Price Theory, Competition, and the Rule of Reason

Challenging traditional antitrust jurisprudence, Professor Alan J. Meese argues that the present structure of Rule of Reason analysis, applied pur-suant to Standard Oil v. United States, has become outdated. The Rule of Reason as currently applied by the courts rests upon neoclassical price theory, an economic paradigm that assumes that legitimate competition consists of unbridled technological rivalry, unconstrained by nonstandard contracts. Recently, however, the Supreme Court has begun to apply a competing paradigm—Transaction Cost Economics—when determining whether a contract is unreasonable “per se” or instead deserving of Rule of Reason scrutiny. Professor Meese argues that Transaction Cost Eco-nomics more accurately reflects market realities with the result that courts should also apply the teachings of this new paradigm when con-ducting Rule of Reason analysis.Accordingly, Professor Meese concludes that courts should abandon the current three-part Rule of Reason inquiry in those cases where nonstand-ard contracts avoid per se treatment because they plausibly produce non-technological efficiencies by overcoming a market failure. In such cases, proof that a contract results in prices or other terms of trade different from those that preexist a restraint should not suffice to establish a prima facie case. Further, proof that contractual integration combats a market failure should, in any event, rebut a prima facie case, eliminating the need for courts to balance “anticompetitive harms” against procompeti-tive benefits. Finally, because the less restrictive alternative element of Rule of Reason analysis rests upon an assumption that any benefits of a nonstandard contract coexist with procompetitive effects, courts should abandon this element when analyzing restraints that purportedly combat market failure.

The full text of this Article is available to download as a PDF.