Bork on anti-trust – Guest post by Joseph

By skepticlawyer

[SL: Joseph is an occasional poster and regular lurker on skepticlawyer, a PhD graduate in Economics from the University of Queensland, and a trader with Nikko. And as you all know, we often use the expression ‘Borked’ around the place to describe something terminally and utterly… borked.

Robert Bork, however, is a real person, once nominated to the SCOTUS. He didn’t make it (and thereby hangs a tale), although his writings on anti-trust (competition law) are well-regarded across the political spectrum. In the comment below, Joseph challenges one of Bork’s core assumptions. Enjoy].

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I’ve just started Robert Bork’s The Antitrust Paradox. It’s excellent. I’ve found it particularly enjoyable as it makes a case that modern antitrust law is inherently arbitrary, something I’ve long felt but lacked the legal background to argue convincingly.

Bork is a high caliber jurist. He was a Reagan nominee to the Supreme Court (rejected by the Senate), Solicitor General, professor at Yale, and so on. His work has been influential in industrial organisation and (I’m told) in law.

Unlike me Bork is a pragmatist. He admits that there are workable and sensible aspects of the law that would, if allowed to operate correctly, benefit the efficient operation of markets. For Bork a prime cut of this useful rump of antitrust law is the exclusive focus on consumer welfare. He argues that without this even the most egregious anticompetitive behavior could not be ruled per se illegal without balancing the loss for consumers against the gains for producers.

I have a problem with this: I don’t see a strict divide between ‘producers’ and ‘consumers’ and so I don’t think the primacy of consumer welfare can be a coherent basis for antitrust law.

Let me explain through an example. Take the sentence ‘I went to the store to buy some milk’. It is equivalent to say ‘I went to the store to sell some money’. It’s unclear who the buyer and the seller are in a transaction and hence it’s unclear who is ‘producing’ and who ‘consuming’. The transaction is a trade; the fact that one party trades something called ‘money’ is interesting but not very relevant for most purposes. The money used in the transaction is acquired previously from some other trade. Money is simply a mechanism to expedite barter.

For the law to single out one side of the transaction that happens to be using money is quite arbitrary and unfair. There’s no obvious reason why those paying with money should be afforded a higher status than those paying with milk, mars bars, or rotary engines.

There are a couple of obvious retorts to this, both wrong.

First is to say that there is a power imbalance between consumers and producers which makes consumers more liable to exploitation and therefore more needing of protection. This is obviously wrong in many cases — consumers often have a large degree of market power and can bargain advantageously with many competing producers. But even if it were right in most cases it still leaves many producers without protection afforded to equally oppressed consumers. In my mind law that elevates one group above another on a superficial distinction is bad law.

Second is to say that producers are distinct because they make products or services, whereas consumers don’t make anything. This is also wrong. Most sellers don’t make their product, they combine existing products. The corner store is not the producer of the milk that it sells; that honour belongs to the cow. Even the cow is simply reprocessing grass. This might seem pedantically semantic but that’s precisely the point; the concept of production is slippery, and slippery concepts do not form the basis for good law.

Of course the law is not blind to these problems. A couple of generations of common law and legislation have birthed to make finer distinctions and establish principles to iron out the creases. I’m certain Bork will continue to delight me with these stories. But in my opinion the essential arbitrariness of the producer/consumer distinction poisons the tree at its roots and makes antitrust law wholly unworkable.

19 Comments

  1. Tim
    Posted December 14, 2010 at 6:07 am | Permalink

    Very interesting. You’ve obviously thought about this a lot.

    Which statute was Bork interpreting? Was he using legislative intent as the primary criterion for statutory interpretation?

    While it’s been a long time since I’ve read any of Bork’s antitrust-related work (can you give a cite where Bork makes this distinction?), and that area of law is not my specialty, I’m not wholly persuaded that Bork’s distinction between consumer and producer is false. The idea that when one buys milk, one is selling money, doesn’t seem right, because money is not a consumer good. It’s purely a medium of exchange, for it cannot be consumed. In that sense, barter and money-based transactions are distinguishable from one another.

    In what way does Bork’s distinction make antitrust law unworkable? Has his distinction been adopted as law, with the result that a government has been unable to enforce antitrust law?

    In short, I would probably maintain consumer protection as one of the foci of antitrust law.

  2. Tim
    Posted December 14, 2010 at 6:08 am | Permalink

    Oops. You did cite a source! Sorry!

  3. Nick Ferrett
    Posted December 14, 2010 at 7:27 am | Permalink

    Whenever I hear of Bork, I immediately think of the Swedish Chef on the Muppets. “Bork bork bork”

  4. Sweeney
    Posted December 14, 2010 at 7:45 am | Permalink

    I love law when its adaptability and seemingly inventiveness (in the sense of necessity being the mother of invention) are on show.

    I think this is evident in Australia at least, where our so-called ‘ consumer’ law is principally used by businesses or corporations to take on other corporations over conduct that the complainant objects to, in effect, as anti-competitive.

  5. Tim
    Posted December 14, 2010 at 8:52 am | Permalink

    If an antitrust law cannot be invoked by a private company to complain of anticompetitive behavior by a competitor, it would probably be less effective a law though, especially in the case of small companies, which are cases that the government doesn’t have resources to get involved in. While I favor repeal of the Sherman antitrust act in the U.S. (and the other major statute, whose name escapes me), while it’s still the law, I think it must be enforced according to the plain language of the text and the intent of Congress.

  6. Posted December 14, 2010 at 9:54 am | Permalink

    There is no quality, accurate presentation or other competition-within-specific-markets problem with money. (Apart from counterfeiting, of course, but that is not relevant here.) So it is reasonable to differentiate between the provider of money in a transaction and the provider of a good or service.

  7. kvd
    Posted December 14, 2010 at 10:37 am | Permalink

    Joseph, I roughly equate your ‘revisionism’ with a flat statement that 1+1 != 2 in the decimal system, or that you don’t see why forward passes or offside positions are disallowed in some football codes. Is that Bork’s pragmatism?

    You would treat money as a product which is produced by one party and bartered for the product of another party. At the top of my list of retorts is the simple fact that a consumer “consumes” i.e. the particular subject of the consumption is no more, in its conveyed state.

    This applies to your milk, and to airline seats on a specific journey – and also to the corner store ‘consuming’ the services of its long chain of suppliers, to produce the milk, cold on the counter every day for the end consumer to purchase and consume in the digestive sense.

    On the other hand, the money involved in each stage is a convenient means of “keeping score” – the real life equivalent of titles and honours gained in World of Warcraft (and also I have found it’s sometimes quite hard to get a Qantas seat in exchange for three pigs and a duck).

    So, fair enough, I guess, to say let’s chuck all that, but I’m missing what you propose to put in place or benefits which might flow?

  8. Nick Ferrett
    Posted December 14, 2010 at 11:15 am | Permalink

    I don’t agree with the reduction of consumers and producers to equal status. I don’t think that anyone who isn’t an economist or the like would regard the guy buying milk at the store as selling money. To most, money is merely a medium of exchange, not a commodity to be traded. Of course, more and more people are involved in investments and trading in the value of money, but they still think of goods and services in terms of their money value and (conversely) how rich they are in terms of what they could buy with their wealth. As a concept, I think money still stands apart from other things of economic value.

    I don’t think the consumer protection laws we have are particularly bad (save for component and volume pricing laws which are just ridiculous). It’s the competition laws with which I take issues. Under the Trade Practices Act, price fixing is banned per se, but that has the effect of banning 7-11 franchisees from agreeing on a price at which to sell a carton of milk, but a committee in the HQ of Woolworths (a far greater aggregation of economic power) can happily direct all stores about how they are to price milk.

    Similarly, the law against resale price maintenance bans a manufacturer from supplying goods to retailers on condition that they maintain a minimum price, but a manufacturer can buy or establish its own retail outlets and determine the price at which those outlets sell its goods. And this leaves aside the strong contention that resale price maintenance is actually a positive economic influence (sorry LE, back in the Posner temple). Spender J indulged (and that is the right word) in an interesting discussion of this point in ACCC v Jurlique.

    Spender J obviously quite likes Bork.

    I used to work at the ACCC and was, for a long time, as rabid as any officer of a corporate regulator about the demonstrable good of the laws to be enforced. The thing which changed my mind about it was the point made in this paper; that competition laws – particularly the ones which limit the terms on which goods and services are to be traded – constitute interference in private property rights and you need a very good reason to do that.

    When the effect of the laws is to do little more than require a particular manner of aggregating economic power rather than actually affecting the use of economic power (eg vertical integration versus resale price maintenance) I think the laws are pretty hard to justify.

  9. Mel
    Posted December 14, 2010 at 11:45 am | Permalink

    That really is a steaming crapola of an argument. I know it’s the holiday season and all but I can’t rate it any higher than undergraduate crapola. Take this for example:

    “First is to say that there is a power imbalance between consumers and producers which makes consumers more liable to exploitation and therefore more needing of protection. This is obviously wrong in many cases — consumers often have a large degree of market power and can bargain advantageously with many competing producers. ”

    This is wrong in so many ways. But in any event what is important is what people *actually* do, not what they *could* feasibly do in some non-existent sovereign consumer utopia. And we know perfectly well because of oodles of research that people very rarely hold the upper hand by virtue of “bargain[ing] advantageously with many competing producers”.

    A superb example is superannuation, with a wealth of research showing most folk are very much passive consumers of superannuation, indeed they are so passive that many people will retire with many tens of thousands of dollars less than they would if they moved from a high-fee poor performance fund to a low-fee high performance fund.

    Moreover, in yet another blow to libertarian orthodoxy, not-for-profit Industry Superannuation Funds, most of which have at least one badly-dressed, plump, middle-aged union nominee on the board, routinely outperform the for-profit retail funds: http://industrysupernetwork.com/latest-super-ratings-data-shows-industry-super-funds-outperformance-need-for-mysuper-criteria-to-be-strong

  10. kvd
    Posted December 14, 2010 at 12:04 pm | Permalink

    Well, I wanted to say what [email protected] just said, but I was mindful of Glen Stevens’ comments yesterday(?) that he didn’t know how the big 4 banks arrived at their cost of funds, so I thought, in comparison, that this was deserving of polite-ish response.

  11. Joseph Clark
    Posted December 14, 2010 at 4:03 pm | Permalink

    Thanks for comment everyone.

    @Tim I’ll give some more detail when I’m back in the office. I highly recommend reading the book yourself too 🙂

    On the money point: Of course there is a difference between money and other things. That wasn’t my claim. But money can and should be thought of as an expedient to barter; the only reason I don’t try to buy milk with consulting services or goats or whatever is the inconvenience that would create for me and the corner store.

    It’s also possible to identify a ‘consumer’ as a person who is gives money in exchange for something else. My question is why that side of the transaction should necessarily be be privileged over the other side. Does anyone have an argument for that?

  12. kvd
    Posted December 14, 2010 at 4:37 pm | Permalink

    Joseph I would say that your person with money is giving over something with a known, accepted, and onwardly transmissable value for a good or service of unknown quality, of unknown origin, but with implicit guarentees of suitablilty for purpose and productive life.

    The ‘money man’ doesn’t have to give any other guarentee other than his ‘trade’ is not counterfeit. He is thereby potentially hugely disadvantaged in any fair dealing.

  13. Joseph Clark
    Posted December 14, 2010 at 11:46 pm | Permalink

    kvd,
    You seem like an intelligent and informed person. But the efforts of philosophers and economists over the last several thousand years have not furnished us with a sufficient view of what ‘money’ means.

  14. JC
    Posted December 15, 2010 at 12:24 am | Permalink

    Great post Joseph.

    Yes antitrust for the ksot part is a crock bullshit. it’s basically Marxist philosophy dressed as economics.

    Even the perfect competition model used to apply the law is faulty economics. There’s no such thing as perfect competition.

    It would be state where no transactions would flow. Even say wheat, which is to some extent a basic commodity that would be about the closest of any market for such a model doesn’t work. Wheat is in different geographical localities and there exist differences as to quality and type etc.

    I thought it was amusing when the watchdog brought up the case against Dick Pratt and despite the so-called agreement the two players were found to be breaching their agreement from day 1.

    Different balance sheets essentially means two firms are unable to collude for any great length of time.

  15. kvd
    Posted December 15, 2010 at 1:18 am | Permalink

    Joseph, economists seem to use the Humpty Dumpty method of word definition. I’ve often thought that discussions with them ought to be fairly preceded by a definitional phase, so that the rest of us can be more clear as to the meaning they mean.

    Words, and language generally, are meant to assist in clear communication. In that sense they are like money – a necessary part of the transaction, rather than an end in themselves.

  16. Posted December 15, 2010 at 3:34 am | Permalink

    [email protected]

    I’ve often thought that discussions with them ought to be fairly preceded by a definitional phase, so that the rest of us can be more clear as to the meaning they mean.

    Why stop at economists?

    [email protected]

    are very much passive consumers of superannuation

    They are also, in Australia, compelled consumers of superannuation, a product they may have a very weak confidence in their own knowledge. Therefore, a somewhat specific example.

    Joseph’s point about market power being varied is correct. The large supermarket chains have very low profit margins, for example, because people can so easily go elsewhere. But they have considerable market power in much of their own purchasing.

    [email protected]

    But money can and should be thought of as an expedient to barter; the only reason I don’t try to buy milk with consulting services or goats or whatever is the inconvenience that would create for me and the corner store.

    No actually, money is a medium of exchange replacing barter. How you happen to have money is irrelevant. The fact is, there are a whole of lot of issues that apply to providing goods and services that do not apply to providing money in exchange.

    I take your point that the welfare of the consumer is not automatically superior to that of the producer. Just that there are reasons the law might differentiate between two sides of a transaction, where one side is providing money and the other a good or service.

    There is also the larger point that consumer welfare is the ultimate point of production in the first place.

  17. kvd
    Posted December 15, 2010 at 3:46 am | Permalink

    Hey Lorenzo! Was starting, not stopping. But always and firstly, I blame myself.

  18. Posted December 15, 2010 at 12:27 pm | Permalink

    KVD Any chance I have to make the “boring” “tedious” philosopher’s point about first define your terms being just good cognitive practice I will take 🙂

    But macroeconomics is, indeed, particularly prone to these issue. Economists cannot even agree on a common analytical language.

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