Wednesday, 15 April 2009

Coase on antitrust

Over at Organizations and Markets, Peter Klein is blogging on Antitrust and the Theory of the Firm.

Klien notes that in the past the pioneers in the field of the theory of the firm — Coase, Williamson, Klein, Alchian, Demsetz, Teece, Masten — were actively interested in antitrust issues. The subtitle of Williamson's "Markets and Hierarchies" (1975), after all, is "Analysis and Antitrust Implications." But, he also notes, in the modern literature on the firm, antitrust doesn't make much of an appearance. None of the leading scholars, such as Oliver Hart, Bengt Holmstr√∂m, Jean Tirole, John Moore, Bob Gibbons, George Baker, Kevin Murphy, Tom Hubbard, or Steve Tadelis works much on antitrust. He suggests a reason for this,
One might respond that antitrust is an economic policy issue, not a firm-strategy issue, and note that transaction cost economics (TCE) has migrated from economics departments to business schools, where it joins the resource-based view (RBV) as a leading theoretical perspective on the the firm. Indeed, while the people mentioned above are economists, mostly teaching in economics departments, Williamsonian TCE has largely been supplanted by the Grossman-Hart-Moore model among mainstream economists, while it remains highly influential within the fields of strategic management, organization theory, and marketing.
This suggests two question to Klein,
(1) Why isn't the property-rights or Grossman-Hart-Moore approach to the firm more influential in antitrust economics? (2) Why isn’t antitrust a bigger topic within strategic management (e.g., as part of a firm’s legal and political strategy)?
It maybe that economists have just given up on antitrust as interesting area of research because they are having no effect on the practice of antiturst. William Landes summaries the point in the following quote on why Coase gave up antitrust,
“Ronald [Coase] said he had gotten tired of antitrust because when the prices went up the judges said it was monopoly, when the prices went down they said it was predatory pricing, and when they stayed the same they said it was tacit collusion.”

–William Landes, “The Fire of Truth: A Remembrance of Law and
Econ at Chicago”, JLE (1981) p. 193.
If, ignoring all economic evidence to the contrary, judges conclude that everything is anti-competitive, there doesn't seem much point in staying in the field.

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