Antitrust Balancing in a (Near) Coasean World: The Case of Franchise Tying Contracts

Antitrust law has largely succumbed to the hegemony of balancing. Courts applying the rule of reason are told to balance a restraint’s procompetitive effects against its anticompetitive impact. Mergers once deemed anticompetitive solely because they facilitated the exercise of market power are now evaluated by weighing the anticompetitive effects of such increased power against any efficiencies created by the transaction. Finally, some activities once deemed per se illegal are now subject to a balancing approach, either by explicit application of the rule of reason, or by recognition of certain affirmative defenses to otherwise per se violations. Unlike many other balancing tests, the balancing framework familiar to antitrust scholars and practitioners is at least theoretically objective, if sometimes difficult to apply in practice. Drawing on neoclassical microeconomic analysis, this approach seeks to identify those instances in which anticompetitive effects – higher prices and distortions in the allocation of resources – caused by a restraint outweigh their procompetitive benefits, usually efficiencies in producing a product or service. While there is some dispute as to exactly which effects should count against a restraint – whether, for instance, transfers of wealth from consumers to producers should be deemed an anticompetitive effect – the theoretical economic framework within which these effects are quantified and compared is invariate, and comprise what one scholar calls a “basic partial equilibrium welfare economics model.”