1. Telser, Lester G., Economic Theory and the Core (Chicago: University of Chicago Press, 1978); id., A Theory of Efficient Cooperation and Competition (New York: Cambridge University Press, 1987); and id., Theories of Competition (New York: North Holland, 1988). William W. Sharkey, The Theory of Natural Monopoly (New York: Cambridge University Press, 1982), also presents the theory of the core in economic applications.Google Scholar

2. Bittlingmayer, George, “Decreasing Average Cost and Competition: A New Look at the Addyston Pipe Case,” 25 J. L. & Econ. 201 (1982); and id., “Price-Fixing and the Addyston Pipe Case,” 5 Res. L. & Econ. 57 (1983).Google Scholar

3. Bittlingmayer, George, “Did Antitrust Policy Cause the Great Merger Wave?” 28 J. L. & Econ. 77 (1985). For a historian's treatment of the great merger wave that emphasizes similar factors, see Naomi R. Lamoreaux, The Great Merger Movement in American Business, 1895–1904 (New York: Cambridge University Press, 1985).Google Scholar

4. Two recent dissertations on ocean shipping have helped fill the gap. William Sjostrom, “Price Fixing Agreements and the Existence of Equilibrium: The Case of Liner Shipping Conferences,” Ph.D. diss., University of Washington, 1986; and Stephen Craig Pirrong, “An Application of the Theory of the Core to the Study of Ocean Shipping Markets,” Ph.D. diss., University of Chicago, 1987.Google Scholar

5. Wiley, John Shephard, Jr., “Antitrust and Core Theory,” 54 U. Chi. L. Rev. 556 (1987). Wiley bases a good deal of his discussion of Telser's views on Lester G. Telser, “Cooperation, Competition, and Efficiency,” 28 J. L. & Econ. 271 (1985), which forms the basis for chapter 3 of L. G. Telser, A Theory of Efficient Cooperation and Competition (New York: Cambridge University Press, 1987).Google Scholar

6. Wiley, 54 U. Chi. L. Rev. at 569 (“The Core: A Good Idea for Policymakers to Ignore” and “core acolytes have not demonstrated that the expense is warranted, they have yet to show that a problem of even modest dimensions plagues modern industry”), at 583 (“Bittlingmayer… would not have addressed the key empirical questions that should concern judges”), at 586 (“policymakers… ought not let this spirit move them”), and at 589 (“irrelevant to its logical policy audience: antitrust judges”).Google Scholar

7. Id. at 579, 583–84.Google Scholar

8. Id. at 586–87 and 587 n. 106.Google Scholar

9. See Thorelli, H., The Federal Antitrust Policy, ch. 7 (Baltimore: Johns Hopkins Press, 1955); and Bittlingmayer, G., “Did Antitrust Policy Cause the Great Merger Wave?” 28 J. L. & Econ. at 86–92, for discussions of this early period.Google Scholar

10. The Great Depression also changed the way economists thought about the selfregulating properties of the business cycle and government's ability to influence it through fiscal and monetary policy. Keynes, J. M., The General Theory of Employment, Interest and Money (New York: Harcourt, Brace & World, 1936), was of course the catalyst in this sea change. Postwar monetarists have returned to the pre-Depression view and regard the Depression and other cyclic downturns as products of an unsteady governmental monetary policy rather than as evidence of an inherently unstable economy.Google Scholar

11. E. g., see Wilcox, Clair, Public Policy Toward Business (Homewood, III.: Irwin, 1960).Google Scholar

12. The analysis originated with Aaron Director and was refined and published in Ward Bowman, “Tying Arrangements and the Leverage Problem,” 67 Yale L. J. 19 (1957). A more recent analysis of tying and related practices appears in Richard A. Posner, “Exclusionary Practices and the Antitrust Laws,” 41 U. Chi. L. Rev. 506 (1974).Google Scholar

13. The original analysis is due to Telser, Lester G., “Why Should Manufacturers Want Fair Trade?” 3 J. L. & Econ. 86 (1960). A recent FTC study of resale price maintenance cases finds that “virtually all of the cases appear to be consistent with at least one of the servicerenhancing theories of minimum RPM.” Pauline Ippolito, Resale Price Maintenance: Economic Evidence from Litigation (Washington: Bureau of Economics, Federal Trade Commission, April 1988). A review of the RPM debate appears in Thomas R. Overstreet, Resale Price Maintenance: Economic Theories and Empirical Evidence (Washington: Bureau of Economics Staff Report to the Federal Trade Commission, Nov. 1983).Google Scholar

14. Blair, Roger D. & Kaserman, David L., “The Albrecht Rule and Consumer Welfare: An Economic Analysis,” 33 U. Fla. L. Rev. 461 (1981); and Frank H. Easterbrook, “Maximum Price Fixing,” 48 U. Chi. L. Rev. 886 (1981).Google Scholar

15. Marvel, Howard P., “Exclusive Dealing,” 25 J. L. & Econ. 1 (1982); John L. Peterman, “The Federal Trade Commission v. Brown Shoe,” 18 J. L. & Econ. 361 (1975).Google Scholar

16. Carlton, Dennis W., “A Reexamination of Delivered Pricing Systems,” 23 J. L & Econ. 51 (1983); and David D. Haddock, “Basing Point Pricing: Competitive vs. Collusive Theories,” 72 Am. Econ. Rev. 289 (1982).Google Scholar

17. Ravenscraft, David, “Structure-Profit Relationships at the Line of Business and Industry Level,” 65 Rev. Econ. & Statistics 22 (1983).Google Scholar

18. See Weir, Peggy, “The Costs of Antimerger Lawsuits: Evidence from the Stock Market,” 11 J. Fin. Econ. 207 (1983); Robert Stillman, “xamining Antitrust Policy Towards Mergers,” 11 J. Fin. Econ. 225 (1983); B. Espen Eckbo, “Horizontal Mergers, Collusion, and Stockholder Wealth,” 11 J. Fin. Econ. 241 (1983).Google Scholar

19. Bork, Robert, “Vertical Integration and the Sherman Act: The Legal History of an Economic Misconception,” 22 U. Chi. L. Rev. 157 (1954); Oliver E. Williamson, “The Vertical Integration of Production: Market Failure Considerations,” 61 Am. Econ. Rev. 112 (1971). Roger D. Blair & David L. Kaserman, Antitrust Economics 316–17 (Homewood, Ill.: Irwin, 1985), survey a number of rationales for vertical integration and find only one to have deleterious effects on consumers.Google Scholar

20. Two classics in the analysis of the Robinson-Patman Act are Ward Bowman, “Restraint of Trade by the Supreme Court: The Utah Pie Case,” 77 Yale L. J. 70 (1967); and Posner, Richard A., The Robinson-Patman Act (Washington: American Enterprise Institute, 1976).Google Scholar

21. See Telser, Lester G., A Theory of Efficient Cooperation and Competition 4–9, 48–53 (New York: Cambridge University Press, 1987); and Aumann, Robert J., What is Game Theory Trying to Accomplish?”in Arrow, Kenneth J. & Honkapohja, Seppo, eds., Frontiers of Economics 28, 49–54 (New York: Basil Blackwell, 1985) (“Aumann, ‘Game Theory’”).CrossRefGoogle Scholar

22. “The ‘core’… is the cooperative solution concept that is perhaps best known to economists. Most famous among its applications is the core equivalence principle, which states that the core coincides with the set of competitive (price equilibrium or Walras) outcomes in perfectly competitive markets with many traders, each individual one of whom is insignificant. First demonstrated by Edgeworth [in 1881], an amazingly rich and deep literature has sprung up, all of it focusing on this one basic principle.” Aumann, “Game Theory” at 49.Google Scholar

23. I refer to this historical background in Bittlingmayer, 25 J. L. & Econ. at 201, 203, and 205 (cited in note 2), and in Bittlingmayer, 5 Res. L. & Econ. at 57, 60–61, and 122–23 nn. 3–10 (cited in note 2).Google Scholar

24. Clark, John Maurice, Studies in the Economics of Overhead Costs (Chicago: University of Chicago Press, 1923) (“Clark, Studies”), especially ch. 21; and John Maurice Clark, “Toward a Concept of Workable Competition,” 30 Am. Econ. Rev. 241 (1940). My point, of course, is not to defend every aspect of Clark's theory and applications. He had a subtle appreciation for the nature of costs, but his analysis of how this worked itself out in a market was sketchy and at times puzzling. For example, his use of agriculture as an example of an industry where cost conditions lead to “ruinous competition” (Clark, Studies 447–48) is misleading, since low financial returns there were due to rapid technical advance and not to the cost conditions of a natural monopoly, which he normally emphasizes.Google Scholar

25. See, e. g., Baumol, William J., Panzar, John C., & Willig, Robert D., Contestable Markets and the Theory of Industry Structure 32–40 (New York: Harcourt, Brace, Jovanovich, 1982).Google Scholar

26. I emphasized this in my study of the great merger wave of 1898–1904, Bittlingmayer, 28 J. L. & Econ. at 77 (cited in note 3).Google Scholar

27. Wiley, 54 U. Chi. L. Rev. at 561 (cited in note 5).Google Scholar

28. Id. at 579 (“until we have some demonstration that empty cores are costly” and “Bittlingmayer shares Telser's diffidence about the costs of empty cores”), and at 586 (“a judge must believe empty cores cause losses that outweigh the costs of their cure”).Google Scholar

29. Nor do I say, as Wiley contends I do, that “suboptimal capacity is a necessary consequence of the per se rule's condemnation of cartel cooperation.”Id. at 583. What I did say is that the problems raised by an empty core can be solved with either suboptimal capacity or noncompetitive arrangements (cartelization, merger, and tacit collusion). Bankruptcy is also possible, but it is merely a step on the path to altered industry structure or behavior. See Bittlingmayer, 5 Res. L. & Econ. at 57, 109. Only if the antitrust laws have been successful in eliminating all forms of noncompetitive arrangements and outcomes (and who would want to contend that?) will the per se rule necessarily result in suboptimal capacity.Google Scholar

This point about suboptimal capacity is directly related to a well-known result from the natural monopoly literature. which holds that constant unit prices that cover costs will not be welfare maximizing under increasing returns-to-scale technology. This forms the basis for the classic but controversial argument in favor of marginal-cost pricing for natural monopolies, with deficits to be made good via taxes or lump-sum charges to users.Google Scholar

30. This example appears in Bittlingmayer, 28 J. L. & Econ. at 77, 81–82 (cited in note 3).Google Scholar

31. Wiley, 54 U. Chi. L. Rev. at 579 (emphasis added).Google Scholar

32. Viner, Jacob, “Cost Curves and Supply Curves,” 3 Zeitschrift für Nationalókonomie 23 (1931), reprinted in George J. Stigler & Kenneth Boulding, eds., Readings in Price Theory 212 (1952).Google Scholar

33. Wiley, 54 U. Chi. L. Rev. at 584.Google Scholar

34. Id. at 584–85.Google Scholar

35. Another possible way out of the fixed-cost or integer problem that has sometimes been used in the theoretical economics literature is the Cournot-Nash solution. For an example of this approach, and a discussion of some of its limitations, see Sharkey, W. W., The Theory of National Monopoly ch. 8 (New York: Cambridge University Press, 1982).CrossRefGoogle Scholar

36. Bittlingmayer, 5 Res. L. & Econ. at 57, 89–93.Google Scholar

37. Wiley, 54 U. Chi. L. Rev. at 580. I had used data from several foundries to get a better measure of central tendency and range.Google Scholar

38. Id. at 580 n. 85.Google Scholar

39. The central problem here is that I had costs only for 1905–1906, but the gross margins of interest occurred in the late 1890s. The comparisons of costs in 1905–1906 with margins in the preceding decade turn out to be quite sensitive to the way margins are adjusted for price level movements. The WPI rose 33 to 34 percent (depending on the index used) from 1896 to 1906, while other indexes rose a good deal less: CPI (8 percent), various cost of living indexes (7 to 24 percent), and average hourly earnings (28 percent). Calculated from U. S. Bureau of Census, Historical Statistics of the United States, Colonial Times to 1970, Series E23, E52, E135, E183–186, and D848 (1975). Using only the WPI, as I did, biases the pre-1905 margins upward because its movement is greatest, while using current dollar figures biases them downward. I used both.Google Scholar

40. Bittlingmayer, 5 Res. L. & Econ. at 57, 104. We know of attempts to create a formal pool in 1879 and 1892. Id. at 73. The trade press reported that eastern and western producers met in 1892 to discuss some large upcoming contracts, id. at 75; and pig-iron production and cast iron soil pipe were also cartelized in the mid-1890s, id. at 84–85, 87.Google Scholar

41. Wiley, 54 U. Chi. L. Rev. at 581 n. 86.Google Scholar

42. Bittlingmayer, 5 Res. L. & Econ. at 57, 98–101.Google Scholar

43. Id. at 101–2.Google Scholar

44. Wiley, 54 U. Chi. L. Rev. at 581.Google Scholar

45. Id. at 582.Google Scholar

46. Id. Google Scholar

47. Id. at 582 n. 92.Google Scholar

48. United States v. Addyston Pipe & Steel Co., 85 F. 271, 283 (6th Cir. 1898).Google Scholar

49. Bittlingmayer, 5 Res. L. & Econ. 57, 81–82.Google Scholar

50. Wiley, 54 U. Chi. L. Rev. at 586 n. 105.Google Scholar

51. The strategy of seeking affidavits from public employees was probably aimed at countering the feeling that the cartel was fleecing the public.Google Scholar

52. Transcript of Record of the Supreme Court of the United States, Affidavits of Murphy (contractor) at 151, Snow (manufacturer) at 153, Shortall (contractor) at 155, Blaboon (railroad purchasing agent) at 176, Walsh (president, Calumet Gas) at 188, and Walton (contractor) at 194, among others, Addyston Pipe & Steel v. United States, 175 U. S. 211 (1899) (No. 51, Oct. Term 1899). (Page numbers refer to the print version of the Transcript of Record).Google Scholar

53. See the references in Bittlingmayer, 28 J. L. & Econ. at 86–92 and 109 n. 831 (cited in note 3).Google Scholar

54. See sources cited supra note 4.Google Scholar

55. The U. S. and British common law on restraints of trade is surveyed in Thorelli, H. B., The Federal Antitrust Policy ch. 1 (Baltimore: Johns Hopkins Press, 1955); Ernest Gellhorn, Antitrust Law and Economics 3–10 (St. Paul: West Publishing Co., 1981); and Posner, Richard A. & Easterbrook, Frank H., Antitrust: Cases, Economic Notes and Other Materials 1–18 (St. Paul: West Publishing Co., 1981). Also see Letwin, William, Law and Economic Policy in America: The Evolution of the Sherman Act (New York: Random House, 1955).Google Scholar

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57. United States v. E. C. Knight, 156 U. S. 1 (1896).Google Scholar

58. Northern Sec. v. United States, 193 U. S. 197 (1904).Google Scholar

59. United States v. United States Steel, 251 U. S. 417 (1920).Google Scholar

60. United States v. Trenton Potteries, 273 U. S. 392 (1927).Google Scholar

61. Appalachian Coals v. United States, 288 U. S. 344 (1933).Google Scholar

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63. Stigler, George J., “The Economists and the Problem of Monopoly,” in id., ed., The Economist as Preacher and Other Essays (Chicago: University of Chicago Press, 1982) (“Stigler, Economist as Preacher”).Google Scholar

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