Farewell to the Quick Look: Redefining the Scope and Content of the Rule of Reason
38 Pages Posted: 11 Sep 2006
This essay critiques the so-called "quick look" approach to rule of reason analysis. Under this approach, courts presume that certain restraints create anticompetitive harm, regardless whether the plaintiff can establish actual harm or its surrogate, market power. Once this presumption arises, defendants can only rebut it by adducing evidence that the agreement creates significant benefits. Even if the defendant adduces such evidence, the plaintiff may still prevail by showing that the defendant could achieve the very same benefits by means of a "less restrictive alternative".
This essay argues that the so-called "quick look" doctrine is unduly hostile toward partial contractual integration that avoids per se condemnation because it may overcome a market failure. Various forms of horizontal integration, including mergers, partnerships and joint ventures eliminate rivalry on price and output altogether. Nonetheless, the mere occurrence of such a transaction does not establish a prima facie case. Instead, courts still require plaintiffs challenging such transactions to prove the contours of a relevant market and that such markets are so concentrated that the transaction in question will facilitate the exercise of market power.
To be sure, the quick look doctrine is superior to the rule of per se condemnation that courts once applied to such restraints. Nonetheless, the same advances in economic theory that undermined such per se rules also undermines this approach. There is no sound economic basis for treating partial contractual integration more harshly than complete integration through mergers and the like.
Recent advances in economic theory, particularly transaction cost economics, establish that horizontal restraints on rivalry often overcome market failures that unfettered rivalry would produce, thereby resulting in non-technological efficiencies. Proponents of the quick look have offered no evidence that such efficiencies are less prevalent than the sort of technological efficiencies produced by complete integration. Nor have they shown that complete integration poses a smaller risk of anticompetitive harm than partial integration. In short, the quick look rests upon unjustified bias against restraints that may produce non-technological efficiencies.
While the "quick look" doctrine allows defendants to rebut the presumption of harm on which it rests, such rebuttal will often entail a heavy burden that proponents of beneficial restraints will not be able to overcome. For several decades, courts and the enforcement agencies have shown themselves unduly hostile to arguments that various restraints produce cognizable benefits, even in cases in which defendants obviously lack market power. Moreover, in some cases, defendants may not be able to articulate to the satisfaction of a court or government economist just how the restraint in question overcomes a market failure. Thus, a rule that immediately casts a burden of adducing evidence of benefits on to defendants will ban and deter many agreements that enhance society's welfare.
The essay ends by considering two questions raised by repudiation of the "quick look" doctrine. First, what sort of proof must plaintiffs adduce to establish a prima facie case. Second, how should courts determine whether benefits that a defendant has articulated are "cognizable" under the rule of reason. The essay argues that proof of "actual detrimental effects" should not suffice to establish a prima facie case and that a restraint should avoid per se treatment whenever the defendant can make a plausible argument that such restraints overcome a market failure.
Keywords: Rule of Reason, Quick Look, Transaction Cost Economics
JEL Classification: B25, D23, K21, L14, L22, L41, L42
Suggested Citation: Suggested Citation