Authors: Nathan Tankus & Luke Herrine
This chapter provides an alternative basis for the economic analysis of competition law from conventional neoclassical theory. It makes three primary points.
First, markets—and processes of price formation in particular—are always governed. There is no “free market” in which prices “find their level”—nor is there any important sense in which some actually existing markets are better or worse approximations of an ideal-form “free market”. Instead, there are different ways of stabilizing and regularizing the pricing process, all of which require active coordination between market participants. Sometimes these institutions are weak and fragile, which leads to increasing market and price instability. When that occurs, either participants, suppliers, customers or the state will act to build a new strong form of market governance which attempts to increase market stability. It follows that it is impossible to eliminate coordination between market participants and attempts to eliminate such coordination will only result in a different form of coordination taking its place.
Second, which form of market governance prevails at any given point in time will depend, at least in part, on how the governing legal system allocates coordination rights. Coordination rights need not be granted expressly. What is relevant is that some prior legal grant of authority (such as a property right) allows a market actor to initiate some sort of conduct and the legal system, particularly competition law, will either sanction, ignore, or legitimate that conduct.
Third, the tripartite hierarchy of coordination rights that Sanjukta Paul has identified in United States competition law (favoring intra-firm coordination and vertical cross-firm coordination over explicit horizontal cross-firm coordination) calls forth specific patterns of price coordination. Most price coordination happens within hierarchical massive multinational corporations, with only the most marginal input from lower-level employees when it comes to fundamental business decisionmaking. The markets dominated by these firms tend to coordinate prices through price leadership, a form of inter-firm coordination that has been explicitly granted an exemption from antitrust scrutiny in part by presenting it as non-coordination. Many of these firms also control the pricing process of upstream and downstream firms through a variety of legal mechanisms that have also been exempted from antitrust enforcement. Attempts to resist the domination of these dominant firms are looked upon with a skeptical eye, and, if they do not fail due to private repression, are frequently quashed by the legal system.
En route to making these points, the chapter grounds the theory of market governance with the heterodox economics and sociological literature and reinterprets how market governance changed with the rise of large capitalist firms.
Tankus, Nathan and Herrine, Luke, Competition Law as Collective Bargaining Law (May 15, 2021). Labour in Competition Law, Cambridge University Press (forthcoming), Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3847377