is Cal Dental v. FTC,56 in which the FTC
challenged a dental association’s restriction on price and quality
advertising. The dental association, counting the majority of California
dentists among its members,57 prohibited false or misleading advertising,
which the FTC found involved a defacto ban on advertising price or
service quality. In holding that the court below had inappropriately
condemned the conduct with a too-quick look, the Court found that the
quality arguments advanced by the dentists to be plausible.58 In remanding
the case for consideration under the “full-blown” rule of reason, the Court
essentially asked the lower court to trade off quality and price.59
The Court suggested that on remand, the lower court would have to
look seriously at the dentists’ procompetitive justification. The dentists
claimed that price and quality advertising were inherently immune to
objective verification and so would encourage misleading the public about
dental services.60 This misinformation would not only encourage
charlatanism on the part of dentists, but it would also cause systematic
distrust of the dental profession, which in turn would lead to a reduction in
consumption of dental services.61 To the extent this argument is about
output, it is paradoxical: a reduction in output of dental advertising may
result in an increase in output of dental services. Thus even within the
price-output paradigm, a Rule of Reason court would have to trade off
incommensurable values: consumers’ value of advertising and their value
See PHILLIP E. AREEDA, ANTITRUST ANALYSIS 381 (1987) (“I doubt that the Court
meant to go so far as to condemn a restraint that actually saves lives.”).
56
Cal. Dental Ass’n v. FTC, 526 U.S. 756 (1999).
57
Id. at 1607.
58
Id. at 778 (arguing the restrictions may simply be a procompetitive ban on false or
misleading statements).
59
Id. (providing that the lower court should weigh the procompetitive benefits of quality
advertising against the potential for anticompetitive price increases).
60
Id. at 777 (dentists’ Association argued “claims about quality are inherently
unverifiable and therefore misleading.”).
61
Id. at 775.
55
19
HAW ALLENSWORTH
of dental services. And even if the court accepted—as the Cal Dental
majority did but not the dissent62—that the relevant market was for only
dental services and not advertising at all, then the court would have to
balance the welfare gains from enhanced dental service against the welfare
loss from the higher prices that are likely to follow advertising bans.
A final case that illustrates the incommensurability of welfare
effects from professional self-regulation is Vogel v. American Society of
Appraisers,63 which challenged an appraisers’ society’s bylaw that “it is
unprofessional and unethical for the appraiser to do work for a fixed
percentage of the amount of value…which he determines at the conclusion
of his work.”64 The Society expelled a member for charging a flat one
percent fee, and he brought suit under §1 of the Sherman Act. 65 The
society defended the restriction as benefitting both appraisers and their
customers.66 Percentage fees created incentives, the appraisers argued, to
inflate the value of the item, in order to garner higher fees from the
consumer.67 This could lead to systematically inaccurate appraisals, and an
erosion of consumer confidence in the trade of appraising. Prohibiting this
fee structure could increase the accuracy of appraisals and therefore boost
consumer demand for appraisal services.68
The Seventh Circuit found that the restriction should not be
considered under the per se rule, and strongly hinted that it would pass
muster under the Rule of Reason. In consumer welfare terms, such a
judgment would trade off whatever price effects are likely from
prohibiting percentage fees69 and the procompetitive effect of increased
consumer demand stemming from more confidence in the quality of
appraisal services. Thus Judge Posner’s judgment rested on a trade-off
62
Id.
Vogel v. Am. Soc. of Appraisers, 744 F.2d 598 (7th Cir. 1984).
64
Id. at 599.
65
Id.
66
Id. at 602 (suggesting that fixed-price arrangements reflected the wealth of the
consumer rather than the time or energy spent by the appraiser, leading to potentially
harmful price discrimination).
67
Id. (claiming that since the appraisers would have a stake in the value of the item, they
would tend to err on higer prices for the estimate).
68
Id. (arguing that banning fixed-price schemes could combat price discrimination
against wealthy clients or clients that are less-informed).
69
The court observed that the likely price effects were to actually reduce prices, 602.
This seems probable for average appraisal fees, but it would seem likely that flat fees, or
fees based on time spent in appraising the item would be relatively more expensive for
low-value goods. So for at least some kinds of appraisals, the restriction likely had the
effect of raising price.
63
20
THE COMMENSURABILITY MYTH
similar to those in Cal Dental and Engineers: between price and quality
effects.
c. “New Product” cases
Defendants will often defend their potentially price-increasing
competitive restrictions as being necessary to introduce a “new product”
on the market. This argument can save a restriction from per se treatment,
and it can also allow a restriction to pass muster under a Rule of Reason
analysis. Most new product cases stand or fall on whether the competitive
restriction is reasonably necessary to create the product. This question, in
turn, often depends on an implicit trade-off between the price effects of a
restriction and the new or unique character of the product, to which the
restriction must be essential.
In NCAA v. University of Oklahoma Board of Regents,70 the
Supreme Court confronted a new product argument that required just such
a trade off between incommensurable values. The defendant, the NCAA,
had imposed a set of rules on its university members’ college football
teams that severely restricted the number of games that each team could
televise.71 Large, popular football teams, including Oklahoma, filed suit,
arguing that this illegally imposed an output restriction on television rights
for their games in violation of §1.72 They claimed that absent the
restriction, they could sell many more games to television stations and
receive more revenues to benefit their football program.73
The NCAA defended the restriction as necessary to sustain robust
live attendance at games, which the league considered an essential feature
of college football. The NCAA argued that to create the popular product
known as college football, many restrictions were in order—from rules
about amateur status to limitations on practice time.74 This restriction was
70
NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85 (1984).
Id. at 93-94 (the NCAA established a set of “ground rules” prohibiting any single team
from appearing on national television more than four times per two year period, while
also requiring the television networks to broadcast at least 82 different teams during that
period).
72
Id. at 128 (White, J., dissenting) (the big schools argue that they provide a
disproportionately large amount of value to the television deal, yet were being limited by
the “ground rules”).
73
Id. (noting that without the restrictions, each institution would be allowed to sell its
television rights to any entity in a free market transaction, enabling the large schools to
capitalize on their additional value).
74
Meese, supra note 33, at 1791 (“This cooperation was even more critical where
amateur leagues were concerned . . . to preserve the amateur character of the rivalry in
71
21
HAW ALLENSWORTH
of that order; robust attendance at live games was, in the NCAA’s view,
an essential element of the character of college football. Allowing the few
large schools with major interest from television stations to dominate the
airwaves on Saturday afternoons would ruin the sport for everyone, and
ultimately erode the very qualities that made the sport so popular (and so
in-demand by television stations) in the first place.75 In welfare terms, this
restriction, like other NCAA rules, was necessary to create the “new”
product76 that, depending on your view, either creates its own market with
attendant consumer surplus, or competes with other sports (such as
professional football) and so by offering consumer choice and competitive
pressure on other sports, contributes to consumer surplus.
Thus the Supreme Court was faced with a trade-off between
incommensurable values: on the one hand, the restriction had obvious
negative effects on output, if output was to be measured by televised
games.77 That certainly diminished one kind of consumer surplus. But the
restriction at least plausibly preserved the character of college football, in
the same sense that amateurism rules do. The character of college football
is essentially an element of product quality, and so the Court had to trade
off the negative surplus associated with diminished output with the
positive surplus associated with augmented quality.78
Unfortunately, the Court did not frame its decision in this way,
rather it used language perpetuating the commensurability myth. The
question. With respect to college sports, this meant agreements regarding the academic
qualifications of players both before and after their admission, as well as agreements on
the maximum level of compensation that schools could pay such players for their
services.”).
75
NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. at 128 (White, J., dissenting)
(arguing that the “ground rules” contributes to greater market penetration and therefore
may increase viewership).
76
Of course college football is not “new,” but the “new product” argument applies to
actually new products and products that could not exist but for the restriction.
77
See NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. at 113 (“[T]he NCAA
television plan on its face constitutes a restraint upon the operation of a free market, and
the findings of the District Court establish that it has operated to raise prices and reduce
output. Under the [r]ule of [r]eason, these hallmarks of anticompetitive behavior place
upon petitioner a heavy burden of establishing an affirmative defense which
competitively justifies this apparent deviation from the operations of a free market.”);
Meese, supra note 33, at 1799 (“He began by calling attention to the district court's
findings that the restraints in question had resulted in higher prices and reduced output-measured as the bare number of games--compared to the results that a more
“competitive” market would have produced”).
78
Meese, supra note 33, at 1793 (“[R]estrictions on horizontal rivalry could actually
improve the quality of the product offered by the league and thereby enhance consumer
welfare.”).
22
THE COMMENSURABILITY MYTH
Court dismissed the procompetitive argument as incoherent, because
televising games could only possibly reduce attendance at those televised
games,79 but the NCAA claimed its rule was concerned with attendance at
the less popular games. That misunderstands the NCAA’s argument which
was that fans would be less likely to attend a less-popular team’s live
game if they could stay home and watch—for free—a more popular
team’s game on TV. The Court condemned the restriction as violating §1,
which was perhaps the right answer given the severe output restriction it
created, and the dubious benefit it offered to the “character” of college
football. But the Court should have been honest that the decision required
trading off those dissimilar values.
In BMI,80 another new product case, the Court faced a similar
trade-off but concluded with a much more favorable view of the
restriction. BMI, a defendant in the suit, operated a “clearing house for
copyright owners,”81 that offered “blanket licenses” to television and radio
programs wishing to use songs composed by its thousands of members.
The “blanket license” product was thought to overcome the transactions
costs that had plagued the industry—prior to the availability of the blanket
license, television and radio stations would have to contact and negotiate
with individual songwriters before playing their compositions on the air—
and that had lead to rampant copyright violations.82
CBS sued BMI, arguing that because BMI was acting as a joint
selling agency, the blanket license amounted to price fixing among its
thousands of songwriter members. The Court reviewed the decision below
for the narrow question of whether the per se rule was appropriate, but
also opined on the competitive merits of the restriction. The Court extolled
the virtues of the blanket license as providing a popular “new” product83
that benefited copyright licensees and songwriters alike, and improved
NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. at 116 (“The plan simply does
not protect live attendance by ensuring the games will not be shown on television at the
same time as live events.”).
80
Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1 (1979).
81
Id. at 5.
82
Id. at 20 (noting that without the “blanket license,” individual transactions are
expensive and composers are singularly responsible for monitoring and enforcement of
copyright).
83
Again, the product was not “new;” ASCAP and BMI had been selling similar blanket
licenses for decades. But it is a product that could not exist but for some restriction of
head-to-head songwriting competition, and so in that sense it is a “new” product relative
to a market where such a restriction is not allowed.
79
23
HAW ALLENSWORTH
upon the atomistic market for song rights which was plagued with market
failures caused by transactions costs.84
To see the implicit welfare tradeoff that the Court made in
approving of—or at least refusing to summarily condemn—the blanket
licenses, it is necessary to understand what CBS was asking for in the suit.
CBS did not wish to return to a world without BMI and ASCAP acting as
clearinghouses (or joint selling agencies), rather CBS wanted BMI to offer
a different product. The blanket license gave television stations the right to
use any of the songs in the BMI repertoire at any time during a program,
in exchange for a percentage of that programs’ revenues. CBS wanted
BMI to offer a “per use” license, that would allow CBS to pay only for
those songs it used in the course of a program. In effect, CBS was arguing
that the restriction, in the form of the blanket license, was not “reasonably
necessary” to creating the product, if the product could be understood as
the right to indemnified spontaneous use of copyrighted material during a
broadcast. The “per use” fee would, like the blanket license, solve the
market failures of the atomistic market, but at less of a cost to CBS’s
welfare.
By holding that the restriction was not per se illegal, but avoiding
the question of whether it would pass muster under the Rule of Reason,
the Court evaded the incommensurable trade-off that would have to
happen in a Rule of Reason analysis of the restriction. In asking whether
the blanket license was “reasonably necessary” to provide indemnified,
spontaneous performance of copyrighted works, a court would have to
trade off the higher prices CBS was evidently paying for the blanket
license than it would for the hypothetical “per use” license, and the
amount by which the availability of the “per use” license would erode the
value of the blanket license. And if the availability of “per use” licenses
would destroy the blanket licenses altogether, a court would have to
compare the consumer surplus of a hypothetical product (the per use
license) and of a real product (the blanket license).
C. Incommensurable: Trade-offs to Competition as a Process
Another popular view of the Rule of Reason is that it protects the
competitive process, without direct consideration of the welfare effects of
the that process. On this view, courts do not—and should not—accept as
procompetitive arguments that total or consumer welfare increases as a
84
BMI, 441 U.S. at 21 (arguing that a bulk license is necessary to capture efficiencies,
including reduced costs for transacting and diminished need for extensive monitoring).
24
THE COMMENSURABILITY MYTH
result of the restraint. Rather courts concern themselves in a §1 case with
procompetitive arguments showing that the restraint improves competition
by introducing a new product or competitor, or by solving a market
failure. Courts balancing a restriction’s effect on the competitive process
typically have to compare its harm to one dimension or kind of
competition with its benefit to another. Because the dimensions of
competition are numerous and distinct, this judicial exercise requires
balancing incommensurables.
1. Interbrand versus Intrabrand competition
As discussed in the previous section, some §1 cases challenge
vertical restrictions that benefit interbrand competition at the cost of
intrabrand competition. These two dimensions of competition are both
important, and can effect price and consumer welfare, but they are by
definition different in kind. Restrictions on intrabrand competition
suppress rivalry between resellers, while promoting rivalry among brands.
Suppressing intrabrand competition almost certainly raises consumer
prices, while it may promote choice and service quality. A policy
promoting “competition” is not useful as guidance for how to trade off the
very different values promoted by each kind of competition.
How these different aspects of the competitive process should be
traded off is not at all obvious, but at least in the case of vertical restraints
the distinct values at stake are made clear in the cases. Whereas in most §1
cases the incommensurable values on the pro- and anticompetitive sides of
the scale are not clearly discussed, in vertical cases courts explicitly talk
about interbrand versus intrabrand competition. But the opinions lack
sophisticated and transparent discussion about how to judge between these
competitive values. Instead, courts recite language from a 1977 Supreme
Court case declaring interbrand competition, rather than intrabrand
competition, as the primary goal of antitrust. This patent assertion, often
repeated and rarely defended, provides no normative justification for such
a thumb on the scale, nor any guidance for how to judge restrictions that
offer minimal benefit to interbrand competition at significant cost to
intrabrand competition.
The latent intrabrand/interbrand debate is best illustrated by the
dispute between the majority and dissent in Leegin, discussed in the
previous section. The majority reasoned that since there are significant
potential benefits to interbrand competition that arise from suppressing
intrabrand competition, and—repeating the language from Sylvania—
because interbrand competition is “the main focus” of antitrust policy, per
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se condemnation was inappropriate.85 The dissent disagreed, implicitly
taking issue with the notion that harm to intrabrand competition is always
or usually trumped by benefits to interbrand competition. Justice Breyer,
writing in dissent, focused on the economic harm visited upon consumers
by lack of intrabrand competition, emphasizing the higher prices likely
caused by RPM.86 In so observing the dissent was elevating intrabrand
competition over interbrand competition (although, like the majority, it
failed to justify that choice).
Rhetorically, courts and commentators must engage in verbal
gymnastics to square vertical restraint cases—which trade-off two
different kinds of competition—with the notion that the rule of reason
aims to vindicate competition as a unitary concept. The solution has been
to say that that unitary concept of competition includes only interbrand
competition. But that is squarely at odds with the holding of Leegin that
restrictions on intrabrand competition are not per se legal but rather must
be evaluated under the Rule of Reason, implying antitrust does regard
intrabrand competition as valuable and worthy of preservation in some
circumstances.
2. Self-regulated market versus free market with failures
Many §1 cases ask courts to trade off the value of rivalry for a
well-functioning market. This argument arises in any case where the
defendants justify their coordination as necessary to prevent or alleviate a
market failure that would occur in a truly rivalrous environment. Here, I
use “market failure” in its broadest possible sense, sweeping in all
situations in which a free market lacking in any horizontal coordination
fails to provide consumers with what they really want at a price that
satisfies both consumers and producers. In these cases, courts must trade
off an abstract notion of competition (rivalry) for other features associated
with competitive markets, such as numerous buyers, sellers, and products,
cheap access to information, and internalized costs and benefits.
It is well-understood that uncoordinated, rivalrous competition can
have bad effects on a market, and can even go so far as to destroy the very
market in which the rivalry would take place. Thus courts often will deem
a restriction among competitors to be “procompetitive” when it prevents
Leegin Creative Leather Prods., 551 U.S. at 895-96 (claiming “antitrust laws are
designed primarily to protect interbrand competition,” and therefore these restraints
should be subject to Rule of Reason analysis).
86
Id. at 915 (Breyer, J., dissenting) (arguing that resale price maintenance will result in
economic harm “with some regularity,” including higher prices for consumers).
85
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the malfunction or unraveling of a market. But this renders easy unitary
theories of competition policy, like the Supreme Court’s declaration that
the Sherman Act exists to protection competition over price as the “central
nervous system of the economy” incoherent.87 As in the case of vertical
restraints, antitrust courts must trade off one kind of less-than-perfection
competition for another. In the vertical restraints context, it is intrabrand
competition for interbrand competition. Here it is rivalrous but destructive
competition for coordinated but somewhat functional competition. There
is no easy formula for how these interests should be balanced. This section
describes three elements of markets that can lead to market failures, and
discusses the Rule of Reason’s attempt to strike a balance between free
and functional competition.
a. Information Asymmetry
Many agreements challenged under §1 are aimed at addressing
information asymmetries between consumers and producers. Information
asymmetry can lead to a market failure famously illustrated by George A.
Akerlof in his Article The Market for “Lemons”: Quality Uncertainty and
the Market Mechanism.88 If a market contains goods of mixed quality, but
consumers are unable to ascertain quality differences before purchase,
then they will be unwilling to pay a premium for what producers describe
as high quality goods. If even honest sellers cannot attract a higher price
for actually better products (what Akerlof calls “peaches”),89 then sellers
have no incentive to actually deal in peaches, and will offer only minimum
quality goods (Akerlof’s “lemons”) at the low price that consumers are
willing to pay for goods of dubious quality. This means that the market for
peaches cannot exist at all, and only lemons will be sold. The unraveling
of the peach market is a market failure in the sense that consumers may
prefer peaches to lemons, and would be willing to pay a higher price for
87
United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 226 n.59 (1940).
George A. Akerlof, The Market for “Lemons”: Quality Uncertainty and the Market
Mechanism, 84 Q.J. Econ. 488, 489 (1970).
89
See Tom Baker, Symposium: The New American Health Care System: Reform,
Reformation, Or Missed Opportunity?: Article: Health Insurance, Risk, And
Responsibility After The Patient Protection And Affordable Care Act, 159 U. PA. L. REV.
1577, 1609-10 (2011) (“In brief, a lemons problem results when sellers know the quality
of the goods that they are selling but buyers do not. Akerlof developed this economic
insight using a mathematical model that involved asking readers to imagine a used-car
market composed of two kinds of cars: high-quality cars (I call them “peaches”) and lowquality cars (which he referred to as “lemons”’).
88
27
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them, but consumers’ lack of information makes such a transaction—
wealth-enhancing for sellers and buyers—impossible.
Defendants often invoke the lemons problem in defending their
agreements restricting advertising, although the structure of their argument
is somewhat counter-intuitive. Truthful advertising can help solve the
information asymmetry problem, since it can provide a vehicle for
communicating product quality to the consumer. If the consumers can sort
the lemons from the peaches, perhaps because they have been welldescribed in advertisements, then the market will function properly,
allowing the high-quality sellers to charge a premium for their products
and the low-quality producers can sell to the buyers with low ability or
willingness to pay. In theory, restricting advertising limits these
communications and worsens the information asymmetry between
consumers and producers.90
But not all advertising is truthful, and especially in the market for
professional services, claims about quality are difficult to verify. In a
world where producers can be expected to over-claim without serious
consequences, advertising can make the information asymmetry problem
worse. When a patient willing to pay for “painless” dental services finds
those services to be very painful indeed, he feels he actually knows less
about the service than he did before seeing the advertisement. His
confidence in his ability to select a dentist of his liking is diminished, and
so is his willingness to pay for dental services in the future. High-quality,
high-cost dentists cannot attract customers in such an atmosphere of
distrust, and so all dentists find themselves in Akerlof’s market for
lemons.
Horizontal agreements to not advertise about quality can, in theory,
combat the market failure caused by false advertising. But are they
“procompetitive?” It depends on what is meant by “competition.” If the
meaning is rivalry, or the process of attempting to attract consumers by
offering a better mousetrap at a better price, then it reduces competition,
since it limits firms’ ability to tell consumers about their wares. This is
what the court means by the “central nervous system of the economy.” But
if one means “competition” as the existence of a market for peaches in the
first place wherein producers can compete, then it is procompetitive
because it protects the existence of that market in the first place and
provides consumers with goods that they actually want. The notion that
antitrust law protects competition as a process cannot provide an easy
90
See Edlin & Haw, supra note 45, at 1115 n.101.
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answer to how these very different visions of the process of competition
should be traded off.
Thus for example in Cal Dental, the Supreme Court accepted the
claim made by the defendant that unfettered professional advertising
caused a market failure that harmed not only dentists but consumers. Thus
the Court reversed the court below for condemning the dentists’
restrictions after a “quick look,” holding that the association’s “advertising
restrictions might plausibly be thought to have a net procompetitive
effect.” The use of the word “net” is familiar, and evinces the common
belief that procompetitive effects are commensurate with anticompetive
effects. But a closer look at the majority and dissenting opinions shows
that the effects argued on either side—while both real and both
appropriate for the attentions of an antitrust court—are different in kind.
The majority seemed primarily concerned with protecting the
competitive process as between the dentists for dentistry itself, and so
emphasized the market failure that false advertising could cause. To the
majority, if a free market for dentistry fit Akerloff’s model of a market for
lemons, then a restriction that allowed dentists to sell peaches was
procompetitive in the sense that it allowed competition—between highquality dentists and between high- and low-quality dentists—that did not
exist absent the restriction. Thus the process of competition (defined as
rivalry among high-quality dentists and between high- and low-quality
dentists for dental services) is promoted by the restriction.
On the other hand, the dissent seemed concerned with protecting
the competitive process in the market for services through protecting
competition in advertising. It emphasized the importance of rivalry in the
sense of market freedom—in this case the freedom to inform consumers
about the benefits of your product—and observed that “it is rather late in
the day for anyone to deny the significant anticompetitive tendencies of an
agreement that restricts competition in any legitimate respect.”91 Thus the
dissent has an equally strong claim to be protecting the competitive
process, which it defines as a free market.
Of course both the majority and the dissent are correct—
theoretically competition can be both restricted and stimulated by
advertising regulation, if you accept a broad enough definition of
“competition.” But the underlying arguments reveal that what the majority
is calling competition—rivalry involving high-quality sellers—is different
in kind from what the dissent calls competition—free-market rivalry using
advertising to vie for customers. Trading off between these two
91
Cal. Dental Ass'n v. FTC, 119 S.Ct. 1604, 1620 (1999) (Breyer, J., dissenting).
29
HAW ALLENSWORTH
conceptions of competition is perfectly appropriate—indeed it is necessary
for antitrust to do so—but it is misleading to talk about these restrictions
having a “net” effect on a unitary idea of the competitive process.
b. Search and Transactions Costs
Firms frequently restrict competition among themselves with an
eye toward making the market more accessible to consumers. These
restrictions are aimed at preventing or mitigating market failures
associated with high transactions and search costs. Evaluating the
competitive effects of efforts to solve transactions costs problems requires
balancing between incommensurable values.
If the costs of seeking out a product, comparing it with the others
on the market, and completing a transaction are borne by the consumer,
then their willingness to pay for the product will be diminished by these
costs he must incur in purchasing it. When those costs are high, it can
discourage a significant number of mutually-wealth-enhancing
transactions that would be consummated if transactions and search costs
were low or non-existent. These deterred transactions represent a
deadweight loss to society—the consumer and the producer fail to realize
their joint surplus because it was overwhelmed by the costs of finding and
entering into the transaction. This kind of market failure will not typically
unravel the market, as in the case of information asymmetry, but it is an
example of the market failing to match buyer and seller at an otherwise
mutually acceptable price.
Producers have an incentive to address market failures caused by
transactions and search costs, because those costs effect an inward shift
the demand curve for their products. By reducing the consumers costs in
finding and engaging in the transactions, producers can essentially shift
the curve back out, allowing for higher profits on each transaction and
allowing transactions that would not otherwise have occurred. And often
the producers are in a good position to reduce search and transaction costs,
for example by creating a single marketplace for the product or a central
repository for information that allows for comparison shopping. Of course
organizing a marketplace or standardizing a product listing service require
collective action and often involve creating rules for inclusion and
exclusion of competitors.
For example, realtors often combine their efforts to create a
multiple listing service that provides up-to-date, centralized, and uniform
information about houses for sale. Allowing such one-stop-shopping
obviously benefits consumers by allowing them to quickly comparison
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shop, and saves them time and effort in finding the right house. But its
standardization requires competitor realtors to agree on how much and
what kind of information will be offered to consumers, which can restrict
the terms of competition in the housing market. Further, access to the list
often needs to be regulated. Unfettered access to the list may permit freeriding by realtors who wish to use the valuable resource without
contributing their own information to it. Thus many multiple listing
services require realtors to share their own valuable information as an
“ante” to using the list at all. Finally, realtors may want to preserve the
value of their list as accurate and honest by restricting membership only to
those realtors in good standing. Each of these acts of restriction and
exclusion has the potential to decrease at least one aspect of competition.
Multiple listing services create both risks of self-dealing and
efficiencies by reducing transactions and search costs. But are they
procompetitive? As in the case of advertising restrictions, they are good
for one kind of competition, and bad for another—making a “net” analysis
of competitive effects impossible. Multiple listing services are good for
the competitive process in the sense that by lowering costs on both sides
of the market, they bring more players (buyers and sellers) in the market.
Perhaps it also promotes rivalry between market actors because their
wares (listed houses) are now described side-by-side, and so compete
more directly than the more sporadic comparisons that would happen
without the list. In these senses, the listing service promotes competition
as a process. But if we define competition as open rivalry between
competitors, in which the terms of competition are set by unfettered
market forces, and where entry is free, then it is bad for competition.
In Realcomp II, LTD., v. F.T.C.,92 the Sixth Circuit affirmed the
FTC’s decision condemning a multiple listing service’s exclusion of
homes listed by low-cost agents offering less than the full package of
traditional broker services. The defendants claimed that the low-cost
providers were free-riders, and that their exclusion was necessary to to
creation of the list in the first place.93 The opinion weighs the harm to the
competitive process—excluding low-cost competitors—against the
arguments offered that the restriction promotes the competitive process by
excluding free riders.94 The court has an easy time of it, since as it turns
out the free-rider argument made no sense; the low-cost providers were
92
Realcomp II, Ltd. v. FTC, 635 F.3d 815 (6th Cir. 2011).
See id. at 835 (without this ability, the defendants would not be able to recoup their
costs which would then be borne by the cooperating members).
94
Id. at 829-36.
93
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not accessing the list for free but (albeit indirectly) contributed to the
listing service in the same way all members did.95 But a legitimate freerider argument would have put the court in the position of having to trade
off apples and oranges.
Another example of horizontal restraints on trade aimed at a
market failure caused by transactions and search costs is the establishment
of markets and exchanges. Marketplaces and exchanges create a
centralized location and standardized system for consumating transactions,
and so can reduce costs on both sides of the market in a way similar to
multiple listing services. But creating a centralized marketplace requires
rules and restrictions, and if that marketplace is created by competitors,
then it introduces obvious potential for self-dealing.
Assessing the competitive effect of competitor-created
marketplaces, like that of multiple listing services, requires trading off one
notion of competition for another. On the one hand, centralizing trade
encourages participation, and so in one sense marketplaces create more of
the competitive process by bringing more competitors together. But as in
the case of multiple listing services, competitor-created marketplaces
necessarily involve competitors setting some of the terms of competition
and restricting entry. So it restricts another kind of competition, that
defined as free market-determined terms of exchange—such as time,
place, and manner—and free entry by competitors.
When a competitor-created market place is challenged under §1,
the court must trade off these two different, but equally legitimate notions
of the competitive process. The case that established the Rule of Reason in
the first place, the Supreme Court’s Chicago Board of Trade,96 was just
such a case. The Board of Trade, run by competitor purchasers of grain,
was the largest grain market in the world. Trade occurred both during the
open hours of the market—from 9:30 to 1:15—and after the market
closed, but whereas the official market hours were open to both members
and to the public, only members could trade after hours.97 This bifurcated
the market into a thick, competitive market during the day, and a thin, less
competitive market after hours, where presumably the few member
purchasers were able to exert market power to artificially bid the price of
Id. at 834 (rejecting the procompetitive justification of excluding free-riders as “not
legitimate, plausible, substantial, and reasonable.”).
96
Bd. of Trade v. United States, 246 U.S. 231 (1918).
97
Id. at 236 (describing the public, “regular session” compared to the private, “special
sessions”).
95
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grain down.98 The restriction challenged in the case was designed to
combat this problem of monopsony in the after-hours market by fixing the
after-hours price at the last price traded at in the regular hours market.99
The restriction was challenged under §1 as illegal price fixing.100
Did the restriction in Chicago Board of Trade promote or hinder
the process of competition? It promoted the process of competition
defined as numerous buyers and sellers coming together in exchange.
Prior to the rule, member purchasers had an incentive not to bid during the
day, when they had to compete with the general public, but preferred to
wait until after-hours when they could exert their monopsony power to
their advantage.101 And since after-hours members could purchase on
behalf of others, even the general public would prefer not to participate in
the daytime market if it could get a member to bid on its behalf afterhours.102 By hobbling the after-hours purchaser cartel, the restriction make
the daytime market more attractive to all market participants and so
increased the volume of trading.103 Thus the thicker daytime market was
made more competitive in the sense that more competitors (on both sides)
participated.104
But the restriction suppressed another kind of competition. It
tinkered with the free-market process by setting somewhat arbitrary limits
on when deals could be made and by whom. By itself, given the existence
of the other rules of the Board—including the market hours and the system
for membership—the rule challenged in the case may not have done much
to hinder the free-market exchange of grain. But it is one of a constellation
of rules and regulations, created by competitors, that together have the
effect of establishing the who, what, where and when of exchange. This
level of competitor control over the terms of competition is an affront to
competition as free-market rivalry.
98
Id. (noting that only members were permitted to transact after close of the regular
session, during the special “call” session).
99
Id. at 237 (emphasizing the “call rule” which prohibited transactions between the close
of the session and the opening the next day).
100
Id. at 238 (the government argued the call rule was an agreement which set the prices
by restricting the hours of bidding).
101
Id. at 236 (the members were able to transact after the close of the regular session,
which allowed them effectively fix the prices for the next trading day).
102
Id. at 238 (the defendants argued that the rule was designed to promote convenience
of members and break up the existing monopoly).
103
Id. at 240 (the rule “brought into the regular market hours of the Board sessions, more
of the trading in grain ‘to arrive.’”).
104
Id. (the effect of the rule was to distribute the business among a larger number of
receivers and dealers).
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The Supreme Court decided that the rule’s benefits to
“competition” defined as a thick, functional market outweighed its
detriment to “competition” as in free-market rivalry, and approved the
restriction under what would become known as the Rule of Reason. That
decision was perfectly sensible, but it probably implied a value judgment
about which kind of competition was more important. Interestingly, this
case initiated both the Rule of Reason, and the commensurability myth
that has stuck with it for over a century. The case held that “true test of
legality [under §1] is whether the restraint imposed is such as merely
regulates and perhaps thereby promotes competition or whether it is such
as may suppress or even destroy competition.”105 This formulation,
invoked ubiquitously today, perpetuates the notion that “competition” has
a unitary meaning, and that plaintiffs’ and defendants’ arguments in at §1
case can be traded in the same currency.
c. Externalities
Some competitor combinations and other agreements vulnerable to
§1 challenges are aimed at modifying competitive conditions that would
result in a race to the bottom. Such a market failure can occur when the
market suffers from externalities. A market has externalities when the full
costs or benefits of a product are not borne by the parties to the
transaction. When this occurs, rivalrous competition can actually erode the
quality of the product rather than enhance it. Section1 analysis of these
restrictions must trade off harm to the competitive process defined as
atomistic, free-market-driven product innovation and pricing against the
benefit to the competitive process defined as numerous products and
producers competing for buyers’ attention.
For example, free competition for college athletes would allow
schools to pay salaries in an effort to attract the strongest young athletes.
Under these circumstances, the best and most wealthy teams would
become more fearsome at their sport, and perhaps in the short run attract
more fan spending, allowing for even more spending on the best athletes.
But over time, this vicious cycle would probably reduce the number of
viable teams and destroy the possibility of wide-spread rivalry among
hundreds of schools. Many believe such competition would erode the
character of college football and destroy its identify as distinct—and to
some consumers better—than professional sports.106
105
Bd. of Trade v. United States, 246 U.S. 231, 238 (1918).
See Note, Sherman Act Invalidation Of The Ncaa Amateurism Rules, 105 HARV. L.
REV. 1299, 1303, 1307 (1992).
106
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This race to the bottom is caused by the fact that the attractive
amateur character and broad competitive field of college sports are not
qualities that the individual transactions between teams and players
adequately capture. If individual teams are incentivized to win, and one
player will contribute more to the winning potential of the team than he
will incrementally diminish the character of the sport for everyone, then
the team may be willing to pay a price that will eventually destroy the very
product they are offering. This is so because the contract between player
and team has externalities—consequences visited on the market but not
fully on these individual participants. In such cases, collective action—in
the form of an agreement to not offer players salaries—is necessary to
maintaining the amateur status of the sport.107
Are amateurism rules good for competition? On one view, because
they prevent the destruction of the product—college football as we know
it—then they promote the process of competition defined as many
products competing in a market. Depending on our market definition, we
can see this in two ways. If we think of the market as just college football,
then the restriction creates competition between products (individual
college sports teams) that would not exist otherwise. Something that
creates a market is by definition good for the process of competition by
creating more of that process. Likewise, if we think of the market as sports
generally, the existence of college football adds a set of products to the
market that offer rivalry to professional sports. More products competing
in space means more of the competitive process. This is essentially the
“new product” argument advanced by many §1 defendants, and often
invoked in challenges to NCAA policy, as discussed in Part I.B.2.c. But of
course, and this point should be familiar by now, it is bad for competition
if we think of competition as unobstructed, decentralized rivalry.
Another similar example of externalities occurs in markets for
professional services. Some consumers may be attracted to low-price, lowquality (or at least risky) service if they know that the full cost of the risk
will not be borne by them. A good example here is a patient who
purchases inexpensive, low-quality medical care. Because the costs of
poor quality care are visited on more parties than the patient and the
doctor—ultimately the poor health of individuals is visited upon public
hospitals, employers, and family members—patients and doctors can
See Meese, supra note 33, at 1792 (“This cooperation was even more critical where
amateur leagues were concerned, as these leagues required cooperation between rivals to
preserve the amateur character of the rivalry in question. . . [w]ithout such cooperation,
Justice Stevens said, “collegiate” sports would rapidly degenerate into semiprofessional
sports, analogous to minor league baseball.”).
107
35
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externalize the costs of their transaction. This could lead to more lowprice, low-quality transactions than is optimal for society, or than would
happen in a market where the parties to the transaction internalized all
their costs.108
Professional self-regulation can combat the externalities arising
from poor professional service by setting practice and entry standards to
assure that quality does not fall below a minimum acceptable threshold.
This floor forces out of the market unskilled professionals and
establishes—often through a code of ethics—a set of standards that ensure
reasonably competent care.109 These restrictions are good for competition
if we define it as the process of matching producers with buyers and who
transact based on the real costs and benefits of that exchange. But if
competition is defined as a thick market with lots of professionals and
consumers, who are free to set the terms of each transaction, then
limitations on professional entry and practice are bad for competition.
These were the two kinds of competitive processes at stake in the
Supreme Court’s National Society of Professional Engineers, the earliest
case associated with the now-popular “quick look” Rule of Reason. The
professional society’s ethical rule was ostensibly designed to solve a
market failure cased by externalities. The engineers argued that price
competition incentivized low-price bidding, resulting in dangerous
buildings and bridges. Ordinary market forces did not discourage these
inefficient transactions because the cost of a collapsed building or bridge
could be largely externalized. In other words, the consumer paid for the
bridge but did not fully pay for the social harm resulting from its collapse.
The argument had the same structure as many successful defenses
to §1 liability: free, unfettered competition is actually inefficient in this
circumstance, and so self-regulation should be allowed because although it
reduces rivalry, it improves competition in the sense that it matches buyers
and sellers according to the real costs and benefits of the transaction. In
this case, as discussed in Section I.B.2.b., the Court decided that the harm
to competition-as-rivalry was too great to outweigh the benefit to
competition-as-efficient-market, and it condemned the restriction as
violating §1. Of course such a determination does not reflect a belief that
competition-as-rivalry is always more important than competition-asefficient-market. The harm to the former could be—and probably was in
this case—so great that it overwhelmed the latter. But one can imagine
that in a different case where the costs and benefits are more evenly
108
109
See Edlin & Haw, supra note 45, at 1102.
See id. at 1116.
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matched, some courts may elevate competition-as-efficient-market above
competition-as-rivalry. Both of these cases involve at least an implicit
conversion rate between two different dimensions of the competitive
process, which in turn requires value judgments more multifaceted than
the idea that the competitive process is sacrosanct.
Thus the Court’s pronouncement in Engineers that the
association’s defense—that unfettered rivalry was bad for the market—
was a “frontal assault on the policy of the Sherman Act” makes no sense.
Such statements oversimplify antitrust’s attitude towards competition and
perpetuate the perception that competition can be measured in a onedimensional manner. The restriction in Engineers was too harmful to
rivalry to survive §1 scrutiny, and anyway the presence of a less-restrictive
alternative (government regulation) made the restriction unacceptable. But
that does not mean, as the Court seemed to suggest, that rivalry is the
principle goal of Sherman Act policy.
d. Product Standardization
A final category of restraints vulnerable under §1 are those aimed
at reducing product differentiation. Where product interconnectivity is
valued, or where simultaneous use of products is desirable, atomistic
competition can lead to more product variety than consumers demand. In
these instances, uncoordinated rivalry precludes the development of a
standard product that consumers want. In these markets it is common for
competitors to combine their efforts to develop a standard with which all
producers will comply. Because standardization can shift demand for
products outward, they can increase competition in the sense of creating
more opportunities for exchange on favorable terms. But product
standardization, when imposed by rivals, creates significant opportunities
for self-dealing. Product standardization necessarily limits the terms of
competition among products, and can reduce the number of rivals in a
market.
High-tech markets illustrate the point well. If competitors selling
wireless-enabled handheld devices competed without coordination, then
each firm would produce devices compatible only with a particular kind of
wireless signal. The demand for wireless products would obviously be less
in such a market than in a market where the device manufacturers, and
perhaps the developers of wireless signals had coordinated around one
compatible system, allowing all consumers to use their wireless products
everywhere. But selecting a standard can limit competition on new
37
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features of the product, and can leave some competitors who are poorly
positioned to comply with the standard out of the market altogether.
The phenomenon of standardization increasing demand is also
observable in low-tech markets. In Continental Airlines,110 competing
airlines at Dulles airport coordinated around a single overhead luggage
size limit so that the security lines at the airport, which serviced all
airlines, could use a single template to measure luggage as it passed
through x-ray machines. Absent coordination, security officers would have
to ask individual passengers which airline they were flying and switch
templates, leading to delays and frustration.111 The preferred experience
for consumers was a streamlined, quick trip through security, which
required coordination among competing airlines as to the size and shape of
the baggage template.112
The size agreed on by all the airlines operating at Dulles, however,
was smaller than that preferred by Continental Airlines. Continental had
invested in planes with large overhead capacity, and was marketing to its
customers the convenience of traveling without having to check
baggage.113 Continental sued, arguing that the restriction unfairly
restricted their ability to compete on overhead space.114 Although the
district court summarily condemned the restriction under a quick look, the
Fourth Circuit reversed, arguing essentially that the district court had
failed to consider the market failure that would occur without
standardization of baggage size.115 The lower court analogized this case to
Cal Dental identifying the pro- and anticompetitive effects of the restraint
and calling for a more searching inquiry into which predominated.116
Although the Fourth Circuit did not couch its holding in terms of
the competitive process, that reasoning is easily supplied. Where product
standardization reduces consumer choice, but benefits consumers in a
different way, the procompetitive argument is that the competitive process
should be defined as the promotion of wealth-enhancing transactions. If
110
Cont'l Airlines, Inc. v. United Airlines, Inc., 277 F.3d 499 (4th Cir. 2002).
Id. at 512 (noting that this was particularly troublesome at Dulles Airport, which only
had two security checkpoints and therefore caused several “bottlenecks”).
112
Id. at 514 (discussing the preference for safety, on-time takeoffs, and general flying
experiences over baggage size restrictions).
113
Id. at 505 (describing Continental’s decision to provide increased space for carry-on
bags, in an effort to promote customer service and experience).
114
Id. at 507.
115
Id. at 513 (suggesting that uniformity in baggage size and allowance of standard
templates would promote a service not otherwise available at this particular airport.)
116
Id. at 511 (stating that the district court’s approach largely tracked that of the Ninth
Circuit in Cal Dental).
111
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THE COMMENSURABILITY MYTH
standardization shifts demands outwards, it is good for competition-asmarket-transactions. The anticompetitive argument concerns a different
notion of the competitive process—that of rivalry between competitors on
the free market where the terms of competition are set not by collective
action but by atomized market transactions. The court perhaps rightly
remanded for a more detailed analysis of these two trade-offs, but did not
note, as courts seldom do, that the trade-off would necessarily involve
incommensurables.
II. INCOMMENSURABILITY EXPLAINS THE PERSISTENCE OF SOME
ANTITRUST DEBATES
The incommensurability problem lies at the heart of several
debates among antitrust courts and scholars, but failure to recognize this
fact has hindered the development of academic consensus. First, although
the incommensurability of competitive values led to criticism of
“balancing” under §1, failure to recognize its role in the controversy has
prevented the offered solution—burden shifting—from being fully
satisfactory. Second, the failure to recognize that even “economic”
procompetitive justifications raise value judgments can partially explain
the enduring controversy about what kinds of arguments are allowed in
defending a restriction challenged under §1. Third, the
incommensurability of pro- and anticompetitive arguments has made it
impossible to resolve once and for all the question of whether antitrust
embodies a total or a consumer welfare standard.
A. Is the Rule of Reason About Balancing?
Although early formulations of the Rule of Reason seem to call for
a balancing of pro- and anticompetitive effects, it is now well-recognized
that outright balancing is an unworkable and unwieldy standard. Most
criticisms of balancing focused on difficulties in measuring effects,117 but
the fundamental incommensurability of pro- and anticompetitive effects
are likewise to blame for the shortcomings of the “balancing” view of the
Rule of Reason. The popular solution to the balancing problem is to
117
Difficulties with quantification of harm, unlike difficulties with incommensurability,
are often discussed in scholarship. See e.g., PHILLIP E. AREEDA, ANTITRUST LAW ¶
1507b, at 397 (observing that there is almost never enough information about a
competitive restraint to “quantify the magnitude” of its effect).
39
HAW ALLENSWORTH
impose a series of burden-shifts on parties to a §1 suit, reserving balancing
for worst case scenarios where both sides carry their burdens of
production. But burden-shifting is doing less work than its proponents
claim for it, and the failure to recognize the incommensurability problem
at the heart of §1 is partly to blame.
1. The Rise of the Burden-Shifting Paradigm
The Supreme Court’s opinion in Chicago Board of Trade is
credited with creating an alternative to per se condemnation of restraints
of trade in the form of the Rule of Reason. The Court explained that for
those restraints not subject to the per se rule, courts should engage in allthings-considered inquiry into the reasonableness of the restraint in
question:
The true test of legality is whether the restraint imposed is such
as merely regulates and perhaps thereby promotes competition or
whether it is such as may suppress or even destroy competition.
To determine that question the court must ordinarily consider the
facts peculiar to the business to which the restraint is applied; its
condition before and after the restraint was imposed; the nature
of the restraint and its effect, actual or probable. The history of
the restraint, the evil believed to exist, the reason for adopting
the particular remedy, the purpose or end sought to be attained,
are all relevant facts.118
Modern courts are quick to point out that although Chicago Board of
Trade seemed to make relevant all facts particular to the business and all
kinds of evil that the restraint is designed to address, this is no longer the
case. The limits of antitrust arguments are inconsistently articulated, and,
as we will see, inconsistently applied, but the most common boundaries
drawn are around “economic” arguments or arguments about
“competition.”
Even this modification left the rule without enough structure for
fair and predictable application, because the economics of a restraint could
be complex and were almost always contested. Thus although the
language of Chicago Board of Trade is commonly invoked, few courts
actually engage the unmoored, all-things-considered analysis described in
the case. Instead, beginning the 1970s, the Supreme Court, urged on by
legal academics, began to spell out a “structured Rule of Reason” that
offered to avoid the “wilds of economic theory.”119 Today, numerous
118
119
Chicago Board of Trade, 246 U.S. at 238.
United States v. Topco Assoc., Inc., 405 U.S. 596, 622 (1972).
40
THE COMMENSURABILITY MYTH
versions of this structured Rule of Reason abound, including “quick look”
review, “inherently suspect” analysis, and the “truncated Rule of Reason,”
but they all share a similar structure: they impose a series of burden shifts
on the litigating parties in an effort to avoid head-to-head comparison of
pro- and anticompetitive effects, in all but the closest cases.
Essentially, to carry its initial burden, the plaintiff must first show
a plausible anticompetitive effect of the restraint. Then the defendant must
show a legitimate procompetitive argument in favor of the restraint, before
the burden shifts back to the plaintiff to either to rebut the defendant’s
justification or to argue that the restraint is not reasonably necessary to
achieve the claimed procompetitive effect. Only when all three burdens
have been met (plaintiff’s, then defendant’s, then plaintiff’s) must the
court “balance” the pro- and anticompetitive effects.
2. Burden-Shifting Comes Up Short
Although it is popular to write opinions according to the burdenshifting paradigm—so much so that one scholar and FTC official has
commented that “rule of reason balancing is perhaps the greatest myth in
all of U.S. antitrust law”120—closer observation reveals that burdenshifting is doing less work than its proponents claim. A failure to
recognize the incommensurability problem may be partly to blame. In his
impressively comprehensive empirical study of all 495 rule of reason
cases decided between 1977 and 1999, Professor Michael Carrier set out
to prove that “balancing,” although nominally the primary mode of rule of
reason analysis, almost never happened. And so he did; in only 4% of
cases did the court ever actually reach the balancing phase; the rest were
disposed of at an inflection point. But in the process he proved something
else: that burden-shifting itself was extremely rare. His study found that in
84% of cases, the plaintiff did not carry its initial burden and thus the
burden never shifted to the defendant. When he updated the study a
decade later, his results were even more stark. Ninety-seven percent of
rule of reason cases decided between 1999 and 2009 never progressed
beyond the plaintiff’s prima facie case. Of the 3% that did survive the
initial shift, two-thirds ended in head-to-head balancing.121
120
ANDREW I. GAVIL, WILLIAM E. KOVACIC & JONATHAN B. BAKER, ANTITRUST LAW IN
PERSPECTIVE: CASES CONCEPTS AND PROBLEMS IN COMPETITION POLICY 207 (2d ed.
2008).
121
This research bears out Professor Gavil’s observation about the “myth” of balancing,
but it also bears out the observation that “rule of reason” is merely a euphemism for
“defendant wins:” between 1977 and 2009, defendants won in 98% of the cases.
41
HAW ALLENSWORTH
This paucity of actual burden shifts could mean that the burdenshifting paradigm has lent much-needed structure to §1 analysis, and
revealed that the overwhelming majority of antitrust plaintiffs have no
plausible anticompetitive argument when they walk through the
courthouse door. This may be part of the explanation, but the
commensurability myth may also be at fault. If courts are asked to balance
inevitably incommensurate competitive values, but are encouraged to
perpetuate the myth that §1 doctrine does not permit value judgments in
the trade-off, judges will write opinions in ways that obscure these
judgments. This means not only avoiding the head-to-head balancing
required when all three burden shifts are completed, but even perhaps
avoiding the first shift that would make necessary a full description of the
pro- and anticompetitive sides of the scale. Thus an opinion that dismisses
the plaintiff’s prima facie case can appear to avoid the embarrassment of
incommensurable balancing even when such balancing is implicit in their
assessment of the plaintiff’s case. We may therefore expect judges to seek
out rules and doctrines that make it especially difficult for the plaintiff to
carry its initial burden. A close reading of the cases bears out this
prediction.
Early formulations of the structured rule of reason suggested that
the plaintiff’s prima facie burden was light: it must show only that there is
a significant anticompetitive effect, theoretical or empirical, associated
with the defendant’s restriction. But when courts began to consider the
details of what was required to make this showing, and what met the bar
of “significant,” the rule became progressively less liberal. For example,
there is ample support for the notion that plaintiffs must show actual
empirical evidence of harm to competition in order to survive this initial
stage. The Supreme Court suggested that evidence of actual effect on the
market was sufficient in its 1986 opinion in Indiana Federation of
Dentists, but it did not go so far as to say that it was necessary. Arguably,
the Court went a step further in Cal Dental in 1999. The Cal Dental
majority held, although not particularly explicitly, that the burden never
shifted from the plaintiff because it could not make out, as a prima facie
case, that the restriction harmed competition, even though the plaintiffs
did articulate a theoretical way in which competition was harmed.122 Thus
the majority seemed to demand a showing of actual effects on the market
for dentistry, rejecting the FTC’s theory that restrictions on price
advertising would raise search costs to consumers and therefore decrease
The majority held that the court below applied a “too-quick” application of the rule of
reason, explaining that “it does not obviously follow that [the restrictions] would have a
net anticompetitive effect” Cal. Dental Ass’n v. FTC, 526 U.S. 756, 774 (1999).
122
42
THE COMMENSURABILITY MYTH
the ferocity of price competition.123 The dissent disagreed, accepting the
theoretical anticompetitive effects as sufficient to shift the burden to
defendants and, ultimately, to support the lower court’s summary
condemnation.
Raising the burden at the initial phase may allow courts to avoid
the appearance of incommensurable balancing, but it does not actually
obviate it. Head-to-head balancing—the final stage of the burden-shifting
paradigm, and a likely outcome (by two-thirds) if the plaintiff carries its
prima facie case—casts a long shadow over the burden stages. Thus
opinions accepting or rejecting a plaintiff’s initial case are typically
infused with analysis of the defendant’s justification, and so implicitly
perform the very balancing the burden-shifting paradigm is meant to
avoid.
For example, when a plaintiff challenges a restriction that arguably
solves a market failure, courts will analyze the market failure when
considering the plaintiff’s prima facie case. But because any argument
about solving a market failure goes to the procompetitive potential of the
restraint, it is perhaps intended to be dealt with at the second shift when
the defendant must show that its restraint has procompetitive effects. Even
courts intending to follow the burden-shifting paradigm closely may find
themselves discussing market failure in considering the plaintiff’s initial
burden because the question cannot be parsed so cleanly. After all, a strict
burden-shifting regime would have courts asking a rather pointless
question: whether in a market without any market failures (which is not,
according to the defendants at least, this market) the restriction would be
anticompetitive. Of course a restriction that successfully confronts a
market failure at minimal cost to competition serves antitrust’s goals, and
so it is awkward for courts to claim, even as a prima facie matter, that
there is an anticompetitive potential to the restraint.
For this reason, many courts simply fold the idea of market failure
into their analysis of the initial burden of showing anticompetitive effect.
This was perhaps most famously done in the Supreme Court’s Cal Dental.
In that case, the Court explained that because the market for dental
services could suffer from market failures caused by information
asymmetries, and because the dental association claimed that the
restrictions were tailored to prevent misinformation, then the FTC failed to
raise a sufficient anticompetitive effect in the first place. Instead, the Court
held that the rule of reason requires courts to “identif[y] the theoretical
Some commentators claim that this is a misreading of the majority’s logic in Cal
Dental, but it has endured in lower court cases.
123
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HAW ALLENSWORTH
basis for the anticompetitive effects and consider[] whether the effects
actually are anticompetitive.”124 The move allowed the Court to avoid
both burden-shifting and explicit head-to-head balancing of
incommensurate values.
B. What Counts as a Procompetitive Effect?
The commensurability myth has also led to confusion over what
kinds of procompetitive arguments are allowed in a §1 case. Ostensibly,
the modern Rule of Reason admits as procompetitive only arguments that
a restriction enhances the competitive process or increases welfare. But
defendants sometimes raise, and even prevail with, arguments that
diminished rivalry serves some other social goal. This confusion is made
possible by the fact that there is no uncontested and unitary meaning of
“procompetitive” that the cases, or even the discipline of economics, can
provide.
Antitrust case law is rife with admonitions that only positive
effects on competitive conditions can save an otherwise anticompetitive
restriction under the rule of reason. This narrowing of Chicago Board’s
broad language that all circumstances reflects the now-dominant belief
that the Sherman Act should be used only to vindicate competition (or the
economic welfare effects of competition), not to promote wealth
redistribution, to right wrongs visited upon individual competitors, or to
advance other social objectives such as fairness in labor practice or
protection of employment.125
Courts are surprisingly inconsistent, however, in what they will
accept as arguments about competition. For example, in National Society
of Professional Engineers, the Court rejected the plaintiffs’ argument that
outright price competition degraded the quality of engineering, calling it
“nothing less than a frontal assault on the policy of the Sherman Act.”126
The Court seemed to categorically reject as “procompetitive” arguments
that restricted competition works better than the free market. Yet in Cal
Dental, the Court seemed to accept a very similar justification, also made
by a professional organization, as a legitimate procompetitive argument
that should have given the lower court more pause in their too-quick
Cal. Dental Ass’n v. FTC, 526 U.S. 756, 775 n.12 (1999) (emphasis added).
See Werden, supra note 1, at 726 (“As a consequence of Bork’s work, antitrust
jurisprudence now values only economic considerations, and the term “consumer
welfare” is part of the antitrust vernacular.”).
126
Nat’l Soc. of Prof'l Eng'rs v. United States, 435 U.S. 679, 695 (1978).
124
125
44
THE COMMENSURABILITY MYTH
“quick look” condemnation.127 There, the Court accepted that unfettered
competition in dental advertising would likely harm consumers and
dentists alike.128 There are good reasons why these cases came out
differently, but the idea that the engineers’ procompetitive justification
was categorically different from the dentists’ is not one of them.129
Brown University v. United States,130 provides a controversial
example of the confusion over what kinds of arguments are acceptable in
defense of competitive restraints. The Department of Justice brought suit
against the eight Ivy League universities and MIT, claiming their
agreement not to use merit scholarships to compete for top applicants
violated §1. The universities’ justification for the practice was that the
agreement led to more racial diversity among the admitted students,
because unfettered financial competition for the top students in terms of
SAT scores and GPA, who were disproportionately white, would cut into
the money available to offer to lower-income, more racially diverse
students.131 MIT (the only school left in the suit by the time it reached the
Third Circuit) argued that the agreement “increased consumer choice and
enhanced the quality of the education provided to all students by opening
the doors of the most elite colleges of the nation.”132 The Third Circuit
characterized these as “social welfare values,” and remanded for the
district court to determine whether the agreement was sincerely intended
to advance them. If so, the court seemed to indicate, the agreement could
pass muster under the Rule of Reason.
Brown University has been heavily criticized for suggesting that
promotion of “social welfare values” can constitute a procompetitive
justification in a §1 case,133 and perhaps fairly so; antitrust has long
abandoned the pursuit of social goals untethered to competition or
economic welfare. But the Third Circuit first made an even larger error,
and that was to describe the universities’ defense as vindicating “social
Cal. Dental Ass’n v. FTC, 526 U.S. 756, 771 (1999) (arguing that the restrictions
might have a net procompetitive effect, and so would be inappropriate for a quick-look).
128
Id. at 771-72 (suggesting that where it is difficult for consumers and competitors to get
or verify information, competition relative to misleading advertising may be particularly
harmful).
129
Muris, at 862, says that Engineers should not be taken “too literally in rejecting the
safety justification offered.”
130
United States v. Brown Univ., 5 F.3d 658 (3d. Cir. 1993).
131
See Robert Pitofsky, Education, Defense, and Other Worthy Enterprises, 1995
ANTITRUST 23, 24.
132
United States v. Brown Univ., 5 F.3d 658, 644 (3d. Cir. 1993).
133
See, e.g., Note, Consideration of Noneconomic Procompetitive Justifications in the
MIT Antitrust Case, 44 EMORY L. J. 395 (1995).
127
45
HAW ALLENSWORTH
welfare values” and not economic goals. As cases like Engineers and Cal
Dental illustrate, many social problems can be seen as market failures
related directly to competition. Antitrust quite appropriately takes notice
of harm to consumers that is occasioned by unregulated competition.
When private parties seek to regulate their own market, as did the dentists
and engineers, antitrust must trade off the competitive harms that result
from self-regulation with the competitive benefits, even though they are
not easily reduced to a single unit of measure. The heart of the
universities’ argument was of a similar nature: racial diversity stimulates
demand for our product because it improves its quality. Atomistic rivalry
erodes an essential and attractive feature—racial diversity—of the product
we offer.
If judges and antitrust scholars confronted the incommensurability
problem head-on, and were honest about the fact that the business of
antitrust is to trade off incommensurable values, then perhaps courts
would feel less troubled by limiting the reach of antitrust to competition.
To the Brown University court, the fiction that competition is a monolithic
concept drove it to accept arguments about “social welfare values” in
contravention of established antitrust doctrine. Facing the
incommensurability of pro- and anticompetitive arguments may have
helped the court put the university’s arguments within the arena of
“competition.” To the Engineers’s Court, the fiction that competition is a
monolithic concept helped it avoid the incommensurable trade-offs
actually required by the case by allowing it to dismiss a weak
procompetitive proffer as categorically unacceptable. Honest
confrontation of the nature of antitrust may reduce embarrassments such
as the Court accepting in Cal Dental a procompetitive justification it had
rejected as a “frontal assault on the basic policy of the Sherman Act” in
Engineers. Likewise, candor about the various kinds of competition and
consumer welfare that a restriction may enhance, such as those in play in
Brown University, may help avoid creating precedent that “social welfare
values,” if sincerely pursued, can trump competitive effects in a §1 case.
C. Does the Rule of Reason Embody a Consumer or Total Welfare
Standard?
For several decades, scholars have debated the “true standard” of
antitrust—whether antitrust law vindicates total welfare (usually defined
as the sum of consumer and producer surplus) or consumer welfare
(usually defined as consumer surplus) alone. The former view, probably
46
THE COMMENSURABILITY MYTH
espoused by Robert Bork,134 is that antitrust treats as benign under the law
any restraint, merger, or business strategy that increases the welfare of
producers by more than it harms consumers. The latter view, and perhaps
the dominant one today, is that conduct that diminishes consumer surplus
is the true target of antitrust enforcement, even if consumers’ loss is more
than offset by producer gain. The incommensurability problem lies at the
heart of this debate, and is part of the reason why consensus has proved
elusive.
Those arguing that antitrust vindicates total welfare search for
instances where antitrust law approves of conduct, an agreement or a
merger that results in a small harm to consumers which is offset by a
larger benefit to producers. This scenario is exemplified in the Williamson
Diagram, made famous by economist Oliver Williamson. The diagram
begins with the familiar supply-and-demand graph often used to depict the
deadweight loss from monopoly pricing. The Williamson diagram
illustrates the welfare effects of a merger of firms that both lowers
production costs and confers monopoly power on the merged firm,
allowing it to raise consumer prices. Specifically, the Williamson Diagram
depicts a scenario where the welfare benefit in the form of cost savings is
larger than the consumer surplus lost by the increase in price.135 If antitrust
embodies a total welfare standard, then mergers that can be illustrated by a
Williamson diagram will be considered competitively benign. This logic is
easily imported to the §1 context. If the Rule of Reason embodies a total
welfare standard, then an agreement that lowers competitor costs by more
than it raises prices to consumers will withstand Rule of Reason scrutiny.
The task, then, seems simple for those using §1 jurisprudence to
support an argument that antitrust embodies a total welfare standard: find
a Rule of Reason case wherein the court approves of a restraint that could
fairly be illustrated by a Williamson Diagram. But the Williamson
Diagram, like all two-dimensional price-quantity graphs representing
welfare effects of competition, holds most variables constant—only price
and quantity vary with the merger or conduct. Rarely—indeed probably
never—does a restraint (or a merger or unilateral firm conduct) not affect
other dimensions of welfare, from product quality to choice to “synergies”
realized in the deal. These complicating factors make the Williamson
Diagram useful only in theory, and therefore a bit of a unicorn in case law.
I say “probably” because Professor Bork confusingly referred to antitrust’s aim as
maximizing “consumer welfare.” It seems clear by now, however, that by “consumer
welfare” he meant the joint surplus between producers and consumers.
135
Oliver E. Williamson, 58 The American Economic Review 18 (1968).
134
47
HAW ALLENSWORTH
Thus it has been difficult for those who wish to prove that the Rule
of Reason vindicates total welfare to find a case that conclusively supports
their point. Because other factors—which cannot be mechanically traded
off—influence consumer welfare, it is hard to prove that a Rule of Reason
case approving of higher prices actually presents an example of consumer
detriment offset by producer benefit. Those espousing the consumer
welfare standard can easily argue that the agreement raised prices, but
increased consumer welfare along another incommensurable dimension,
and so the §1 court was actually using a consumer welfare standard when
it allowed the restriction under the Rule of Reason. Without the possibility
of an apples-to-apples comparison of consumer harm and producer
benefit, proponents of the total welfare standard cannot easily prove their
point with a smoking-gun case where courts allowed consumer prices to
rise in exchange for reduced cost or other measures of producer welfare.
And the same is true on the other side of the debate: the
incommensurability problem makes it difficult for proponents of the
consumer welfare standard to prove that consumer welfare trumps total
welfare. In theory, proponents of the consumer welfare standard could
prove their case by showing that when agreement raises consumer prices,
whatever its effect on producer welfare, it always fails the Rule of Reason.
But because consumer and producer welfare are incommensurable, there
can be no direct apples-to-apples comparison of consumer welfare loss
and producer gain, and thus no easy way to prove the consumer-surplus
standard. The debate about consumer or total surplus can be expressed
theoretically in black and white, with simplifications like the Williamson
Diagram. But in practice, the incommensurability problem makes for
shades of gray, allowing for no definitive proof of which standard courts
actually use in Rule of Reason cases.
The persistence of the welfare debate, and the difficulty of directly
measuring welfare in any case (also a result of the incommensurability
problem) has led some scholars to attempt to avoid the issue by proposing
that welfare does not enter into the antitrust calculus at all. These scholars
argue, as I described in Part I.C., that antitrust’s aim is to protect
competition as a process, not to protect the welfare effects of competition.
But while this perspective has the advantage of side-stepping the eternal
consumer/total welfare debate, this frame cannot avoid the
incommensurability problem either, as Part I.C. shows. The rules of the
competitive game are not simple or fixed, and ever since Chicago Board
of Trade courts have paid attention to context and circumstance of
agreements among competitors. The competition-as-process view cannot
be taken to mean (and indeed its proponents do not suggest) that any
48
THE COMMENSURABILITY MYTH
departure from atomistic, rivalrous competition runs afoul of the antitrust
laws. To do so would fly in the face of the vast majority of case law, and
would find little support in economic literature. But if the “competitive
process” means something other than outright rivalry, then as Part I.C.
illustrates, incommensurability is inevitable.
III. THE DANGERS OF THE COMMENSURABILITY MYTH
If antitrust courts already are trading off incommensurable values
in Rule of Reason cases, and if that is necessary for efficient regulation of
competition, then why does it matter that courts inaccurately describe their
task as assessing “net” competitive effects? Part of the answer is that
terminology matters. Describing pro- and anticompetitive effects as being
capable of direct comparison allows courts to elide the value judgments
they use in weighing these effects. Honesty about the value judgments
inherent in true “balancing” will encourage debate over the appropriate
conversion rates and weights applied to different categories of arguments.
Another part of the answer is that the commensurability myth has led to a
belief—one that in previous writing I encouraged—that antitrust
regulation is a technocratic exercise in maximization, and so should be
done by economists and not lay judges. Bringing the value judgments
inherent in balancing to the fore will help us recognize, and perhaps in
some cases preserve, a role for lay judges in regulating competition.
A. The Latency of Antitrust Value Judgments
In other areas of law where incommensurable values must be
traded off, there is robust debate about the appropriate weight given each
side of the scale. At the very least, anxiety about incommensurable
balancing are debated openly. But in antitrust, these debates are mostly
hidden and implicit, resulting in less legitimate and more arbitrary judicial
decision-making about what values of competition should be prioritized.
1. Incommensurability in Other Areas of Law: Open for Debate
Two broad areas of law, constitutional law and administrative law,
face significant commensurability problems and, for the most part, address
these problems more explicitly than in antitrust.
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HAW ALLENSWORTH
a. Incommensurability in Constitutional Law
In constitutional law, balancing is a commonly-used metaphor for
what courts do in protecting individual rights against legitimate
governmental interests in welfare, safety, and social order. Thus judicial
opinions deciding the constitutionality of a state statute potentially
limiting privacy address the state’s interest and the individual privacy
interests in turn, rather than casting the inquiry into a “net” effects analysis
on a unitary goal such as happiness or welfare. There is simply no pretense
that “net” is a term that makes sense in the context of balancing privacy
against safety, even though judges must and do trade off one for the other.
The nakedness of the commensurability problem means that
constitutional scholars and courts debate the incommensurable values at
stake, and even sometimes argue that incommensurable balancing is to be
avoided where possible. Indeed, constitutional balancing is controversial
and a source of healthy academic, judicial and political debates. 136 These
debates help expose disagreement about the right way to trade off effects,
and also help to get the balance “right” by approximating a political or
academic consensus about incommensurable values where it exists.
In some constitutional balancing cases, recognition of an
incommensurability problem leads courts to find ways to avoid the
balancing altogether, or give the task to a more fitting decision-maker. For
example, dissenting in a negative Commerce Clause case challenging a
state’s law tolling the statute of limitations for out-of-state businesses,
Justice Scalia criticizes the majority’s “balancing” of the state and out-ofstate interests at stake as incoherent:
Having evaluated the interests on both sides…roughly…, the
court then proceeds to judge which is more important. This
process is ordinarily called “balancing,” but the scale analogy is
not really appropriate, since the interests on both sides are
incommensurate. It is more like judging whether a particular line
is longer than a particular rock is heavy.137
To Justice Scalia, such a task is unbecoming to a federal judge and more
appropriately addressed by Congress.
136
See, e.g. T. Alexander Aleinikoff, Constitutional Law in the Age of Balancing, 96
Yale L.J. 943 (1987).
137
Bendix Autolight Corp. v. Midwestco Enterprises, Inc., 486 U.S. 888, 897 (1988)
(citation omitted).
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THE COMMENSURABILITY MYTH
b. Incommensurability in Administrative Law
In regulation through the administrative state, incommensurable
balancing takes the form of cost-benefit analysis. Cost-benefit analysis is
different from constitutional balancing—which never really claims to
solve the incommensurability problem—because the aim of cost-benefit
analysis is to reduce apples and oranges to a commensurate unit (typically
dollars) and so to approximate an apples-to-apples comparison. But to
engage in cost-benefit analysis is to admit to an incommensurability
problem in the first place, otherwise agencies would not bother with the
complicated and contested task of reducing costs and benefits to monetary
terms. This explicit process of conversion from incommensurable to
commensurable is the source of lively controversy, as it should be. There
are robust debates about the dollar value of social or moral values, such as
human life or environmental health, to which scholars bring many tools
from empirical economic modeling to moral theory. There is likewise
debate in many areas of regulation about whether converting some values
to dollar scale (and therefore cost-benefit analysis in the first place) is ever
an appropriate exercise.
The sophistication of academic debates about cost-benefit analysis
reveal the benefits of explicit engagement with incommensurability
problems. For example, in monetizing the value of life and health, some
scholars hold that discounting future benefits is inappropriate, and leads to
systematically anti-regulation cost-benefit analyses.138 Others hold that
discounting is an appropriate measure.139 An agency’s choice to discount,
and by how much, must confront this debate and its moral and political
implications, leading to better, or at least more legitimate decisionmaking. Similarly, some scholars argue that cost-benefit analysis in its
most common form does not account for adaptation—by individuals and
firms—to regulation, but it can and should be calibrated to measure
regulatory costs and benefits that reflect these adjustments.140 Other
scholars more critical of cost-benefit analysis argue that it is categorically
inappropriate in a particular circumstance, or argue that it has
138
Richard L. Revesz & Michael A. Livermore, RETAKING RATIONALITY: HOW COSTBENEFIT ANALYSIS CAN BETTER PROTECT THE ENVIRONMENT AND OUR HEALTH 107–17
(2008).
139
For example, the OMB guidelines approve of future discounting. See OMB Circular
A-4, Regulatory Analysis: Memorandum to the Heads of Executive Agencies and
Establishments (Sep. 9, 2003).
140
See supra note XX, at 85–93; 131–43.
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HAW ALLENSWORTH
systematically favors politically conservative perspectives. 141 All of these
debates lay bare the value judgments inherent in cost-benefit analysis,
value judgments made inevitable by the incommensurability problem costbenefit analysis is designed to address. This transparency allows for better
engagement with and attention to the motivations and biases that agencies
bring to regulation.
2. Incommensurability in Antitrust: Hidden Debates
Antitrust discourse lacks such open debates about the values
inherent in balancing competitive effects. There is a healthy debate about
what the “essential” goal of the Rule of Reason is, but the major camps all
seem to stake out a position that one value—whether competition as a
process or a measure of welfare—is the aim of §1. There is little
recognition that even within economic goals—whether competition or
welfare—there must be tradeoffs between values that cannot be made in a
mechanical way. Scholars routinely debate the theoretic possibility of proand anticompetitive effects of various agreements vulnerable to §1
challenges; these days tying and loyalty discounting are especially
controversial. And there is also a good deal of scholarship about how
antitrust rules ought to be calibrated—whether and where thumbs should
be placed on the scale—given factual and theoretic uncertainties.
But the commensurability myth has allowed scholars and courts to
avoid directly addressing equally important questions about how the Rule
of Reason should trade off various economic effects of an agreement. For
example in antitrust there is little debate about why interbrand, rather than
intrabrand competition is the primary target of antitrust regulation, or why
effect on price tends to trump arguments about product quality, variety, or
innovation. It has also perhaps obscured the need to find ways to measure
some of the least commensurable (that is, non-quantified) values, such as
product quality and variety. And, perhaps most importantly, the lack of
debate about trading off rivalry for market-correcting self-regulation has
obscured the need for antitrust to develop clear and rational criteria for the
when, who and how of industry self-regulation.
These issues may underlie many current antitrust disputes, but they
do so in a way that is latent and therefore less easily accessible to the
judge or critic. For example, at the heart of the current debate about
pharmaceutical reverse-payments may be differing intuitions about how
141
See, e.g., Frank Ackerman & Lisa Heinzerling, PRICELESS:
OF EVERYTHING AND THE VALUE OF NOTHING (2004).
52
ON KNOWING THE PRICE
THE COMMENSURABILITY MYTH
drug prices should be traded off for pharmaceutical innovation. But most
scholars do not frame the debate this way, rather they generally stick to the
framework of “net” effect on competition in the pharmaceutical market.
Likewise, arguments that Apple’s conduct in the ebooks case was
“procompetitive” may imply that rivalry is an over-rated competitive
value. But instead scholars tend to couch their arguments in terms of longterm effect on price, as if that were the sine qua non of antitrust analysis.
A more honest account of the values that go into balancing should bring
many of these essential and contestable issues to the fore of antitrust
policy for a better debate, as can be found in other areas of law where
incommensurability is recognized explicitly.
B. The False Technocracy of Antitrust
Another unfortunate effect of the commensurability myth is to
exaggerate the technocratic nature of antitrust regulation. If economic
effect is the only goal of antitrust, and “economic effect” can be
understand monolithically, then there is a temptation to see antitrust as an
exercise in mathematics; a maximization problem that is best performed
by social scientists. To be sure, there is a good deal of science to antitrust;
economic principles dominate, and economists have much to contribute to
predicting and measuring the economic effects on either side of the Rule
of Reason scale. But because the commensurability myth perpetuates the
idea that those effects can be traded off mechanically, antitrust scholars,
perhaps including myself, have been too quick to recommend divesting
lay courts of decision-making authority in antitrust law and policy.142
Recognizing that anti- and procompetitive effects are most often
different in kind and so require value judgments in the trade-off suggests
that lay courts, which are accustomed to such value-laden balancing tests,
may be appropriate for some antitrust decision-making. And the judicial
tradition of writing opinions—especially if the incommensurability
problem is recognized and incorporated explicitly into antitrust cases—
will help make for better and more transparent antitrust law than could be
performed by technocrats alone. The tradition of a written opinion
encourages judges to lay bare the values at stake and their role in the
decision, forcing disclosure and often defense of the use of contested value
judgments.
Inherent in the very idea of judging is the notion of judgment. This
means that courts are frequently delegated regulatory and adjudicative
142
See, e.g. Haw, supra note 3; Crane, supra note 3.
53
HAW ALLENSWORTH
tasks that must choose between valid and important social values. But the
commensurability myth in antitrust has led some prominent commentators
to suggest that judgment, so defined, is inappropriate in an antitrust case.
For example, Robert Bork defended an output-based welfare standard for
antitrust by appealing to the illegitimacy of judges trading off values:
[A]n expansion of output through increased efficiency…might
impose other welfare losses on society. [This is] a problem
whose solution lies with the legislature rather than the
judiciary….A trade-off in values is required, and that is properly
done by the legislature and reflected in specialized legislation. It
cannot properly form the stuff of antitrust litigation.143
But not only are such trade-offs a central part of the act of judging, but
even a welfare standard for antitrust cannot avoid such a task. In other
words, if Professor Bork is arguing that judges are unqualified to trade off
the welfare costs and benefits of an expansion of output, then he is wrong.
Antitrust courts do, and should, pay attention to other competitive
arguments that lie orthogonal to output measurements; an antitrust case
cannot be seen as an output-maximization problem. And the “trade-off in
values” he would have antitrust courts avoid at all costs is not only an
inevitable part of antitrust decision-making, but is especially suited to a
judiciary whose wheelhouse is trading off values in close cases. To
suggest that the legislature—and never the judiciary—is qualified to trade
off incommensurable values in antitrust is to ignore most antitrust
jurisprudence. And to argue that this generally describes the division of
power between the judiciary and the legislature is to call into question vast
areas law such as constitutional and administrative law.
This observation—that antitrust regulation is in significant part an
exercise in judgment—is not meant to imply that there are no technocratic
elements of antitrust regulation, nor that the current power distribution
between lay courts and expert agencies is optimal. I have argued
elsewhere that agencies, with better access to expertise, should be given
more authority over antitrust regulation than they currently have, and
courts less. I do believe the current distribution of power gives lay judges
too much and expert agencies too little authority over antitrust regulation,
but the incommensurability problem suggests that there is a significant
measure of regulatory authority that should remain with the judiciary.
The reality of antitrust regulation is that it is—and must be—a
collaboration between those trained in the scientific practice of measuring
harms and benefits of a competitive practice and those qualified to apply
143
ROBERT H. BORK, THE ANTITRUST PARADOX 114–15 (1978).
54
THE COMMENSURABILITY MYTH
value judgments in the close calls. And the collaboration between between
economists and judges can be made more fertile if judges are taught the
quantitative skills necessary to understand the trade-offs they are asked to
make. But the technocracy of antitrust should not be exaggerated; because
there is no scientific answer to how competitive values should be traded
off, and because judges are particularly qualified to make hard decisions
that balance important and contested social values, their role in regulation
ought to be preserved.
CONCLUSION
Antitrust courts routinely describe their task in §1 cases as
measuring the “net competitive effect” of a restriction of trade. This
statement is incoherent, because pro- and anticompetitive effects of
agreements among competitors are usually incommensurable—they
cannot be traded off in a mathematical, mechanical manner. Rather,
trading off procompetitive and anticompetitive effects under the Rule of
Reason requires value judgments that economic science itself cannot
supply. This value trade-off is necessary even if only “economic” or
“competitive” effects are allowed on either side of the scale. And it is
necessary whether §1 is seen as vindicating economic welfare or the
process of competition itself.
The commensurability myth of the Rule of Reason has allowed
some academic debates to linger without satisfactory resolution, and it has
prevented others from reaching maturity. Failure to recognize the
incommensurability problem has made for intractable debates about
whether courts should balance effects in §1 cases, what kinds of
procompetitive effects are cognizable in defending a restraint of trade, and
what is the true welfare standard of the Rule of Reason. And unlike other
areas of law that address incommensurability problems head-on, antitrust
has relatively immature debates about how incommensurable values ought
to be traded off. Recognition of the inherent incommensurability of proand anticompetitive effects will encourage healthy debate about
competitive values, more legitimate decision-making, and more optimal
allocation of regulatory authority between courts and agencies. It is time to
let go of the view that antitrust is exceptional—that in its modern,
economic-driven form, antitrust is an exercise in maximization, not
judgment.
55