Abstract

The Chicago School of antitrust analysis has exerted a strong influence over the law of vertical restraints in the past two decades, leading the Supreme Court to abandon much of its traditional hostility toward such agreements. Chicago's success has provoked a vigorous response from Populists, who support the traditional approach. Chicago, Populists claim, has improperly relied upon neoclassical price theory to inform the normative and descriptive assumptions that drive its analysis of trade restraints generally and of vertical restraints in particular. This reliance is misplaced, Populists assert, because the real world departs from that portrayed by price-theoretic models and, at any rate, the Congress that enacted the Sherman Act did not understand the price-theoretic concept of allocative efficiency that Chicagoans employ as their normative benchmark. Instead, Populists assert, Congress meant to ensure an open competitive process, free of the sort of coercive abridgments of trader freedom represented by vertical restraints, which manufacturers impose through an exercise of market power. As a result, Populists conclude that the Supreme Court should revert to its traditional hostility toward such agreements. In this Article, Professor Alan Meese demonstrates that the Populist critique of Chicago's prescriptions regarding vertical restraints is unfounded. As an initial matter, Chicago's descriptive approach to such agreements does not depend upon price theory, but instead upon the New Institutional Economics, which embraces many real world departures from price theoretic models. Moreover, even if one adopts the normative premise advanced by the Populists, that is, that coercive restraints should be condemned regardless of anticompetitive effect, there is no reason to repudiate recent developments in the law of vertical restraints. The New Institutional Economics demonstrates that vertical restraints can attenuate certain market failures that result from a manufacturer's decision to rely upon dealers to distribute its goods. Contrary to the Populist assumption, ironically founded on price theory, that such arrangements are foisted on dealers through an exercise of market power, restraints that do, in fact, mitigate market failure can be the result of a purely voluntary process of contractual integration. Absent an empirical showing that most such agreements are not entered into voluntarily, or, in the alternative, a new definition of coercion, the Populist attempt to rehabilitate the traditional hostility toward vertical restraints must be rejected in favor of the sort of "Rule of Reason" approach advocated by many in the Chicago School.

Document Type

Article

Publication Date

1997

Publication Information

45 UCLA Law Review 143-204 (1997)

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