The Rise of the Chicago School of Economics

This set the stage for the most significant sea change in antitrust enforcement in 90 years , i.e. the rise of The Chicago School of Economics or Reagonomics, which got into full swing in 1981 when President Reagan appointed Professor William Baxter as Assistant Attorney General in charge of the Antitrust Division of the Department of Justice. Professor Baxter, formerly with Stanford University, implemented Chicago School economics into antitrust enforcement. At the risk of oversimplifying his views, he believed: (a) All vertical arrangements or restrictions (price and non-price) were competitively neutral. The issue was whether there was collusive activity between or among competing sellers. Using an example he would ask, why would Ford Motor Company restrict its Ford dealers in how they could resell Ford automobiles? Not to harm its own dealers, and certainly not to impede consumers from purchasing Ford automobiles, but rather to set up a distribution system that was more effective in selling cars against its real competitor, Chevrolet (interbrand competition), even if it meant putting restraints on how or where or to whom Ford dealers could sell Ford automobiles, thus restricting competition between one Ford dealer and another intrabrand competition; (b) He also believed that the manufacturer, with its huge investment in plant and machinery, had a greater incentive in moving product through the distribution process faster and cheaper than a wholesaler or retailer who might be selling many different products and who might want to sell fewer products of a particular manufacturer, but at a higher price. Thus, the third element and perhaps the most controversial that the manufacturer was significantly more of a surrogate for the consumer than those wholesalers or retailers downstream; (c) Manufacturers should not have to face an antitrust jury every time they wanted to change distributors . Thus, the Supreme Court in Monsanto Co. v. Spray-Rite Serv. Corp. , 465 U.S. 752 (1984) and in the Business Electronics case, 485 U.S. 717 (1988), made it significantly harder for terminated dealers and distributors to get to a jury in an antitrust case following termination by a manufacturer. The result, from the manufacturers point of view, has been to allow faster, cheaper, changes in their distribution policies. From the dealer or distributors point of view, the change has been to make these downstream entities subservient to their manufacturers. ^[65] On this issue, the academic debate continues, and the courts have more recently backed off pure Chicago School analysis. In the Eastman Kodak case, 504 U.S. 451 (1992), the Supreme Court specifically recognized that markets do not always work the way economists expect them to, and competition downstream (among retailers, even retailers selling the same product) may be as important as competition upstream (among separate manufacturers). Thus, today, antitrust jurisprudence resides somewhere between these two versions of antitrust jurisprudence.

^[65] In certain industries, such as gasoline service stations and automobile dealerships, Congress passed special statutes limiting the power of manufacturers to control their dealers. See Petroleum Marketing Practices Act, 15 USCA §§ 2801-2841, and the Automobile Dealers Day in Court Act, 15 USCA §§ 1221-1225.