The Antitrust Revolution: A Microcosm of the Antitrust Enterprise

I. Introduction

The thirtieth anniversary of The Antitrust Revolution marks the contribution of an enduring, valuable antitrust resource for antitrust enforcers, practitioners, academics, and policy makers. Published initially in 1989 and most recently in 2019, the volume remains the only comprehensive framework for understanding major developments in antitrust through the economic case study device. Over the course of seven editions and forty years of cases, coeditors Professors Kwoka and White curate new case studies and strategically revisit older ones. This approach has created a durable pedagogy built on careful case selection and consistency in the case study framework across editions. The Antitrust Revolution thus provides fertile ground for the systematic analysis of antitrust law and economics.

The Antitrust Revolution’s intrinsic approach works to highlight the revolutionary impact of microeconomic theory, methods, and tools on a field governed fundamentally by legal doctrine and jurisprudence. In putting the debate over the role of economics in modern antitrust at center stage, The Antitrust Revolution identifies the broader themes that have emerged in antitrust enforcement over the last four decades. ¹ This essay explores The Antitrust Revolution project as a microcosm of the broader antitrust enterprise. The value of this contribution could be no more evident than in the current moment, as the debate over declining competition, rising market concentration, and the role of past enforcement continues to unfold. ²

II. A Tumultuous Era in U.S. Antitrust History

The Antitrust Revolution spans seven editions over thirty years, each produced on a timely five-year schedule. The editions include the studies of antitrust cases that reached an outcome between 1977 and 2017—a not insignificant proportion of the time the U.S. antitrust laws have been in effect. The case studies include a mix of public and private enforcement actions, as well as matters that were subject to review by sector regulators with statutory competition mandates. ³ Some context that is relevant to the modern antitrust era aids in a better understanding of the importance of The Antitrust Revolution.

First, the antitrust ideology that has dominated for the past forty years has left a difficult legacy for competition, consumers, and workers. This is, namely, the ascendance of the Chicago School in the 1970s and 1980s and the entrenchment of conservative ideology in the enforcement agencies and courts in the 1990s and 2000s. ⁴ More recently, The Antitrust Revolution has revealed what could be an inflection point in antitrust. This is driven by growing concerns over the growth of dominant firms and oligopolies and mounting evidence of damage from a lax enforcement approach that has, on the whole, given undue weight to claimed procompetitive effects of mergers and forms of anticompetitive conduct. ⁵ More vigorous enforcement levels under the Obama administration were the first sign of a shift toward more vigorous enforcement, but this momentum appears by any number of measures to have slowed under the Trump administration’s antitrust agencies—the Department of Justice Antitrust Division and Federal Trade Commission. ⁶

Second, economics has revolutionized the field of antitrust. The ascendance of economic theory, methods, and tools cannot be understated, particularly in the analytics surrounding market definition, competitive effects, efficiencies, proof of collusion, and cartel overcharges. But it is important to note that even before economics, and the growing complexity associated with it, gained a foothold, antitrust cases posed challenges for the judiciary. Chief Justice White noted in the Standard Oil opinion 110 years ago, for example, that “…to discover and state the truth concerning these contentions both arguments call for the analysis and weighing, as we have said at the outset, of a jungle of conflicting testimony covering a period of forty years—a duty difficult to rightly perform.” ⁷

Decades later, economic analysis is a powerful and influential element in antitrust reviews. But the increasing role and sophistication of economic analysis poses challenges as generalist judges grapple with complex theory and applications while sifting through economic evidence in applying legal standards and rendering opinions. These developments have significant implications for how enforcers and courts weigh economic analysis in the balance with legal doctrine and precedent and interpret the design and intent of the antitrust laws. Recent cases such as AT&T-Time Warner, Sabre-Farelogix, and Valspar v. E.I. DuPont illustrate these concerns. ⁸

Finally, antitrust in the United States is uniquely defined by the complementarity of public and private enforcement, which the Supreme Court has often reaffirmed as part of congressional design. ⁹ For example, private enforcement does not generally secure the types of structural relief that public enforcement can. But treble damages settlements in private cases play the starring role in obtaining compensation for victims of violations and in deterring future crimes. ¹⁰ Indeed, between 2013 and 2018, the cumulative total recovered for victims in antitrust class actions was over US$19 billion. ¹¹ In 2018, the vast majority (almost 85%) of total antitrust damages awarded by the courts in antitrust cases were attributable to settlements in antitrust class actions, most of which were in Section 1 cases. ¹² Many of the cases contained in the seven editions of The Antitrust Revolution highlight these features of private versus public enforcement.

III. The Antitrust Revolution Project as a Microcosm of Antitrust

The breadth and depth of cases included in the seven editions of The Antitrust Revolution provide comprehensive insight into the major trends in antitrust law and economics over the last four decades. The growth in numbers of cases across the editions is the most visible indicator of the “antitrust revolution” that is evident within The Antitrust Revolution. For example, the seventh edition features an all-time high number of twenty-two cases, which followed the relatively stable nineteen to twenty cases that appear in each of the third through sixth editions. These middle editions, in turn, show a step-up in the number of cases relative to the early first and second editions, which contain only thirteen and fifteen cases, respectively.

Ensuring that The Antitrust Revolution reflects the broader movements in the “antitrust revolution” is no small task. While only the editors have the recipe for this secret sauce, it appears to be related to the exploration of at least three major themes. One is the increasing diversity of antitrust cases. This is revealed in cases that focus on novel strategic competitive abilities and incentives that are often associated with new business models, technological change, more complex contractual relationships, and the leveraging of intellectual property protections. The later (e.g., sixth and seventh) editions highlight enforcers and courts that are faced with this growing complexity, often against the backdrop of high levels of horizontal and vertical integration and growing evidence of consumer harm.

A second theme that threads through The Antitrust Revolution is the growth in cases raising both seminal and traditional recurring issues in antitrust enforcement. The early (i.e., first and second) editions do an excellent job of identifying issues that in retrospect have developed into long-term challenges for enforcers and the courts. The middle and later editions cover modern versions of these early issues, emphasizing their durable nature. For example, the cases plot the progression of horizontal mergers and conspiracies that raise age-old issues but that involve significantly greater legal and economic complexity. The cases also chart the path of new mechanisms for acquiring, maintaining, and exercising market power but that involve basic schemes to exclude rivals and coordinate pricing or allocate markets. These include the use of intellectual property to stymie rivals, the role of network effects in reinforcing single-firm dominance, complex “pay-for-delay” agreements to keep out generic drug manufacturers, hub-and-spoke conspiracies, and others.

A third theme is the growing volume and complexity of economics tools and methods that are applied to threshold issues such as market definition, competitive effects, efficiencies, and evidence of collusion. The middle (third, fourth, and fifth) editions, in particular, include cases that highlight the rapid expansion of economics in antitrust. As discussed later, economic analysis can potentially determine the outcome of a case; at the same time, it poses challenges and conundrums for judges. Codification of these conflicts and uncertainties in the case law poses larger concerns around the effectiveness of the antitrust enforcement. ¹³ Key changes in the composition, structure, and organization of The Antitrust Revolution over time illustrate how the foregoing themes are developed. The next two sections explain more specifically how both the cases themselves and the evolution of the editions do this.

IV. Exploring Major Themes Across The Antitrust Revolution Cases

The Antitrust Revolution cases themselves illustrate the growth in diversity of antitrust issues, emergence of novel anticompetitive strategies, and complexity in economic tools and methods. As noted above, a major feature of this expanding universe of case studies is the distinction between more traditional issues that involve the application of new economic tools and those that present more novel antitrust issues but that nonetheless invoke traditional market power concerns. The former is clear in the area of horizontal mergers and conspiracies where more sophisticated economic methods have taken hold. The latter is most apparent in the area of vertical, network, and related market analysis.

These distinctions reflect trends in antitrust more generally and are reflected in various aspects of the “total” versus “unique” case count. The total case count includes cases that are repeated across editions, while the unique case count does not. For example, the seven editions include a total of 130 cases. ¹⁴ Fifty-one of those cases appear one time in seven editions, while thirty-five cases appear multiple (seventy-nine) times, for a total unique case count of eighty-six. The four-year rolling averages for the unique and total case counts are plotted in Figure 1. ¹⁵ Both case counts trend upward across editions.

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Figure 1.

“Unique” vs. “Total” case studies appearing in The Antitrust Revolution.

The most rapid growth in unique case studies is in the area of vertical, network, and related market issues—almost 50% per edition. ¹⁶ This supports the notion that the diversity, novelty, and complexity of key antitrust cases have increased over time. The increase is particularly pronounced in the third and fourth editions, with cases on vertical restraints such as tying and resale price maintenance (RPM) and early vertical telecommunications mergers such as Time Warner-Turner (1996) and AOL-Time Warner (2000). The growth in this category also reflects the rise of complex conspiracies (e.g., E-Books [2013]) and issues arising in the digital technology markets (e.g., Federal Trade Commission (FTC) investigation into Google [2013]). It is also evident in vertical mergers such as Live Nation-Ticketmaster (2010) and Comcast-NBCU (2010) that gave rise to the ongoing debate over the effectiveness of conduct remedies to preserve claimed vertical economics and eliminate double margins. ¹⁷

In contrast, the most rapid growth in total cases across the editions of The Antitrust Revolution is in the area of horizontal structure. A look at these cases reveals the expanding array and sophistication of economic tools, especially in horizontal mergers. These include diversion analysis, critical loss analysis, market simulations, bidding and pricing data, and engineering-economic models to aid variously in developing direct evidence of anticompetitive effects, market definition, and competitive effects. This growth is particularly apparent in the cases included in the second, third, and seventh editions, with a focus on differentiated products mergers (e.g., Heinz-Beech Nut [2001]), and homogeneous products mergers in network industries such as electricity and airlines (e.g., PSEG-Exelon [2006] and Delta-Northwest [2008]). The Staples-Office Depot (1997), U.S. v. Oracle (2004), Hertz-Dollar Thrifty (2012), U.S. v. AB Electrolux and General Electric (2015), and Aetna-Humana (2017) cases also illustrate these issues.

V. Exploring Major Themes Across The Antitrust Revolution Editions

The previous section examined how the progression of the cases in The Antitrust Revolution illuminates major themes in antitrust. This section explains how trends across editions reinforce those same developments. For example, the total case count discussed above reveals that the editors often repeat notable or seminal cases—especially horizontal mergers. For example, of the thirty-five unique cases in The Antitrust Revolution that appear in multiple editions, seven appear with a particular frequency. The Ethyl (1984), Monsanto–Spray Rite (1984), Matsushita v. Zenith (1986), Amino Acid Lysine Litigation (1996), and Spirit v. Northwest Airlines (2005) cases appear in three editions. The Staples-Office Depot (1997) and U.S. v. Microsoft (2001) cases appear in four editions.

Repeated cases establish an analytical baseline for major issues and serve as a bridge to more modern cases that raise similar issues but that employ more sophisticated analysis. For example, the Ethyl, Monsanto v. Spray Rite, Matsushita v. Zenith, and Amino Acid Lysine Litigation cases address threshold issues relating to anticompetitive agreements. These explore the courts’ difficulty with anticompetitive conduct that falls short of a traditional, explicit agreement but where certain factors facilitate a noncompetitive equilibrium (e.g., Ethyl). This issue, revisited numerous times through the seven editions, remains highly relevant today in light of the tightening of pleading standards for showing collusion in private cases, even when “plus” factors are present. ¹⁸

The Amino Acid Lysine Litigation examines economic models for determining cartel overcharges, a key issue in private antitrust consumer class actions. The legacy of this case is evident in the recent proliferation of private Section 1 cases involving alleged violations in highly concentrated markets such as agriculture and drugs. The Monsanto–Spray Rite case was the first to feature vertical agreements between manufacturers and distributors to sell at prices above a minimum price. The editors revisit RPM in State Oil v. Kahn (1997) and Leegin v. PSKS (2007), which codified the elimination of the per se illegal standard for RPM, replacing it with the weaker rule of reason standard to balance anticompetitive with procompetitive effects.

The collusive predation issues explored in Matshusita v. Zenith tie into the theme of the Ethyl case; at the same time, the Matshusita analysis offers a pathway to predatory pricing, a particularly troubling form of a single firm, exclusionary conduct. These are also explored in Spirit v. Northwest Airlines as well as in other predation cases that appear across the editions (e.g., Liggett [1993] and American Airlines [2001]). The cases remain relevant today, particularly in digital technology where large incumbents own and operate online retailing, search, and advertising platforms where they compete with third parties.

Likewise, the types of exclusionary conduct identified in U.S. v. Microsoft (2001), Intel (2010), and the FTC’s investigation of Google (2013) highlight the role of empirical evidence in proving possession and maintenance of monopoly power. The issues raised in these monopolization cases, extending back to U.S. v. AT&T (1982), are at the center of current proposals to break up alleged monopolies in the digital technology sector. ¹⁹ Finally, The Antitrust Revolution exhaustively traces the evolution of sports antitrust. Beginning with National Collegiate Athletic Association (NCAA) (1984), subsequent editions followed the debate over sports leagues as single entities versus collections of colluding teams. Together with the Relocation of the Rams to St. Louis (1998) and Edward O’Bannon v. NCAA (2015), the cases provide insight into how the courts’ thinking has evolved over a thirty-year period.

VI. Future Editions of The Antitrust Revolution and a Closing Note

The Antitrust Revolution’s success in replicating the contours of changes in antitrust more generally over the last forty years makes it easier to predict what Professors Kwoka and White have in mind for the future. While we cannot be completely certain, one thing remains clear. The eighth and subsequent editions are needed to further the research and analysis that has illuminated antitrust issues over the first seven editions. As the debate over declining competition evolves, and a polarized far right and far left emerge with minimalist visions of the role of economics in antitrust, future case studies will shed light on the path of antitrust jurisprudence and the role of economics in it. ²⁰ Future case studies will also reveal more about the complementary nature of public and private enforcement. ²¹ Moreover, the growing complexity in antitrust that is apparent in the sixth and seventh editions is not likely to abate. Future editions could also be expected to extend the focus on the intersection of intellectual property and competition law, as is apparent in the pharmaceutical industry (e.g., Actavis [2013]) and in intellectual property licensing explored in Microsoft v. Motorola (2015).

I have used The Antitrust Revolution in undergraduate- and graduate-level economics and public policy courses for over fifteen years. Students—always a difficult crowd to please—favorably note that the text illustrates the practical applications of microeconomic theory in real-world settings. As a practitioner, I often turn to The Antitrust Revolution for explanation, insight, and key examples. While those familiar with The Antitrust Revolution cannot dispute that the role of economics in antitrust has been revolutionary, it is also difficult not to acknowledge that this revolution raises fundamental questions. For example, as noted earlier, the outcome of an antitrust case can turn on the basis of economic analysis at the market definition, competitive effects, efficiencies, or proof of collusion stages, where the deployment of economic tools is particularly robust. The growing complexity in antitrust analysis should strike a note of caution in how we—as scholars, enforcers, and practitioners—think about the role of economics in antitrust.

The 2019 decision in U.S. v. American Express is a recent example where the application of the economic theory of two-sided markets has been misapplied in other cases, muddying the case law and raising the bar even further on vigorous merger enforcement. ²² Likewise, it should become more difficult for economic analysis, applied in a highly concentrative horizontal merger, to prevail over the weight of mounting evidence that such mergers are proven to result in adverse effects on prices. ²³ Enforcers and courts have a great responsibility in recognizing that economic analysis is but one tool in the antitrust tool kit and that the merits of an appropriate balancing of legal doctrine, economic analysis, and industry-institutional context in decision making remain critical to the future of antitrust.