Judge Bork on the Consumer Welfare Standard
“The only goal that should guide interpretation of the antitrust laws is the welfare of consumers. Departures from that standard destroy the consistency and predictability of the law; run counter to the legislative intent, as that intent is conventionally derived; and damage the integrity of the judicial process by involving the courts in grossly political choices for which neither the statutes nor any other acceptable source provide any guidance.
- Robert H. Bork, The Antitrust Paradox
Judge Robert Bork on the Evolution of Antitrust Law
Robert Bork held that the understanding of economics in modern antitrust law was a “mélange of valid insights and obviously incorrect—sometimes fantastic—assumptions about the motivations and effects of business behavior.” He called it the “unknown policy.”
“[P]erhaps the core of the difficulty is that the courts, and particularly the Supreme Court, have failed to understand and give proper weight to the crucial concept of business efficiency. Since productive efficiency is one of the two opposing forces that determine the degree of consumer well-being (the other being resource misallocation due to monopoly power), this failure has skewed legal doctrine disastrously.”
The 1890 Sherman Antitrust Act, the first antitrust law, was originally enforced to protect consumer welfare, not the welfare of smaller or more inefficient businesses. Over time, however, antitrust doctrine became unmoored to clear goals and divorced from the actual practice of business and the underlying economics. Justice Louis Brandeis in the early 20th century was the first to give weight to the idea of using antitrust not to protect consumers, but to protect small businesses.
By the era of the Warren Court in the mid-20th century, protecting businesses from other business had often become the dominant goal of antitrust.
Incipiency and Other Misconceptions Versus the Rule of Reason
In The Antitrust Paradox, Robert Bork identified these and other key departures from a coherent and predictable body of law that businesses could follow. He denounced the “virus of incipiency,” which he said was “the idea that courts could identify and catch anticompetitive activity in its very early stages, before its effects had become serious.” Bork held that “the incipiency concept has proved to be an anticompetitive virus, working together with the Brandeis value strain to protect the inefficient from competition.”
Bork approvingly quoted federal judge William Howard Taft, the future president and Chief Justice of the Supreme Court, who wrote an opinion in Addyston Pipe & Steel (1899) for the Sixth Circuit Court of Appeals. Of Taft’s ruling, Bork wrote:
The integration of economic activities, which is indispensable to productive efficiency, always involves always involves the implicit elimination of actual or potential competition. We allow it – indeed, should encourage it – because the integration creates wealth for the community. We should equally encourage those explicit and ancillary agreed-upon eliminations of rivalry that make the basic integration more efficient.
In The Antitrust Paradox, Bork likened the law and business to an example in which lawyers forming a partnership could lawfully agree on fields of exclusive specialization (you practice these kinds of cases, and I practice those kinds of cases), and the fees each should charge. But he wrote that for lawyers not in partnership, if they engaged in this same behavior, they would be guilty of market division and price fixing.
Vertical Mergers
Another area where Robert Bork believed the application of antitrust law was departing from the actual economy was the increasing tendency of courts in the 20th century to disallow “vertical” mergers – the integration of two businesses in a supply chain. An example of a “horizontal” merger would be the combining of two national telecommunications companies that both offer cellphone plans, reducing the number of competitors for consumers. An example of a vertical merger would be a grocery store chain merging with a food company, or a furniture retailer buying a forestry company.
Vertical mergers, if well conceived and well managed, bring operational efficiencies and help companies control costs. Bork held that vertical integrations are, by their very nature, not prone to harm consumers.
Certain of the antitrust statutes, the Clayton Act and the Robinson-Patman Act, direct the court’s attention to specific suspect business practices. Though these practices are almost entirely beneficial, Congress has indicated its belief that they may—not always, but under circumstances deliberately left undefined—injure competition. Is a court that understands the economic theory free, in the face of such a legislative declaration, to reply that, for example, no vertical merger ever harms competition? The issue is not free from doubt, but I think the better answer is yes.
Bork touted a Taft doctrine, “the rule of reason,” that obliged courts to analyze the real-world effects of given business practices. How would the rule of reason judge vertical mergers?
Bork offered an extreme hypothetical – what if Congress passed a law blaming automobile accidents on poltergeists rather than driving while intoxicated? No court would bother to frame rules of evidence to determine whether poltergeists were or were not responsible for an accident, especially in a case in which the driver was drunk. In antitrust law, an economically literate court would no more hold ordinary, even pro-consumer business practices to be illegal than it would “frame rules about the criteria for showing infestations by spirits.”
To guide future antitrust decisions, Robert Bork put forward recommendations that were largely adopted by antitrust practitioners. He recommended that the only goal that should guide interpretation of the antitrust laws is the welfare of consumers. He also recommended that in judging effects of a case on consumer welfare, that productive efficiency – producing goods in the optimal method at the lowest cost – should be considered the single most important factor contributing to that welfare.
Robert Bork held that the understanding of economics in modern antitrust law was a “mélange of valid insights and obviously incorrect—sometimes fantastic—assumptions about the motivations and effects of business behavior.” He called it the “unknown policy.”
“[P]erhaps the core of the difficulty is that the courts, and particularly the Supreme Court, have failed to understand and give proper weight to the crucial concept of business efficiency. Since productive efficiency is one of the two opposing forces that determine the degree of consumer well-being (the other being resource misallocation due to monopoly power), this failure has skewed legal doctrine disastrously.”
The 1890 Sherman Antitrust Act, the first antitrust law, was originally enforced to protect consumer welfare, not the welfare of smaller or more inefficient businesses. Over time, however, antitrust doctrine became unmoored to clear goals and divorced from the actual practice of business and the underlying economics. Justice Louis Brandeis in the early 20th century was the first to give weight to the idea of using antitrust not to protect consumers, but to protect small businesses.
By the era of the Warren Court in the mid-20th century, protecting businesses from other business had often become the dominant goal of antitrust.
Incipiency and Other Misconceptions Versus the Rule of Reason
In The Antitrust Paradox, Robert Bork identified these and other key departures from a coherent and predictable body of law that businesses could follow. He denounced the “virus of incipiency,” which he said was “the idea that courts could identify and catch anticompetitive activity in its very early stages, before its effects had become serious.” Bork held that “the incipiency concept has proved to be an anticompetitive virus, working together with the Brandeis value strain to protect the inefficient from competition.”
Bork approvingly quoted federal judge William Howard Taft, the future president and Chief Justice of the Supreme Court, who wrote an opinion in Addyston Pipe & Steel (1899) for the Sixth Circuit Court of Appeals. Of Taft’s ruling, Bork wrote:
The integration of economic activities, which is indispensable to productive efficiency, always involves always involves the implicit elimination of actual or potential competition. We allow it – indeed, should encourage it – because the integration creates wealth for the community. We should equally encourage those explicit and ancillary agreed-upon eliminations of rivalry that make the basic integration more efficient.
In The Antitrust Paradox, Bork likened the law and business to an example in which lawyers forming a partnership could lawfully agree on fields of exclusive specialization (you practice these kinds of cases, and I practice those kinds of cases), and the fees each should charge. But he wrote that for lawyers not in partnership, if they engaged in this same behavior, they would be guilty of market division and price fixing.
Vertical Mergers
Another area where Robert Bork believed the application of antitrust law was departing from the actual economy was the increasing tendency of courts in the 20th century to disallow “vertical” mergers – the integration of two businesses in a supply chain. An example of a “horizontal” merger would be the combining of two national telecommunications companies that both offer cellphone plans, reducing the number of competitors for consumers. An example of a vertical merger would be a grocery store chain merging with a food company, or a furniture retailer buying a forestry company.
Vertical mergers, if well conceived and well managed, bring operational efficiencies and help companies control costs. Bork held that vertical integrations are, by their very nature, not prone to harm consumers.
Certain of the antitrust statutes, the Clayton Act and the Robinson-Patman Act, direct the court’s attention to specific suspect business practices. Though these practices are almost entirely beneficial, Congress has indicated its belief that they may—not always, but under circumstances deliberately left undefined—injure competition. Is a court that understands the economic theory free, in the face of such a legislative declaration, to reply that, for example, no vertical merger ever harms competition? The issue is not free from doubt, but I think the better answer is yes.
Bork touted a Taft doctrine, “the rule of reason,” that obliged courts to analyze the real-world effects of given business practices. How would the rule of reason judge vertical mergers?
Bork offered an extreme hypothetical – what if Congress passed a law blaming automobile accidents on poltergeists rather than driving while intoxicated? No court would bother to frame rules of evidence to determine whether poltergeists were or were not responsible for an accident, especially in a case in which the driver was drunk. In antitrust law, an economically literate court would no more hold ordinary, even pro-consumer business practices to be illegal than it would “frame rules about the criteria for showing infestations by spirits.”
To guide future antitrust decisions, Robert Bork put forward recommendations that were largely adopted by antitrust practitioners. He recommended that the only goal that should guide interpretation of the antitrust laws is the welfare of consumers. He also recommended that in judging effects of a case on consumer welfare, that productive efficiency – producing goods in the optimal method at the lowest cost – should be considered the single most important factor contributing to that welfare.
These are not prescriptions for the nonenforcement of the antitrust laws, but rather for their enforcement in a way that advances rather than retards competition and consumer welfare.