The following was sent to me as a private communication and I am
accordingly omitting the name of the author--whom I knew during my years at
the FTC. He makes a good point: "I would say to Charles Mueller: It's not
economic theory that is bad, it is bad economic theory that is bad." Quite
so. But it doesn't address my central point, namely, that it is "virtually
impossible for a country to have a meaningful antimonopoly policy that
depends on the support of expert economic opinion." A version of Gresham's
law operates here with ferocious thoroughness: In the antitrust courtroom,
bad economic theory routinely drives out the good--as is evidenced by the
collapse of antitrust enforcement in the U.S. once "economic theory" became
the litmus test of legality.
With the flood of monopoly money available to those who espoused
"bad economic theory," their numbers ballooned dramatically. Those
advocating "good" theory saw their ranks shrink accordingly--and even their
empirical research hit the skids as well. Today, the U.S. judiciary
believes that sound economics and Chicago (pro-monopoly) theory are
synonymous. Have U.S. economists made any kind of collective effort to
convince it otherwise? So far as I have been able to determine, zero, zilch.
Suppose, for example, that Ralph Nader should issue a call for a
conference of leading antitrust economists for that purpose--to enlighten
the U.S. judiciary (and FTC/Justice, plus Congress and the American public)
on the distinction between "good" and "bad" economic theory in antitrust.
How many supporters of the former--of serious antitrust enforcement--would
show up?
No nation's economists--confronted with the lure of monopoly
money--will make the financial sacrifice (in foregone "consulting" fees)
necessary to support a meaningful national antimonopoly policy.
Economic theory is unworkable as an antitrust standard.
Charles Mueller, Editor
ANTITRUST LAW & ECONOMICS REVIEW
http://webpages.metrolink.net/~cmueller
****************
Mase, Gunnar Myrdal once said: "It's the facts that are all theory!" In
testifying as an "expert" witness in a number of cases, I viewed my job
as interpreting "facts" found mostly in internal company documents put
into evidence by the discovery process. Market definition was the
crucial question in a number of those cases. George Stigler (or other
economists using the Chicago School framework) found different facts to
be relevant than those I found. The difference wasn't just a matter of
who hired the gun. We were working from different theoretical concepts
of the market. The difference is evident on page 271 of the book,
MANAGERIAL ECONOMICS, that I wrote with Irv Grossack. Irv's first draft
of the chapter expounded the conventional view that: "Perhaps the best
test of whether products, buyers, and sellers are in the same market or
in different narrow markets is based on the cross elasticity of demand."
I insisted on putting in the "perhaps" and adding another paragraph in
which I discussed the effect of monopolization on the cross elasticity
of demand and referring to William Howard Taft's brilliant insight in
Addyston Pipe and Steel in his lower court opinion in 1898. If a
monopolist succeeds in raising his price in a market (for example,
aluminum) he will get competition from, say, copper. So he has
competition. That doesn't mean he has not monopolized.
In one case in which I testified on the market definition question, the
defendant's attorneys brought forth a xerox copy of that page from the
book and read to me Grossack's paragraph and asked whether I recognized
it. I said yes, and related the facts described above. The book was not
in evidence, or even available at the trial so the judge ordered a break
for lunch and required the defendant's attorneys to give the copy to the
plaintiffs attorneys to look at over lunch. We found written in the
margin by Grossack's paragraph: "good". In the margin by my paragraph
was written: "not so good." After lunch that went into the record!
I would say to Charles Mueller: it's not economic theory that is bad, it
is bad economic theory that is bad. As Mueller recognizes, the biggest
problem has been the indoctrination of many, if not most, of our federal
judges with the Chicago doctrine that holds that monopoly doesn't exist
except from government actions.
