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The Social Case for Bright-Line Antitrust Rules

The mid-sized town of Springfield maintained a speed limit of 25 miles per hour on a one-mile stretch of Main Street that was home to both an elementary school and a middle school. The speed limit had been in force for decades. Children as young as three walked on the sidewalks and sometimes unexpectedly darted across the street. By forcing drivers to slow down, the speed limit minimized the risk of serious injury and death. While collisions occurred occasionally on this busy road, no pedestrian, driver, or passenger, had ever suffered a serious injury. For years, the 25-mph limit attracted little attention, positive or negative, and was accepted by residents as a fact of life in the town.

One day though, a group of prominent businesspeople and professionals petitioned for a change. These local notables called on the mayor to eliminate the speed limit because it contributed to congestion on the important road and delayed drivers from reaching their destination. In their petition, they contended that removal of the speed limit would allow people to spend less time on the road and more time being productive at their place of work and socializing with their near and dear. They commissioned an economic study that concluded that removing the speed limit would allow children visiting their grandparents to spend less time in the car and more time with their doting grandma or grandpa. Attempting to preempt concerns about road safety, they claimed the speed limit was not necessary, as drivers would naturally be concerned for the safety of kids. They argued that police could pull drivers over for reckless behavior or for driving unsafely. Further, drivers who negligently caused injuries or deaths would face serious consequences, including prison. That threat would deter dangerous driving.

Given the standing of opponents of the speed limit, the mayor soon after lifted speed restrictions on the road. He declared, “The 25 mph may have worked when we led more leisurely lives and could afford to spend an extra 10 or 15 minutes in traffic. But that is the past, we are all busy people now. The speed limit is an impediment to the smooth flow of traffic today.” He did not dismiss concerns about traffic safety and directed the town’s police force to pull over drivers who drive in an “unreasonably unsafe manner.”

The new system appeared to work fine at first. Vehicles proceeded past the schools much faster than they had previously. Congestion was a thing of the past. As proponents of the repeal predicted, the people of Springfield were getting to spend a little more time with their coworkers, friends, and families.

But the repeal of the speed limit was not an unalloyed benefit for the town. With a local bottleneck relieved, many people stopped using the town’s famous monorail and got into their cars, trucks, and vans instead. Many living near Main Street who had previously walked to nearby grocery stores and restaurants started driving. Although traffic congestion on Main Street had been addressed, it had a cost. Rescinding the speed limit encouraged more driving and increased air pollution.

Some drivers who scrupulously followed the 25-mph speed limit began to drive more aggressively. Because there was no speed limit, some felt emboldened to drive past the school at 50 mph or faster, so long as they couldn’t spot any children in harm’s way. That speed was not illegal under the letter of the law unless an observing police officer deemed it to be “unreasonably unsafe.” No one knew quite what this meant. It was rumored that police officers considered the time of day, level of traffic, weather conditions, the proximity of children to the road, and the importance of driver’s trip before passing judgment. When teachers at the elementary school complained that the sound of cars sometimes traveling at 70 mph scared the young children, the mayor said, “While we can’t quantify the subjective terror felt by kids, we can measure the shortened commutes for Springfielders.” To keep their children safe, the elementary school ended recess and other outdoor activities for all children up through fourth grade.

Enforcement of the new “unreasonably unsafe” standard for the rule also drew concern. When a local executive was pulled over for driving 80 mph, the police officer, whose conversation was recorded on a bodycam, let him off with a friendly “warning,” obsequiously saying, “I get it, sir. You are a busy man. If we had kept the 25 mph as some wanted, you’d be spending time stuck here, instead of tending to your important work.”

But others were not so lucky. Black drivers, especially those driving late model cars, were frequently pulled over for going 30 mph. That was only five miles per hour faster than the old speed limit, but many officers deemed it “unreasonably unsafe.” The discriminatory pattern of enforcement was impossible to ignore.

Proponents of the new approach dismissed growing criticisms. They said the improved flow of traffic trumped other considerations. They conceded fewer people were taking the monorail and walking for short trips, but insisted these are not “traffic-related” issues. The city should address these problems though other measures, they said. Moreover, discriminatory enforcement was not inherent to the new standard and could be resolved. The mayor pledged to improve police training and socialize officers “not to see color” in performing their duties.

But after one deadly incident, even the strongest proponents were at a loss for defenses. One afternoon, the 20-year-old scion of a local real estate magnate took his new red Ferrari out for a spin. He wanted to test its acceleration and went from zero to 60 mph on Main Street in four seconds. Focused on his immediate aim, he did not notice a 12-year-old schoolboy who had run into the street to retrieve an errant soccer ball and struck him. The boy was killed instantly. The local prosecutor pledged to prosecute the driver and seek the maximum possible sentence. But whatever the result, no prison sentence would bring the young boy back to life or provide solace to his parents and siblings.

The tragic death of the child made clear to almost everyone that the new system was a failure. While its proponents rationalized or offered solutions for increased driving, forcing schoolchildren indoors, and discriminatory enforcement, they had no ready answers for the clearly avoidable fatality. The old 25-mph speed limit had created modest inconveniences, but it would have prevented the fatal accident. In addition to allowing schoolchildren to play safely outside, the old rule encouraged people to use public transit and to walk and reduced the potential for subjective and discriminatory law enforcement. It was an example of what the economist Gardiner Means called a good “canalizing rule.”

For the past 40 years, the federal judiciary has followed the model of Springfield and overturned or weakened bright-line antitrust rules for mergers and other business practices. For instance, the Supreme Court held that manufacturers dictating resale prices on their goods to retailers and wholesalers through contract—an example of a “vertical restraint” imposed on a firm at another level in the same supply chain—was no longer a categorically illegal practice. In place of such clear “speed limits,” it adopted the rule of reason as its default analytical framework—a standard that requires case-by-case assessment of “effects” and has practically legalized many formerly restricted business practices.

Much like Springfield’s decision gave license to residents to drive as they wish on Main Street, the courts have granted corporate executives broad discretion to compete and grow their enterprises as they wish. In theory, this case-by-case approach allows business leaders to engage in socially beneficial mergers and to use vertical restraints to protect against harmful free riding. But as the story of Springfield shows, legal rules are used not only to decide specific cases but also to structure individual and organizational behavior.

Congressional and regulatory enactment of bright-line rules on mergers and unfair practices would channel business strategy in different and better directions. Strong rules against mergers, such as a general prohibition on all acquisitions by firms with more than a 30% share in any market or $10 billion in total assets, might sacrifice the occasional beneficial consolidation (there are ample grounds to be skeptical of such losses to be sure). Yet these bright-line rules would channel business strategy toward internal expansion and development of new production methods. Similarly, a prohibition on non-compete clauses could prevent an employer from stopping an employee from departing for a rival after receiving valuable training on the job, but it would also encourage employers to retain workers through regular raises and promotions and fair treatment and to use more targeted tools for protecting their proprietary information. And bright-line rules for antitrust enforcement would limit governmental discretion and the ability of unscrupulous officials to reward friendly businesses and punish their perceived enemies. These rules would deprive the CEOs of the largest corporations of autonomy and surely make them unhappy. But for the rest of us, life would be better.

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