Application to the Structure-Conduct Controversy

Baldwin, in a recent survey of the structure versus conduct controversy, distinguishes strong from qualified structuralist positions and contrasts these with a conduct approach to enforcement. The strong structuralist position, which he associates with Bain, Caves, and Stigler, is that structure determines conduct, for the most part, and that tinkering with conduct is unlikely to have significant consequences so long as the underlying structural defect remains. The essential distinction is between symptoms and causes, where conduct reflects the former and structure the latter.161

The conduct approach relies on the assumptions that competitive instincts in the U.S. economy are strong and that large numbers competition is usually feasible. Given these, advocates of the conduct approach, of which Baldwin appears to be one, contend that (1) the traditional and appropriate concern of the law has been with conduct, and (2) effective competition will obtain if the law prevents the ‘‘deliberate impairment, misdirection, or suppression of competition’’ (Dirlam and Kahn, 1954. p. 28). Structure will take care of itself if fair play is maintained.

Nothing in the argument developed in earlier sections of this chapter suggests that vigilance with respect to fair play ought to be relaxed. But I am apprehensive that an exclusive emphasis on fair play will suffice. It fails to allow for market failure of the chance event variety and dismisses the possibility of dominance by default. Also, it assumes that relief which is restricted to a few conduct practices (such as lease-only contracts in United Shoe) will be efficacious. This imputes high potency to a few practices and assumes, implicitly, that alternative means to accomplish the same end. while conforming to the letter of the law, are unavailable. As Bain points out, however, “as soon as one specific set of collusive practices is found illegal and enjoined, another set may be invented (not nominally violating the first injunction) to accomplish the original purpose” (1959, p. 495).

Moreover, with few notable exceptions, such as perhaps the franchise system in automobiles,162 it seems unlikely that individual business practices, taken by themselves, are apt to have sufficiently decisive consequences to support the conduct approach. More often, probably, conduct that has exclusionary consequences will rest not on any particular practice but is the result of a systematic strategy employed by the dominant firm or industry in question — which is to say that it is a pervasive set of interrelated practices, rather than any one or a few, that has the anticompetitive effect.

The prospect that narrow conduct remedies taken by themselves will subsequently produce nontrivial structural changes must, on this line of argument, be regarded as dubious. However, this raises the question of why, in the cases cited by Baldwin (United Shoe, Eastman Kodak, and IBM),163 mainly conduct remedies were, on subsequent review by the courts, reported to be relatively efficacious in producing the intended structural correction.

Baldwin, in selecting these three cases for consideration, expresses the view that (1969, p. 128):

. . . for the purpose of analyzing the appropriateness and effectiveness of remedies seeking modification of structure indirectly through restraints on conduci, the most helpful cases are those in which the court handing down or approving the decree and jurisdiction also accepted a provision that the effectiveness of the original remedy would be examined after a specified length of time.

If, after an eight- or ten-year period, the court were to find that significant structural change had occurred, Baldwin is of the opinion, apparently, that the success of the conduct remedy is to be presumed.

Two alternative explanations are neglected, however. For one thing, the courts may have employed weak standards of judging efficacy.164 For another, the prospect of a mandated structural remedy may be so ominous as to induce the dominant firm subject to review to take measures which, collectively, will reduce its market share to acceptable proportions. Thus, power to produce the intended effect is not to be imputed to the conduct remedy per se; indeed, any conduct remedy, however trivial, coupled with a contingent structural review stipulation may be sufficient. On this argument, the economic significance of the decree resides in the latent or expressed threat of subsequent structural change if the weaker (conduct) remedy is ineffective.

This last view is consistent with the position advanced above (and expressed previously by others) that, ordinarily, conduct remedies by themselves cannot be expected to produce significant structural conse- quences.165 What is more interesting, perhaps, is that, as interpreted here, the contingent review procedure that the courts have fashioned is not all that different from the relief policy proposed in Section 4 above. The advantage of the approach proposed in this chapter is that it addresses the issues in a relatively unconvoluted way.

Source: Williamson Oliver E. (1975), Markets and hierarchies: Analysis and antitrust implications, A Study in the Economics of Internal Organization, The Free Press.

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