Using Economics to Improve Economic Policy
Dennis W. Carlton

How to Cite

Carlton, D. (2004). Using Economics to Improve Economic Policy. Columbia Business Law Review, 2004(2).


Economics can make sure that antitrust is grounded in logical analysis but antitrust policy can use economic concepts and insights only if they are practical and capable of being implemented. This demand for practicality provides a discipline on economics that forces it to be relevant. Economics goes astray when it creates untestable theories about competitive harm. Antitrust goes astray when it relies on either poor economic reasoning (e.g., tie-in law) or when it adopts untested economic theories (e.g., speculative harms from information sharing) or overemphasizes theoretical concepts (e.g., market definition) that can be hard to implement and that are meant as only crude guides to policy. This Article highlights the relevance of recent academic research for practical antitrust policy and confirms three major points. First, the crowning achievement of U.S. antitrust is probably the benefit from eliminating explicit cartels. However, benefits from extending antitrust beyond explicit cartels to oligopolies engaged in various activities often characterized as “agreements” are likely nonexistent. Second, the recent trend in economics to engage in detailed simulations of the price effects of mergers is not a substitute for more direct analyses of mergers. Moreover, the belief that market definition can usually be done precisely and that it can be a precise tool for analysis is mistaken. It is at best a crude guide. Third, the world is a lot more competitive than one might think. Analysts routinely fail to understand the implications of the fact that there is competition on many more dimensions than just price. If one does so, one can show that some industries are concentrated because they are highly competitive–completely at odds with traditional thinking.

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