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95 Harv. L. Rev. 1787 (1981-1982)
Landes and Posner on Market Power: Four Responses

handle is hein.journals/hlr95 and id is 1805 raw text is: COMMENTS LANDES AND POSNER ON MARKET POWER: FOUR RESPONSES Last year in this journal, William M. Landes and Richard A. Posner presented an economic analysis of the concept of market power in the context of antitrust cases. They offered their approach as a means to illuminate the perplexing issues of product and geo- graphic market definition, the measurement of market power arising from mergers and within regulated industries, and the quantifica- tion of damages in monopolization and price-fixing cases. They argued that their analysis is compatible with the dominant judicial approach to these issues. Landes and Posner's application of formal economic theory to the analysis of market power has created con- siderable controversy; the four responses presented here provide a sampling of the criticisms and elaborations sparked by the original article. First, in a Comment entitled Another Look at Market Power, Richard Schmalensee explores the limitations of the simplifying assumptions on which Landes and Posner's framework is erected. He discusses the implications of expanding the Lerner index ap- proach to embrace both multiple-firm markets and the dynamics of market power over time, and explains how Landes and Posners analysis may significantly understate market power for some indus- tries that are of particular concern to antitrust lawyers. He then identifies the problems that develop when real world conditions do not correspond to the assumptions necessary to apply the market redefinition approach. An important implication of Professor Schmalensee's analysis is that other indicators of market power - specifically, persistently high profitability and evidence derived from patterns of conduct - deserve equal standing with market share data. Second, in a Comment entitled The Accuracy of Traditional Market Power Analysis and a Direct Adjustment Alternative, Louis Kaplow argues that Landes and Posner's recommendations for an- titrust policy will typically understate the justification for antitrust intervention. He challenges the conclusions that market power in- ferences based solely on market share information are generally exaggerated, and explains that Landes and Posners discussion ig- nores several important social costs that should be considered in determining antitrust liability. In addition, Kaplow criticizes the traditional market redefinition approach followed by Landes and Posner. As an alternative, he proposes that courts directly adjust their initial market power impressions to deal with cases in which competitive restraints are stronger or weaker than usual. He applies his analysis to a number of contexts considered by Landes and Posner. Third, in a Comment entitled Mistaken Elasticities and Mis- leading Rules, Timothy J. Brennan takes issue with Landes and Posner's novel suggestion that the total output of distant producers be included in determining market shares in a local market despite 1787

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