Eric Posner discusses why many antitrust professionals believe the law follows economic interpretation, despite the absence of economics in the relevant statutes. He argues that antitrust laws themselves have been resistant to adopting a coherent “economic theory” approach, leading to a tension between the economic views of agencies and academics versus the legal interpretations taken by courts.

Editor’s note: The following article is the first in a short series between Eric Posner and Carl Shapiro that previews their upcoming debate on the role of economics in merger review at this year’s Stigler Center Antitrust and Competition Conference

Economics plays a role in merger review, but its role—or its proper role, anyway—is surprisingly elusive. Merger review by the Department of Justice Antitrust Division and Federal Trade Commission (the Agencies) is a form of legal enforcement, and legal enforcement combines two tasks that are in tension: conscientious interpretation of the law created by Congress and courts, and discretionary allocation of enforcement resources. The law is just what it is—the Agencies cannot change it, though they can try to influence its development, for example, by making arguments to courts and lobbying Congress. Enforcement takes place within the confines of the law and is supposed to advance it. But within these constraints, the Agencies can rely on policy considerations. The Biden administration, for example, has encouraged the Agencies to give priority to anticompetitive behavior in labor, agriculture, the IT sector, healthcare, and telecommunications. The Reagan DOJ departed from previous enforcement patterns that it believed did not advance efficiency.

In the area of merger review, the Agencies have announced enforcement priorities in a series of Merger Guidelines. From the beginning, and with increasing emphasis from the 1980s, those guidelines have borne the imprint of the economic wisdom of the day. The replacement of concentration ratios with the HHI formula, the growing emphasis on price predictions, the efficiency rebuttal, intermittent skepticism of concentration levels as a basis for liability—all of these concepts and notions were invented, elaborated, or endorsed by academic economists, economically oriented lawyers, and government economists.

And yet the law itself has been stubbornly resistant to economic interpretation (in partial contrast to developments in other areas of antitrust law). Efficiency is the benchmark normative standard used in virtually all economics scholarship. It has dominated industrial organization (IO) scholarship for decades. Yet Section 7 of the Clayton Act does not mention efficiency. The aborted attempts to impose an efficiency interpretation on the statute in the 1980s yield to the currently popular view that the law sought to, or should now be interpreted to, advance consumer welfare or consumer surplus (or, at any rate, the surplus enjoyed by the merging parties’ counterparties, or some of them). This odd formulation has received the endorsement of a number of economists, but I think only because they see no practical alternative. It has no basis in economics—I’m unaware of any argument in, say, welfare economics that policy should prefer consumer surplus over total surplus, which includes the surplus obtained by the merging firms. Some economists think the consumer welfare standard has positive distributive effects, but it would be hard to demonstrate that the distributive gains are justified by the lost surplus. Others have looked for practical reasons for the consumer welfare standard that resonate with economic thinking—but without success.

I’m not sure the consumer welfare standard has any basis in law, either. It is more plausible than the total surplus standard because laws don’t normally instruct the constable to release wrongdoers if their gains are greater than their victims’ losses. And courts do take into consideration price effects of the merger in many merger cases, and seem to think that where they can predict that prices will rise, they should regard price impacts as relevant in merger review. But courts also look simply at impacts on concentration, which many economists believe is too crude to provide appropriate guidance.

The courts also have shown little enthusiasm for efficiency rebuttals or defenses. That efficiency comes in only as a rebuttal is itself an oddity from an economic perspective. Why shouldn’t the government be required to show that a merger is inefficient in order to block it? The courts have virtually never approved a merger based on efficiency; most have expressed doubt that it is even a relevant consideration under the law. The courts’ unwillingness to engage in cross-market balancing is also in tension with economics, which provides no basis for rejecting mergers because of their negative impact on a single market if they produce offsetting benefits in other markets.

If economics influences the law, then one would think that the law would keep up with developments in economics rather than reflect the ideas of defunct economists. One such development is growing skepticism that the concept of the market plays a useful role in merger analysis. Yet market definition remains central to antitrust law (not just merger law), and courts show no inclination to budge. The law is far less dynamic than economics: courts need to get comfortable with concepts, and worry that if they change the rules, people’s affairs will be disrupted. Purely legal values and concepts that are divorced from economics also play a role in the law.

All of this raises the question why people believe that an “economic theory of antitrust law” is embodied in the law. I see a few possibilities.

First, courts often defer to agencies—formally, they are required to defer to the FTC when it conducts adjudications. Where the FTC voluntarily uses an economic test to evaluate a merger, a court may feel compelled to defer to that methodological approach under the Administrative Procedure Act.

Second, courts hold agencies to their word. If the Agencies announce in the Merger Guidelines that small firms may merge, then this position will be held against them if they try to block a merger between small firms, however valid the legal theory for doing so. The operative law here is due process or some sense of it anyway, not Section 7. The Agency is simply refusing to enforce the portion of merger law that does not overlap with what it regards as economically sensible.

Third, when the Agencies try to block mergers, they typically seek preliminary injunctions. To win a preliminary injunction, the Agencies must show that the merger will produce harm. A clean way of doing so is pointing to expected price increases. But that does not mean that price increases are a requirement of merger law or the only way to cause harm.

Fourth, in other areas of antitrust law, the advance of economic methodology has led observers to believe that the Supreme Court would adopt an economic theory of antitrust law if it could bring itself to hear a merger case. That is not a valid legal argument, and in any event, does no firm any good until the Supreme Court acts. In the meantime, the Court’s fifty-year old precedents are in force, while the Merger Guidelines are not the law, as the courts have always recognized.

Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.