An Ordoliberal Criticism of The (Subconstitutional) Effect-Based Approach: Comments on Professor Vanberg’s Papers (2/4).

Summary

This second article comments several papers by Professor Viktor Vanberg. In the first part, it discusses and tries to expand Professor Vanberg’s criticism of the effect-based approach to competition law. It elaborates on the fact that an effect-based approach undermines the rule of law and allows a greater scope for interest-group lobbying. It takes Weimar and Nazi Germany as a historical example to illustrate this phenomenon. It also argues that forcing firms to justify their pricing policies in front of a competition agency results in an impoverishment of their decisional processes. In the second part, it discusses the apparent lack of congruence between Professor Vanberg’s theoretical criticism of the effect-based approach and what seem to be his practical recommendations. It also examines the role of article 101§3 in an ordoliberal paradigm. 

***

Professor Viktor Vanberg is the author of many studies about constitutional economics, competition law, and the thought of Friedrich Hayek and James Buchanan.

In a series of articles, I am going to analyze Professor Vanberg’s work regarding competition.

Most of my comments will pertain to a paper entitled “Consumer Welfare, Total Welfare and Economic Freedom – On the Normative Foundations of Competition Policy.”[1] I invite any visitor to read this paper, freely available on the internet, before reading my article.

However, I will also refer to two more general books, namely Rules & Choice in Economics (1994)[2] and The Constitution of Markets (2001).[3] These books are collections of papers written by Professor Vanberg.

In the first article, I have enquired whether competition law could rightly be considered to amount, as Professor Vanberg (following Franz Böhm) argued, to a private law order. My finding was negative: competition law is public law par excellence unless one takes Böhm’s programme seriously, which nobody does except the libertarians.

In the present article, I am going to discuss Professor Vanberg’s criticism of the effect-based approach to competition law. I will explain why I agree with most of his theoretical objections and why I consider that Professor Vanberg fails to implement his theoretical paradigm into his practical judgments and recommendations.

For the sake of clarity, let us specify from the outset that a “constitutional economist” as Professor Vanberg distinguishes between the constitutional level, i.e., the level at which the rules of the game are drafted (be it in a “constitution” in the traditional legal sense of the word or in an ordinary “law”), and the sub-constitutional level, that is, the level at which rules are enforced.

1° Professor Vanberg’s Acute Objections to the Enforcement of an Effect-Based Approach at the Sub-constitutional Level.

The thrust of Professor Vanberg’s thesis is that the current debate between the two main schools of antitrust is poorly framed. Indeed, it is generally alleged that the controversy opposes the proponents of a “form-based approach” and the advocates of a “more economic approach.”

Now, this description is only partly accurate. It is true that the respect of “formalism” is––at least rhetorically––a bone of contention between the two major schools. What is inaccurate, on the contrary, is the charge that the modern school would be “more economic.” In reality, the real question is not “how much” economics one should use, but “how” one could and should use it.

Thus, according to Professor Vanberg,

The relevant issue is […] not about whether economic efficiency arguments have a role to play in advising competition policy. It is, instead, about the proper level at which they have to play their role. The advocates of economic freedom and Leistungswettbewerb have no reason to deny that comparing the prospective welfare effects of alternative rules of the market game is an essential prerequisite in choosing an economic constitution […]. What they reject is the claim that a ‘more economic approach’ can help to improve competition policy by informing about the specific welfare effects in particular instances. In other words, the relevant controversy is about whether economic efficiency arguments have their proper place at the constitutional level, i.e. in providing advice for the choice of rules, or at the sub-constitutional level, i.e. in advising competition policy in its day-to-day operation.[4]

To follow Professor Vanberg’s argument, one must discuss separately the level at which economics should be used and the level at which it could be used.

1.1° The Level at which Economics Should Be Used.

The first reason to object to the use of economics at “at the sub-constitutional level, i.e. in advising competition policy in its day-to-day operation” is that this would be contrary to the basic principles of private law.

As Professor Vanberg writes,

the principle reason for advocates of the goal of economic freedom or Wettbewerbsfreiheit to reject an ‘effects-based approach’ that applies efficiency considerations at the sub-constitutional level is that such guidance for competition policy is in conflict with the requirements that follow from adopting a market order and the private law system on which it is based. Whatever efficiency arguments may legitimately inform the choice of rules that are to frame the market process, within the rules chosen the private autonomy that they provide for must be respected and the freedom of choice that is the substance of private autonomy cannot be made contingent on assessments of the welfare effects that result from its use.[5]

Indeed, as will be discussed below, welfare effects are so evanescent that they cannot be assessed objectively. Their appraisal depends on an enquiry which is counterfactual and not factual.

These effects cannot be grasped by the senses (even with the use of a scientific tool) and can only be reconstructed through the help of reason. Moreover, the reasoning involved is not purely mechanical; rather it relies on business acumen and intuition.

Consequently, using economics at the sub-constitutional level to determine whether a firm has violated a rule of the game would break with a basic requirement of the rule of law.

That is probably why Hayek wrote that “To judge actions by rules, not by particular results, is the step which has made the Open Society possible.[6]

Accounting for welfare effects at the sub-constitutional level would entail an additional inconvenience. As Professor Vanberg reports,

In their comment on this controversy Schmidt and Voigt (2007: 36ff.) point out that an adequate account of the trade-off between a ‘form-based’ and an ‘effects-based approach’ has to include such things as the additional administrative costs that the latter involves and the greater scope it allows for interest-group lobbying.[7]

The risk of opening a greater scope for interest-group lobbying is particularly blatant. Let us take an easy example: Weimar and Nazi Germany.

Weimar Germany undertook to implement effect-based economic regulations. For instance, according to Franz Neumann,

The period from 1918 to 1932 was characterized by the almost universal acceptance of the doctrine of free discretion (Freirechtsschule), by the breakdown of the rationality and calculability of law, by the limitation of the system of contract (replaced in part by the idea of command), by the victory of legal standards of conduct over true legal norms. The legal standards of conduct changed the whole legal system. By their reference to extra-legal values they destroyed the formal rationality of law. They gave the judge amazingly broad discretionary powers and they destroyed the line between the judiciary and the administration, so that administrative political decisions took on the form of normal court decisions.[8]

Similarly, according to Roberto Unger (a more modern author),

Weimar saw the sudden rise to prominence of a number of general clauses. The most extreme instance of this has already been mentioned: the expansive application of the good faith clauses. But many other examples might be found, like […] the open-ended policy directives contained in economic legislation of the time. […] The immediate consequence of these developments was to plunge the courts headlong into the striking of particularistic balances of interests and into the rendering of general policy judgments that wholly escaped the confines of specialized legal doctrine. Judges were now increasingly called upon to establish priorities among opposing equities and to assess the effects of private transactions, administrative ordinances, and even laws on the national economy. Their aims were often in conflict. More seriously, they shook traditional conceptions of the generality and autonomy of law.[9]

This legal paradigm was pursued by Nazi Germany. As a consequence, the only chance of survival for entrepreneurs was to intensively lobby the party and the state bureaucracy. As Günter Reimann put it,

The decree of February 28, 1933, nullified article 153 of the Weimar Constitution which guaranteed private property and restricted interference with private property in accordance with certain legally defined conditions […] The conception of property has experienced a fundamental change. The individualistic conception of the State—a result of the liberal spirit—must give way to the concept that communal welfare precedes individual welfare. (Gemeinnutz geht vor Eigennutz). […] “National interests” are not determined by laws, courts, or any legislative body. The decision is made mainly by the Nazi party, or, rather, by its leaders, that is, by the State bureaucracy.[10]

Such a system also changes the psychology of businessmen. Their experiences teach them that the old right of property no longer exists. They find themselves compelled to respect the “national interest” or the “welfare of the community.” On the other hand, they also learn that the privileges and advantages which a businessman might obtain from the State depend largely on “good connections” with State officials. Those who do not play the game but who still abide by the old rules of fair play cannot survive in this new kind of economic struggle. Businessmen must claim that everything they do, any new business for which they want a certificate, any preferment in the supply of raw materials, etc., is “in the interest of the national community.” This claim is justified in so far as a business transaction or investment serves to strengthen the country’s military position. Inevitably, every businessman endeavors to identify his personal and private interests with the “national interest,” and it depends largely on political “connections” and influence whether and how far that claim will be regarded as justified by the State.[11]

As one can see, the claim that an effect-based approach allows a far greater scope for lobbying tends to be fully vindicated by these historical examples.

Of coure, it could be shown that this flaw also concerns the ordoliberal brand of competition law, because such rules “represent a false universality despite the general character of the formulation[12] which amount to “a shell covering individual measures.[13].

1.2° The Level at which Economics Could Be Used.

Professor Vanberg explains that

The consistency argument is about the level at which economists should apply their advice, considering the fundamental legal properties of a market economy. From a constitutional economics perspective there is, though, a second kind of argument that can be made against an ‘effects-based approach,’ an argument that is about the level at which economists can competently provide advice, considering the limits of knowledge that their discipline is subject to.[14]

Actually, the two problems are linked, because if economists could objectively ascertain the welfare effects of a practice at the sub-constitutional level, the effect-based approach could be made compatible with the rule of law.

However, these two issues are still distinct. Indeed, one could think that, even if empirical economics as a science were not reliable enough to comply with the legal predictability required by the rule of law, it could nevertheless be good enough to fine-tune the market.

Consequently, one could wonder whether it would not be wise to give up the ideal of the rule of law, and thus to proceed on a case-by-case economic appraisal, in order to improve the performance of the economic system.

So, as Professor Vanberg puts it,

The principal claim made by the advocates of an ‘effects-based approach’ is that, compared to the traditional ‘form-based’ or rule-oriented approach, it allows competition policy to be more accurate in discriminating between business practices that promote economic efficiency – or consumer welfare – and those that do not. […] This charge has triggered a debate on an alleged trade-off between accuracy and legal certainty (Treffsicherheit und Rechtssicherheit) and on how a ‘modern’ competition policy ought to position itself in light of such a trade-off.[15]

However,

some authors in speaking of a trade-off between accuracy and legal certainty appear to take it for granted that an ‘effects-based approach’ is indeed capable of improving the accuracy or Treffsicherheit of the decisions that competition agencies are called upon to make, and that the advantages that come from such improvement in decision quality can outbalance the disadvantages from a loss in legal certainty or Rechtssicherheit. There are reasons to doubt that this implicit claim is well grounded.[16]

Indeed, there is in reality no trade-off. To paraphrase a famous statesman, people who pretend to favor efficiency at the price of legal certainty end up having neither efficiency nor legal certainty. One might bring about two main reasons to justify this judgment.

First, the ability of even the best economists to ascertain welfare consequences is so limited that, even if one does not care for legal certainty, empirical economics could not help improve the market game.

Professor Vanberg relies on Hayek to make this point:

Hayek’s central message is that in economics like in other sciences that deal with complex open systems our ability to predict is limited to “explanations of the principle” and to “pattern predictions” (Hayek 1967). We can aim, so Hayek argues, at explaining and predicting the general effects that result from systematic changes in the boundary conditions under which the system operates, but the complexity and multitude of specific circumstances that work in particular instances make it impossible for us to fully explain single events or to predict the specific consequences that particular interventions will produce.[17]

Serious economists consequently abstain from making welfare predictions at the sub-constitutional level and content themselves with pattern predictions, which forces them to stay at the constitutional level.[18][19]

Second, Professor Vanberg also questions the existence of a trade-off on the ground that the attempt to increase accuracy, in addition to be hopeless, could directly impair efficiency.

As he succinctly explains,

To characterize the issue that is raised by an ‘effects-based approach’ in terms of the trade-off between accuracy and legal certainty is […] misleading because it distracts from the much more important problem that the nature of the ‘economic game’ is fundamentally changed if the ‘players’ can no longer trust that their actions will be measured against general rules but must expect that what they may do or not do will depend on how the welfare consequences of their choices will be assessed in particular instances. The trade-off perspective implicitly supposes that the economic agents’ behavior remains essentially the same and that the only question is whether competition agencies or courts assess their actions more or less accurately. This supposition is, however, clearly false.[20]

Unfortunately, Professor Vanberg does not expand upon this argument further. I will nevertheless try to develop it myself.

Most entrepreneurs, at least when they have reached a reasonable size, quantify their assessments. As Ludwig von Mises explained,

Modern civilization [and modern capitalism] is above all characterized by the fact that it has elaborated a method which makes the use of arithmetic possible in a broad field of activities. This is what people have in mind when attributing to it the—not very expedient and often misleading—epithet of rationality.[21]

However, the main function of the numbers is to express the hypotheses and subsequent conclusions of the entrepreneurs about the current and future state of their affairs. These measures cannot be objectively arrived at through a rigorous mathematical reasoning.

The most important part of the entrepreneurial reasoning deals with trial and error, business acumen, intuition and more generally with what Michael Polanyi called “tacit knowledge.

Ludwig von Mises made it clear:

The duly kept accounts in a system of correct bookkeeping are accurate as to dollars and cents. They display an impressive precision, and the numerical exactitude of their items seems to remove all doubts. In fact, the most important figures they contain are speculative anticipations of future of market constellations. It is a mistake to compare the items of any commercial account to the items used in purely technological reckoning, e.g., in the design for the construction of a machine. The engineer—as far as he attends to the technological side of his job—applies only numerical relations established by the methods of the experimental natural sciences; the businessman cannot avoid numerical terms which are the outcome of his understanding of future human conduct. […] The numerical exactitude of business accounts and calculations must not prevent us from realizing the uncertainty and speculative character of their items and of all computations based on them.[22]

This does not bring about any particular difficulty so far as entrepreneurs have a discretionary power to set their prices and do not have to worry about their pecuniary externalities.

But, as soon as the state starts regulating prices, for example through competition law (ex post regulation), a serious problem arises. Indeed, any attempt to regulate prices leads the state to ask firms to “describe the rationality of their behavior,[23] i.e. to explain how they decided to set their prices.

For instance, a vice-chairman of national competition agency wrote some years ago that

To the firms which would affirm not to always know what they are doing and why they are doing it, one might […] answer that the setting of prices is too serious a task to be entrusted to agents which are so irrational.[24]

Unfortunately, justifying their pricing policies is precisely what most firms cannot do. Taking entrepreneurial decisions is an art and not a science.

As Hayek explained, most people who rely on the price system “usually do not know why they are made to do what they do,”[25] so that “If we stopped doing everything for which we do not know the reason, or for which we cannot provide a justification […], we would probably very soon be dead.”[26]

Moreover, even if they know how they arrived at the decision of setting a definite price, firms cannot explain and demonstrate it convincingly (“we can know more than we can tell,” said Polanyi––and far more than we can prove, it might be added).

The setting of prices, because it depends so much on intuition, is something which can very hardly be discussed with judges (in particular when setting prices close to those of the competitors is precisely what is reproached).

Of course, it is possible to argue about a pricing policy between people who trust each other and who have faith in their mutual business acumen––which is generally the case within a firm––but certainly not to prove the rationality of such a policy before a suspicious or even hostile enquirer.

Michael Polanyi explained that it was difficult to teach any piece of tacit knowledge because

we can do so only by relying on the pupil’s intelligent co-operation for catching the meaning of the demonstration. … a gap [must] be bridged by an intelligent effort on the part of the person to whom we want to tell what the words means. Our message had left something behind that we could not tell, and its reception must rely on it that the person addressed will discover that which we have not been able to communicate.[27]

The point is that, even if antitrust enforcers were correctly educated in economics and management, which is generally not the case, one should not expect from them any “intelligent co-operation for catching the meaning of the demonstration.” A judge has to be suspicious.

Consequently, insofar as firms are conscious that a bureaucrat could force them to explain their pricing policy, they are incited to rely less on intuition, business acumen and tacit knowledge, and more on tangible but often hardly relevant elements (like econometric studies, antitrust guidelines, standardized practices, etc.) or just to perpetuate the status quo.

Thus, to go back to our main subject, Professor Vanberg is right to question the implicit idea that “the economic agents’ behavior remains essentially the same” when “what they may do or not do will depend on how the welfare consequences of their choices will be assessed in particular instances.”[28]

The more bureaucrats depart from the enforcement of general rules and engage in case-by-case analysis, the more the firms give up case-by-case analysis and confine themselves to standardized practices. The end result is a considerable impoverishment of the firms’ decisional processes.

2° Professor Vanberg’s Ambivalent Practical Stance about the Enforcement of an Effect-Based Approach at the Sub-Constitutional Level.

As shown above, the theoretical criticisms that Professor Vanberg addresses to the sub-constitutional effect-based approach are perfectly well-grounded. The practical conclusions derived from these premises should be radical. However, it seems that, instead of harshly criticizing the “more economic” paradigm, the author considerably weakens his stance.

2.1° How Does Professor Vanberg Judge the “More economic” School?

2.1.1° Is There “Scarcely any Disagreement” over the Use of Economics at the Sub-Constitutional Level?

The theoretical apparatus that Ordoliberals advocate should make these authors very critical about the effect-based approach. Consistency should compel them, if they had no other choice, to prefer to give up any competition policy rather than implement an “effect-based” approach.

However, it appears that ordoliberals generally do not even contemplate adopting such a stance. This ambivalence is manifest in Professor Vanberg’s writings.

For instance, as mentioned previously, he rightly points out to the conflict between the principles of a private law order and the enforcement of an effect-based approach at the sub-constitutional level:

the principle reason for advocates of the goal of economic freedom or Wettbewerbsfreiheit to reject an ‘effects-based approach’ that applies efficiency considerations at the sub-constitutional level is that such guidance for competition policy is in conflict with the requirements that follow from adopting a market order and the private law system on which it is based.[29]

So far so good. However, when commenting on the current controversy, he seems to consider that the “more economic approach” is in fact compatible with a private law order:

Surely, there is scarcely any disagreement between the advocates on either side of the current debate on the ‘more economic approach’ in EU competition policy about the prudential reasons that can be given to citizens for why opting for a private law order with its market economy is to their mutual advantage.[30]

How would it be possible to have “scarcely any disagreement” over the desirability of a private law order with the advocates of an effect-based approach if such an approach is in conflict with the requirements of a private law system?

2.1.2° Is It Entirely Uncontroversial that Economists Can Provide Valuable Assistance for Deciding How Legal Rules Are to Be Applied to Particular Cases?

Professor Vanberg seems to indulge in what Bork called “distinctions without any reality” when he tries to describe the role that economics could play at the sub-constitutional level.

For example he writes that

[I]t is surely true that applying legal rules – whether in competition law or otherwise – is not a purely mechanical act but often a complex process of interpretation that has to use theoretical and empirical knowledge. It is entirely uncontroversial that, in this sense, competition agencies in enforcing the rules of the market game may need to rely on knowledge about factual matters that only economics can provide, especially in cases where the rules include general clauses that need to be interpreted in light of the particular facts in a given case.[31]

Let us note first that Professor Vanberg does not seem to bother that competition law might “include general clauses.”

Now, what about the claim that “competition agencies in enforcing the rules of the market game may need to rely on knowledge about factual matters that only economics can provide”?

I do not consider this statement necessarily incorrect. Indeed, it is true that competition agencies, like a court judging cases of tortious liability, may have to rely on economics to assess the importance of the economic harm inflicted to the victim and thus the amount of damages to be awarded. This is a source of much uncertainty, but it is unavoidable.

However, in a genuine private law society, it should not be necessary to resort to economics in order to determine whether an individual has committed a fault engaging his liability. Indeed, a correctly defined law must refer to facts which are not specified in economic terms. The resort to economics only takes place after the liability of the injurer has been ascertained.

Now, what economic “knowledge” is Professor Vanberg referring to? I do not think he is (only) thinking about the assessment of damages, because he links this cognitive need to the existence of “general clauses,” to which the necessity of assessing damages is not particularly connected.

I cannot be sure of what Professor Vanberg wanted to say in the previously quoted paragraphs but, unless he is referring to damages, I fail to understand how he could avoid succumbing to his own criticisms of the “effect-based approach.”

Moreover, after the line just quoted, the author goes on this way:

There is, however, a categorical difference between, on the one side, the entirely uncontroversial claim that economists can provide valuable assistance to competition agencies for deciding how existing legal rules are to be applied to particular cases and, on the other side, the claim that competition agencies should make their decisions to permit or prohibit certain business practices contingent on how economists assess their welfare effects in particular cases. If the ‘effects-based approach’ were only about the first claim the whole controversy about ‘economizing’ EU competition policy would be no more than a superfluous storm in a teacup.[32]

I am not sure what the difference is (let alone the categorical difference) between the claim that “economists can provide valuable assistance to competition agencies for deciding how existing legal rules are to be applied to particular cases” and the claim that “competition agencies should make their decisions to permit or prohibit certain business practices contingent on how economists assess their welfare effects in particular cases.”

Is it that in the first case the “assistance” does not pertain to the assessment of “welfare effects” while in the second case it does? Or that in second case the opinion of the economists is binding for the judge while in the first case it is just an “assistance”? It is regrettable that Professor Vanberg did not specify the nature of the “assistance” provided.

2.1.3° Can the Rules of the Game of a Private Law Order Leave Room for a “Policy”?

Another troubling point is that Professor, despite his attachment for the rule of law, seems to consider it normal for a rule of the game to leave room for the choice of a “policy” as to its enforcement.

For instance, in order to explain the notion of “sub-constitutional level,” he explains that it is the level “of policy choices within a given legal-institutional framework,” as opposed to the “constitutional level” where “the rules of the market game are chosen.[33]

It appears that Professor Vanberg does not see a significant problem with rules of the games allowing enough leeway to the enforcers to make “policy choices.

2.2° Has a Rule of Reason or an Article 101§3 any Place in an Ordoliberal World?

The rule of reason, or its European rough equivalent, namely the third paragraph of the article 101 of the Treaty on the Functioning of the European Union, constitutes a major stumbling block for the ordoliberal scheme.

Indeed, these legal mechanisms provide for an assessment of the welfare consequences at the sub-constitutional level and thus are in direct conflict with the principles of ordoliberalism.

For instance, article 101§3 creates an exemption for the anticompetitive agreements which contribute “to improving the production or distribution of goods or to promoting technical or economic progress.”

One could argue that this exemption could easily be dispensed with because it is very rarely granted in practice anyway. However, this mechanism is a necessary component of any competition law.

Indeed, a great many agreements are not prosecuted nowadays for the reason that, if they were, they would be upheld on the basis of article 101§3. On the contrary, without this provision, any contract (in particular any company or partnership) could be struck down.

As explained in the previous article, and as Bork emphatically claimed,[34] it is impossible to differentiate a restrictive agreement from an ordinary contract without an assessment of its welfare consequences. Article 101§3 is thus an unavoidable piece in the competition law puzzle.

(Of course, for the aforementioned reasons, this necessary component does not fit with the requirements of a private law order and goes beyond the knowledge that economists can provide. That is why I argue to repeal competition law.)

This flaw has not been very conspicuous in Europe so far, because most suits for the breach of competition law are brought by competition agencies which filter away many practices through their prosecutorial discretion.

However, with the development of private enforcement, the necessity of such a mecanism will soon be felt.

What is Professor Vanberg’s stance regarding these provisions? It is rather ambivalent.

The author, which does not mention article 101§3 as such, seems to criticize the resort to a “rule of reason”:

The principal claim made by the advocates of an ‘effects-based approach’ is that, compared to the traditional ‘form-based’ or rule-oriented approach, it allows competition policy to be more accurate in discriminating between business practices that promote economic efficiency – or consumer welfare – and those that do not. In cases where the pro-competitive or efficiency effects of business practices are found to outbalance their anti-competitive effects, so the advocates argue, competition policy should adopt a ‘rule-of-reason’ standard instead of following per-se-rules […].[35]

However, it is far from clear. Indeed, Professor Vanberg appears rather satisfied with the European competition law “on the books today,” although it does include a rule of reason (the article 101§3).[36]

For instance, after mentioning Wolfgang Kerber’s doctrinal proposal to reconcile the two schools of antitrust by “shift[ing] away from the “outdated dichotomy of ‘per-se rules vs. rule of reason’” to the more productive issue of “optimally differentiated rules,” he comments:

How receptive the two sides in the ongoing controversy will be to Kerber’s project of reconciliation remains to be seen. One should expect, though, that it is a much smaller step for advocates of the goal of economic freedom and Wettbewerbsfreiheit to concede that competition laws may well benefit from being more differentiated than they currently are, than it is for advocates of the ‘more economic approach’ to concede that the way to improve competition policy is not to rely on a case-by-case welfare assessment but to reform the general rules according to which the economic system operates.[37]

It is very curious because, although the “optimally differentiated rules” are supposed to be an intermediary step between “per se rules” and “the rule of reason,” or rather a stance escaping from this dichotomy, Professor Vanberg writes that ordoliberals could concede that competition laws could be more differentiated “than they currently are,” while the current competition laws already include a rule of reason.

This suggests that not only one would not escape from the aforementioned dichotomy, but that the “effect-based” approach would be deemed beyond discussion.

I should additionally mention that, although the proposal of having well-differentiated rules is too imprecise to be commented, the important point, from an ordoliberal perspective, is that this differentiation should not be carried out through referring to the welfare consequences of a practice.

To sum up, ordoliberals face a dilemma with article 101§3. Either they reject it and have to explain how to differentiate a contract in restraint of trade from an ordinary agreement without referring to welfare effects at the sub-constitutional level, or they recognize the necessity of such a provision and renege on their theoretical paradigm. Either way is problematic.

***

[1]     Viktor J. Vanberg, “Consumer Welfare, Total Welfare and Economic Freedom – On the Normative Foundations of Competition Policy,” Walter Eucken Institut, Freiburg Discussion Paper on Constitutional Economic, 9/03 (hereinafter, “Consumer Welfare, Total Welfare and Economic Freedom”).

[2]     Viktor J. Vanberg, Rules & Choice in Economics, Routledge, Taylor & Francis e-Library, Economics as social theory, Series edited by Tony Lawson, University of Cambridge, 2003, first published in 1994 (hereinafter, “Rules & Choice in Economics”).

[3]     Viktor J. Vanberg, The Constitution of Markets – Essays in Political Economy, Routledge, Taylor & Francis e-Library, 2003, first published in 2001 (hereinafter “The Constitution of Markets”).

[4]     Viktor J. Vanberg, “Consumer Welfare, Total Welfare and Economic Freedom,” p. 19.

[5]     Ibid., p. 20.

[6]     Friedrich Hayek, Law, Legislation and Liberty, Routledge Classics, 2013, p. 204.

[7]     Viktor J. Vanberg, “Consumer Welfare, Total Welfare and Economic Freedom,” p. 21.

[8]     Franz Neumann, Behemot: The Structure and Practice of National-Socialism, 1933-1944, Ivan R. Dee – Chicago, 2006, p. 446.

[9]     Roberto Unger, Law in Modern Society: Toward a Criticism of Social Theory, The Free Press, 1977, pp. 216-218.

[10]    Günter Reimann, The Vampire Economy: Doing Business under Fascism, Ludwig von Mises Institute, 2007, pp. 12-13.

[11]    Ibid., pp. 41-42.

[12]    Franz Neumann, Behemot: The Structure and Practice of National-Socialism, 1933-1944, aforementioned, p. 442.

[13]    Ibid.

[14]    Viktor J. Vanberg, “Consumer Welfare, Total Welfare and Economic Freedom,” p. 20.

[15]    Ibid.

[16]    Ibid., p. 21.

[17]    Ibid., p. 23.

[18]    Predicting the monetary profitability of a given enterprise is very a difficult task for which bureaucrats generally reveal themselves perfectly inapt; but here the difficulty is compounded by the fact the assessment deals with the “surplus” of the society, and not with profits.

[19]    Moreover, because all reasonable and competent economists must refuse to assume the task of assessing welfare effects at the sub-constitutional level, a kind of adverse selective process ensures that this task will be entrusted to those who have “folly and presumption enough to fancy himself fit to exercise it,” which explains the unusually high rate of charlatanism in this field. See Adam Smith, An Inquiry into the Nature and Causes of the Wealth of the Nations, The Electronic Classics Series, 2005, p. 364.

[20]    Viktor J. Vanberg, “Consumer Welfare, Total Welfare and Economic Freedom,” p. 21.

[21]    Ludwig von Mises, Human Action – A Treatise on Economics, Fox & Wilkes, San Francisco, 1963, p. 199.

[22]    Ibid., pp. 213-214.

[23]    Thierry Dahan, « De la régulation concurrentielle (II) », Concurrences n°4-2009, p. 11 (my translation.)

[24]    Ibid.

[25]    Friedrich Hayek, « The Use of Knowledge in Society », in Individualism and Economic Order, The University of Chicago Press, 1980, p. 87.

[26]    Friedrich Hayek, The Fatal Conceit – The Errors of Socialism, The University of Chicago Press, 1991, p. 68.

[27]    Michael Polanyi, The Tacit Dimension, The University of Chicago Press, 2009, pp. 5-6.

[28]    Viktor J. Vanberg, “Consumer Welfare, Total Welfare and Economic Freedom,” p.21.

[29]    Ibid., p. 20.

[30]    Ibid., p. 14.

[31]    Viktor J. Vanberg, “Consumer Welfare, Total Welfare and Economic Freedom,” p. 24.

[32]    Ibid.

[33]    Ibid., p. 17.

[34]    Robert Bork, The Antitrust Paradox – A Policy at War with ItselfThe Free Press, 1993, pp. 84-86.

[35]    Viktor J. Vanberg, “Consumer Welfare, Total Welfare and Economic Freedom,” p. 20.

[36]    I will not dwell too much on the “rule of reason” for I do not know enough the American antitrust, but the most important difference between this mechanism and paragraph 3 of article 101 seems to be that, with the latter provision, the burden of proof always lies on the shoulders of the defendant.

[37]    Ibid., p. 26.

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Une réflexion sur “An Ordoliberal Criticism of The (Subconstitutional) Effect-Based Approach: Comments on Professor Vanberg’s Papers (2/4).

  1. Pingback: Total Welfare and Consumers’ Sovereignty: Comments on Professor Vanberg’s Papers (3/4) – Sophismes juridiques

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