Market Failure and Non-Standard Contracting- How the Ghost of Per
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Market Failure and Non-Standard Contracting- How the Ghost of Per
College of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of PerStandard Contracting: How the Ghost ot Perfect Competition Still Haunts AntitrustAlan J. Meeseh'i//wni t? Ailin' Law Scliool, ajmccs^&wm.cduRepository CitationMeese, Alan J., 'Market Failure and Non-Standard Contracting: How the Ghost of Perfect Competition Still Haunts Antitrust’ (2005).Rrcufry PnM Market Failure and Non-Standard Contracting- How the Ghost of PeridWns. 57.https://scholarshipjaw wmedu/fac pubs.''57Copyright c 200$ by the authors. 'Ihtt artide is brought to you by the William & Mary Law School SMarket Failure and Non-Standard Contracting- How the Ghost of Per
cholarship Repository.hMpi:/7Khol>rslápiiw.wm«hi.'’É>cpub»Journal of Compctitwn Law and Economics I (I), 21-95 doi: 10.1093/ioclec/nhi007MARKET FAILURCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Perte’ relationship with non-standard conưacts that can overcome market failure. On the one hand, courts have abandoned various per se rules that once condemned such agreements outright, concluding that many non-standard contracts may produce benefits that are cognizable under the antitrust laws.1 The Market Failure and Non-Standard Contracting- How the Ghost of Perprospect of such benefits, it is said, compels courts to analyze these agreements under the Rule of Reason, under which the tribunal determines whetheMarket Failure and Non-Standard Contracting- How the Ghost of Per
r a given resuaint enhances or desttoys competition.2 At the same time, courts, scholars, and the enforcement agencies have embraced methods of rule oCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Perutcomes they produce as manifestations of market power. This article seeks to explain why these agreements are still the object of undue hostility.The article finds an explanation in the continued influence of the perfect competition model on antiưust thinking. The article begins by offering a revis Market Failure and Non-Standard Contracting- How the Ghost of Pered explanation for the so-called ‘inhospitality era’ of antitrust, an explanation that helps shed light on the current state of affairs. During this pMarket Failure and Non-Standard Contracting- How the Ghost of Per
eriod, which sưetched from the 1930s until 1978, scholars, courts and the enforcement* Ball Professor of Law, William and Mary School ofLaw. J.D., UniCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Perison, and other participants in a workshop at the University of Virginia School of Law for helpful comments on an earlier draft of this paper, 'rhe author also thanks Richard Hynes, Jim Molitcmo, and participants in the summer workshop series at William and Mary for a helpful discussion of this proj Market Failure and Non-Standard Contracting- How the Ghost of Perect, 'rhe William and Mary School of Law provided a summer research grant in support of this paper. Della Harris provided word processing assistance,Market Failure and Non-Standard Contracting- How the Ghost of Per
and Justin Laughter provided helpful research assistance.1Sec State Oil V Khan, 522 US 3 (US Supreme Court 1997) (abandoning perse ban on maximum resaCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Perories).2See Continental TV V GTE Sylvania, 433 US 36 (US Supreme Court 1977) 49-59; see also Chừago Board of Trade V United States, 246 US 231, 238 (US Supreme Court 1918) (describing fact-intensive nature of rule of reason analysis).3See Alan J. Mecse, ‘Price Theory, Competition, and the Rule of Re Market Failure and Non-Standard Contracting- How the Ghost of Perason’, 2003 Illinois Law Review 77 (2003).22 Journal of Competition Law and Economics 1(1)agencies condemned most non-standard contracts as unlawful pMarket Failure and Non-Standard Contracting- How the Ghost of Per
erse or nearly so. Beginning in the 1960s, the advent of transaction cost economics (TCE) caused many scholars to recognize that non-standard contractCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Perrules in the courts. Practitioners ofTCE traced the inhospitality tradition to neoclassical price theory, its paradigmatic technological conception of the firm and the resulting hostility toward partial integration, which by its nature cannot produce technical efficiencies. In other words, these sch Market Failure and Non-Standard Contracting- How the Ghost of Perolars saw the problem as arising ‘from the inside-out’: because economists of the era misunderstood why firms exist, they could not understand less coMarket Failure and Non-Standard Contracting- How the Ghost of Per
mplete forms of integration, either. TCE, it is said, offered a new explanation for the firm, an explanation that also helped explain partial integratCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Perunduly hostile Rule of Reason suggest that the TCE revolution has not been entirely successful where antitrust doctrine is concerned. As a result, it seems likely that there is some shortcoming in TCE’s account of the inhospitality tradition, a shortcoming that has undermined the efforts of TCE’s pr Market Failure and Non-Standard Contracting- How the Ghost of Peroponents to convince courts and agencies to reform antitrust doctrine. This article argues that the conventional explanation simply begs the questionMarket Failure and Non-Standard Contracting- How the Ghost of Per
why inhospitality-era scholars did not recognize that non-standard agreements could produce non-technical efficiencies by overcoming market failure. TCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Per market failure.4 This approach, it is shown, rested upon a methodological habit common to this pre-Coasean era of assuming that ‘perfect competition’ and ‘market failure’ co-existed. By imagining perfect competition, and framing market failure as a phenomenon that thwarted an optimal allocation of Market Failure and Non-Standard Contracting- How the Ghost of Perresources, which perfect competition would otherwise produce, the methodology of the era effectively blocked the recognition of certain market failureMarket Failure and Non-Standard Contracting- How the Ghost of Per
s of particular relevance to antitrust policy. More importantly, this methodology blocked the recognition that private conttacts could overcome marketCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Pers. In the absence of a benign explanation for non-standard contracts, scholars and others naturally viewed non-standard contracts as manifestations of market power and thus proper objects of regulation designed to optimize the allocation of resources.Of course, the Coase theorem has taught US that p Market Failure and Non-Standard Contracting- How the Ghost of Pererfect competition cannot coexist with market failure.5 Moreover, practitioners of TCE have shown that many non-standard agreements arc in fact methodMarket Failure and Non-Standard Contracting- How the Ghost of Per
s of reducing the cost of transactions, that is, relying upon an unbridled market to conduct4See Thomas Kuhn, The Structure of Scientific Revolutions College of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Perting 23economic activity.0 Such agreements are beneficial, it is said, precisely because unbridled markets sometimes fail to produce an optimal allocation of resources.6 7 At the same time, however, courts, scholars, and enforcement officials still lack a complete understanding of the market failure Market Failure and Non-Standard Contracting- How the Ghost of Per concept and its relation to antitrust analysis of non-standard contracts. In particular, courts and others do not seem to recognize that such agreemeMarket Failure and Non-Standard Contracting- How the Ghost of Per
nts entail contractual internalization of externalities that alter ‘competitive’ patterns of trade and produce prices and the output different from whCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Pertitrust—still blocks the recognition that certain non-standard contracts produce benefits by overcoming market failure and thus altering the terms or patterns of trade.Antitrust regulation is, after all, designed to thwart a particular form of market failure—the misallocation of resources resulting Market Failure and Non-Standard Contracting- How the Ghost of Perfrom the exercise of market power. As shown below, inhospitality-era economists used perfect competition as a methodological starting point for theừ aMarket Failure and Non-Standard Contracting- How the Ghost of Per
nalysis of market failure. In the same way, modern antitrust scholars embrace a peculiar version of perfect competition—modified to exclude externalitCollege of William & .Mary Law SchoolWilliam & Mary Law School Scholarship RepositoryFaculty PublicationsFaculty and Deans2005Market Failure and Non-S Market Failure and Non-Standard Contracting- How the Ghost of Perre qua market power. The perfect competition framework is sufficiendy elastic to accommodate claims that mergers reduce production costs, or non-standard agreements ‘reduce transaction costs.’ Modern scholars recognize that such practices are often beneficial, even as they result in departures from Market Failure and Non-Standard Contracting- How the Ghost of Perperfect competition. At the same time, scholars who embrace perfect competition as a starting point thereby assume that any departure from this antiseMarket Failure and Non-Standard Contracting- How the Ghost of Per
ptic model—even if beneficial—reflects some exercise of market power. It is thus no surprise that many scholars treat non-standard conưacts that excluGọi ngay
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