Antitrust Consent Decrees in Theory and Practice
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About This Event

The antitrust consent decree is a major weapon used by the federal government to enforce antitrust laws. In the past, consent decrees have been wielded aggressively to dissolve major corporations and to change the business practices of entire industries. In his new book Antitrust Consent Decrees in Theory and Practice Listen to Audio


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(AEI Press, 2007) Richard A. Epstein, a professor at the University of Chicago Law School, examines the history of antitrust consent decrees and finds that broad, ambitious decrees tend to produce more harm than good. Antitrust decrees, Epstein argues, should be carefully tailored to redress specific, identified violations of the law. The courts’ decrees in the Microsoft case, Epstein contends, fit that description and mark a welcome departure from the excesses of the past.

On May 16, Epstein will present his findings at AEI. A. Douglas Melamed, an antitrust attorney at WilmerHale with extensive practical experience in antitrust enforcement, will comment.

Agenda
3:00 p.m.
Registration
3:15
Presenter:
Richard A. Epstein, University of Chicago Law School
Discussant:
A. Douglas Melamed, WilmerHale
Moderator:
Michael Greve, AEI
5:00
Adjournment
Event Summary

May 2007

Antitrust Consent Decrees in Theory and Practice

 

The antitrust consent decree is a major weapon used by the federal government to enforce antitrust laws. In the past, consent decrees have been wielded aggressively to dissolve major corporations and to change the business practices of entire industries. In his new book Antitrust Consent Decrees in Theory and Practice: Why Less is More (AEI Press, April 2007) Richard A. Epstein, a professor at the University of Chicago Law School, examines the history of antitrust consent decrees and finds that broad, ambitious decrees tend to produce more harm than good. Antitrust decrees, Epstein argues, should be carefully tailored to redress specific, identified violations of the law. The courts' decrees in the Microsoft case, Epstein contends, fit that description and mark a welcome departure from the excesses of the past.

On May 16, Epstein presented his findings at AEI. A. Douglas Melamed, an antitrust attorney at WilmerHale with extensive practical experience in antitrust enforcement, commented.

Richard A. Epstein
University of Chicago Law School

Antitrust consent decrees have enjoyed considerable attention recently, and people are finally becoming wary of sweeping and ambitious consent decrees.

Antitrust law is divided into two parts. Section 1 is dedicated to preventing contracts in restraint of trade and collusion. Basically, CEOs are not allowed to meet at ski chalets to conspire. This section is generally fairly simple to apply and not prone to abuse. Section 2 concerns unilateral actions by dominant market players, and it is far more complex and dangerous. Many scholars recommend ditching this section altogether, but that would be overkill.

Antitrust Consent Decrees in Theory and Practice explores these dilemmas through a serious of case studies. The first example is the breakup of the meatpacking cartel in the 1920s, an obviously pre-negotiated plan which incorporated many anticompetitive measures. The next example, International Shoe, unlike the colluding meatpackers, featured a vertical integration arrangement which generated real economies of scale. After years of lawsuits failed to seriously damage the corporation, the antitrust enforcers finally lost patience and broke up the company, resulting in its complete collapse. The third example showed antitrust applied to an industry which by its nature required a central hub, Bell telephone. The smart approach to this would have been interconnection rules rather than the division of the hub. The Microsoft decree, in contrast to these disasters, was fairly sensible. Like the Bell system, Microsoft operates in an industry where a central node is necessary, and the courts were smart enough to allow it to continue in that role while forcing it to allow more interconnection.

A. Douglas Melamed
WilmerHale

All of Epstein's case studies tell the same story: a remedy worse than the disease. In many ways he is right; simple decrees are better than more complicated ones and decrees which only last a few years are better than endless ones. But Epstein's contrast between structural and narrow fixed remedies presents a false dichotomy. The real contrast is between remedies that attempt to restore markets to their natural condition and remedies which ban particular misdeeds. This does not always correspond to Epstein's framework. For example, structural remedies are less intrusive than conduct remedies in merger disputes because one merely prevents a merger while the other requires ongoing regulation. Instead of looking at how ambitious a decree is, Epstein should have focused on how much regulation is needed to maintain it. Epstein also emphasizes the difficulty of reversing the precise social harm from particular practices, but he ignores the importance of the deterrent effect of antitrust enforcement: the companies that do not engage in anticompetitive behavior because they know they would be prosecuted.

AEI research assistant Harriet McConnell prepared this summary.

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