The implications of the Chicago approach for competition policy are straightforward: market structure should not be an intermediary goal of competition policy. High degrees of concentration are the result of attempting to achieve efficiency and should therefore not be suspect as such. Merger control should be handled restrictively and should only set in past very high market shares. Divestiture should not be pursued since it leads to the reduction of consumer surplus by making the realisation of cost savings impossible.
The detrimental role that representatives of the Chicago approach attributed to state-mandated constraints to competition was just spelled out. The ensuing policy implication is easy to name: the state was called upon to reduce the amount of regulations that effectively worked as constraints to competition. This could be tariff and non-tariff barriers with regard to border-crossing trade. But it could also be healthor safety-standards that often result in effectively protecting a limited number of domestic producers from more vigorous competition and thereby keeping consumer surplus at unnecessary low levels.
Representatives of Chicago did not, however, opt for a complete absence of competition policy as is sometimes argued. They argued, e.g., that horizontal agreements such as collective fixing of market shares or price fixing agreements should be prohibited. Predictability, a concept of crucial importance here, is highly valued by the lawyers and economists who belong to the Chicago school of antitrust. In order to make competition policy as predictable as possible, they opted for predominantly using per se rules as opposed to the rule of reason.
These two concepts have played a major role in antitrust policy. Due to their direct implications for predictability, they will be dealt with here in some detail. It should be stressed that their use is not confined to adherents of the Chicago approach. On per se rules, US Supreme Court Justice Thurgood Marshall had the following to say: “Per se rules always contain a degree of arbitrariness. They are justified on the assumption that the gains from imposition of the rule will far outweigh the losses and that significant administrative advantages will result. In other words,
the potential competitive harm plus the administrative costs of determining in what particular situations the practice may be harmful must far outweigh the benefits that may result. If the potential benefits in the aggregate are outweighed to this degree, then they are simply not worth identifying in individual cases.” (cited after Bork 1978, 18)
According to per se-rules, certain actions are prohibited as such, i.e., regardless of the consequences that they would supposedly bring about in a specific case. According to the rule of reason, a competition authority or a judge has to decide whether the behavioural effects in a specific case have detrimental effects on a given goal such as welfare or efficiency. The decision between these two types of rules is not an either-or decision because per se elements can be combined with rule of reason elements: in many jurisdictions, cartels are prohibited per se, but can be allowed given that certain offsetting effects are expected to materialise. With regard to mergers, one can often observe the opposite approach: below certain specified criteria, mergers are allowed per se, past those criteria, the rule of reason sets in and the competition authorities will have to evaluate predicted welfare effects of a specific merger.
Per se-rules are certainly conducive to predictability. Competition authorities and judges will not have to make complicated welfare evaluations. Therefore, this saves on decision-making costs. On the other hand, there might be cases in which the competition authorities and the judges could be almost certain that the negative effect that is generally connected with a certain behaviour and that has led to the passing of a per se-rule in the first place will not materialise in a specific case under consideration. In some cases, per se-rules thus force competition authorities and judges to ignore knowledge that they really have. Hayek (1964) has shown that this can be rational if the aggregate sum of the advantages of per se-rules outweigh the aggregate costs of having to ignore better knowledge that one might dispose of in a minority of cases.
The rule of reason, on the other hand, is based on a cost-benefit assessment of individual cases. Its application thus presupposes widely available knowledge concerning the use of quantitative techniques. Especially, where competition authorities lack economics-trained staff and where judges do not receive economic training on a regular basis, use of the rule of reason seems problematic. Yet, if efficiency arguments as introduced in the last section are to play a role in merger policy, use of the rule of reason is indispensable.
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