Antitrust and Regulation
Since the passage of the Interstate Commerce Act (1897) and the Sherman Act (1890), regulation and antitrust have operated as competing mechanisms to control competition. Regulation produced cross-subsidies and favors to special interests, but specified prices and rules of mandatory dealing. Antitrust promoted competition without favoring special interests, but couldn't formulate rules for particular industries. The deregulation movement reflected the relative competencies of antitrust and regulation. Antitrust and regulation can also be viewed as complements in which regulation and antitrust assign control of competition to courts and regulatory agencies based on their relative strengths. Antitrust also can act as a constraint on what regulators can do. This paper uses the game-theoretic framework of political bargaining and the historical record of antitrust and regulation to establish and illustrate these points.
Respectively, Professor of Economics, The University of Chicago Graduate School of Business and Research Associate, NBER, and Paul and Theo Leffmann Professor of Commercial Law, The University of Chicago Law School and Senior Fellow, The Computation Institute of the University of Chicago and Argonne Na-tional Laboratory. Carlton is currently serving as Deputy Assistant Attorney General in Antitrust Division at the Department of Justice. The views expressed here do not necessarily represent those of the Antitrust Division or Department of Justice. Picker thanks the Paul Leffmann Fund, The Russell J. Parsons Faculty Research Fund and the John M. Olin Program in Law and Economics at The University of Chicago Law School for their generous research support, and through the Olin Pro-gram, Microsoft Corporation and Verizon. We thank Andrew Brinkman for research assistance and Timothy Bresnahan, Richard Epstein, Jacob Gersen, Al Klevorick, Gregory Pelnar, Sam Peltzman, Richard Posner, Nancy Rose, and the participants of the NBER Conference on Regulation for their helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.