Competition and Market Failure in the Antitrust Jurisprudence of Justice Stevens

Abstract

This essay examines the significant role that Justice Stevens has played in curtailing some of the doctrinal excesses produced by the so-called "inhospitality tradition" of antitrust law and policy. Spawned by neoclassical price theory, the inhospitality tradition was uniformly hostile to nonstandard contracts, agreements that restrained the autonomy of a firm's trading partners before or after a transaction. By banning such contracts, the Court enforced a vision of unbridled rivalry drawn from price theory's model of workable competition.

Justice Stevens joined the Supreme Court when this tradition was at its apogee, as the Supreme Court even banned maximum vertical price fixing and non-price restraints ancillary to pro-consumer joint ventures. The essay explains how Justice Stevens helped the Supreme Court repudiate the inhospitality tradition and the vision of "competition" that it produced. In particular, Justice Stevens embraced and articulated a vision of "competition" that made room for various non-standard contracts that overcome market failures that unbridled rivalry would otherwise produce. As Justice Stevens explained, such contracts can in many cases actually enhance competition, by altering the incentives of the parties to them and thus encouraging a more productive allocation of resources. Perhaps most notably, his majority opinion in NCAA v. Board of Regents of the University of Oklahoma recognized that horizontal cooperation between market rivals, there college football programs competing to recruit and retain student athletes, can overcome market failure and improve the welfare of consumers.

The paper concludes by examining three questions still left open despite Justice Stevens' important opinions: the current scope of the per se rule, the definition of "cognizable" benefits that courts apply when conducting per se analysis, and the methodology for conducting rule of reason analysis. The essay suggests that the deeper logic of Justice Stevens' opinions undermines decisions such as United States v. Topco, even though Justice Stevens has cited such decisions with approval. The essay also suggests that benefits are "cognizable" whenever they alter a market's background rules or the incentives that market actors face in a manner that prevents or mitigates market failure. Finally, the essay concludes that Justice Stevens' logic requires courts to reform current rule of reason doctrine whereby proof that a restraint results in higher prices itself establishes a prima facie case. This logic also requires courts to reconsider their purported practice of "balancing" a restraint's benefits against harms presumed once a plaintiff establishes a prima facie case, as well as the related "less restrictive alternative test."

Keywords: Justice Stevens, Market Failure, Partial Integration, Competition, Rule of Reason, NCAA v. Board of Regents of the University of Oklahoma

JEL Classification: D21, D23, K21, L14, L23, L41, L42