Competition Calculus: Moral Philosophy and the Rule of Reason

Does the benefit of eating two dozen mozzarella sticks outweigh the cost of gaining weight and possibly spending the night in the bathroom? Maybe, maybe not. We encounter and engage with these kinds of balancing acts all the time, arguably in most decisions we make as responsible and prudent adults. Some, like the example above, are more trivial while others are more consequential, such as high stakes decision-making in finance, military strategy, and international diplomacy. In this article, I will explore the interplay and parallels between balancing acts that operate in law and ethics. In particular, I will show that old concepts of moral philosophy inform modern antitrust law analyses.

In American jurisprudence, the rule of reason is a doctrinal approach to interpreting the Sherman Act, a cornerstone of U.S. antitrust law. The rule of reason analysis operates in an interesting, fundamentally philosophical way: it weighs the procompetitive features of a restrictive business practice against its anticompetitive features, thereby determining, in what I call a competition calculus, whether or not the practice should be prohibited. That is, business conduct that is inherently restrictive may nonetheless be permitted so long as the qualities that promote competition outweigh the qualities that impede competition. A restraint can be lawful, for example, if it is ancillary to the purpose of a lawful practice.

We see a similar type of balancing act in moral philosophy, namely the hedonic or felicific calculus devised by political philosopher Jeremy Bentham. The felicific calculus assesses the elements of pleasure or pain associated with one’s actions. Central to utilitarianism, the calculus measures the degree or quantity of pain or pleasure an action is likely to cause. One can then use the expected outcome to reach a conclusion as to the moral rightness or wrongness of said action. The calculation involves a series of variables — or “consequences” as Bentham called them — used to gauge the value of particular actions in terms of their foreseeable effects. These include:

• Likelihood that pleasure or pain will result;
• How soon that result will occur;
• Intensity and duration of the pleasure or pain;
• The number of people who will be affected by it.

As noted, the rule of reason evaluates the effects a business restraint has on competition. The rule originated in Addyston Pipe and Steel Co. v United States, 175 U.S. 211 (1899) and was reaffirmed in Chicago Board of Trade v United States, 246 U.S. 231 (1918) where the Supreme Court called for a comprehensive analysis considering such questions as:

• What are the effects, actual or probable, of the restraint?
• What evil is believed to exist by virtue of the restraint’s implementation?
• How do business and market conditions differ before and after the restraint is imposed?

Research conducted by Rutgers Law professor Michael A. Carrier established the four-step process courts have traditionally taken in cases involving the rule of reason. Those four steps are:

1. The plaintiff bears the burden of showing a significant anticompetitive effect;
2. The burden shifts to the defendant to justify the restraint on its legitimate procompetitive merits;
3. If the defendant successfully justifies the restraint, the burden reverts to the plaintiff to show that the restraint is unnecessary to achieve its objective and a less restrictive means would suffice;
4. The court finally balances the procompetitive and anticompetitive effects.

Considering the similarities between the rule of reason analysis and Bentham’s felicific calculus, is the former an ethical analysis at its core? It certainly is ethical in nature as its objective is to prohibit the existence of overly anticompetitive business practices to ensure more fair and competitive markets. But what does it say about the moral rightness or wrongness of these restraints? Well, the implication is that business practices that tip the balance in favour of overly anticompetitive conduct are wrong, whereas those that are more procompetitive than anticompetitive are proper. After all, excessively anticompetitive practices are indicative of unethical corporate behaviour. Broadly speaking, furthermore, there is an ethical calculus at work in virtually any determination of a particular course of action in a given circumstance. It boils down to a choice between actions x and y (or any number of available actions, n) in the same narrative of action and choosing whichever is the best course all things considered. It should be noted that the felicific calculus is an ideal; Bentham himself admitted that sometimes strictly following the calculus would be impractical. He reasoned that the closer one follows the calculus, the closer one will be to making the best moral decision in the circumstances.

Likewise, the complexities of the four-step rule of reason analysis pose challenges for the courts. Indeed, some argue that compliance with its requisite steps is exceedingly difficult. In some cases, the rule of reason may be kept in the judge’s pocket if needed and only brought out when absolutely necessary. Moreover, as Professor Carrier’s research indicates, seldom is the four-step analysis fully executed as the vast majority of cases end at the first step upon a plaintiff’s failure to prove significant anticompetitive effects of the impugned restraint. The felicific calculus, by contrast, does not end if one of the vectors does not bear any insight on the moral rightness or wrongness of the action. In this way, the competition calculus is much more readily disposable than the felicific calculus. This, as we will see, is a problem. Whereas a judge can dispense with the rule of reason after the first stage in an antitrust matter, in ordinary daily affairs an individual must move on in their moral calculations to reach a conclusion on an action all things considered by adhering as closely as possible with the remaining prongs of the felicific calculus.

Under Bentham’s felicific calculus, different circumstances may require additional variables to be considered in the calculation. Sometimes these additional variables — or even the standard variables — are not evaluated, which speaks to the imperfect nature of the calculus in practice. The same issue arises under the rule of reason: sometimes judges fail to balance the procompetitive and anticompetitive aspects of the restraint, which is not only inconsistent with this mode of analysis but is also antithetical to the purpose of antitrust law. In fact, numerous sections of the Sherman Act as well as the Clayton Act, another foundational component of the U.S. antitrust law regime, note that considering both procompetitive and anticompetitive effects is an indispensable step in any antitrust analysis.

This is where the felicific calculus proves instructive. We have established that to decide on an action by adhering as closely to the prongs of the felicific calculus as possible is most desirable. The same is true under the rule of reason: courts must adhere as closely as possible to the stages of the competition calculus to be thorough. The stage of the rule of reason requiring a balancing of procompetitive and anticompetitive effects is essential and cannot be overlooked. In deciding comprehensively on an action, it is necessary to balance the options by considering the elements of available courses of action in the same narrative of action. This is true in moral philosophy when assessing an action’s rightness or wrongness as against other available actions, as well as in decision theory generally, such as rationally comparing alternatives and evading weakness of will. So, under the felicific calculus, even if not every prong is conclusive or relevant, the balancing act is always the one necessary stage at minimum. It is the same with the rule of reason. Even if the plaintiff fails to show a less restrictive alternative exists or fails to show that the particular restraint in question is unnecessary, courts must still weigh out the restraint’s procompetitive and anticompetitive effects. Doing so ensures an adequate analysis and stokes confidence that the rule of reason is being properly applied in U.S. antitrust matters.

Sources:
1. Bentham, Jeremy. An Introduction to the Principles of Morals and Legislation, London: T. Payne, 1789.
2. Carrier, Michael A. “The Four-Step Rule of Reason”. Antitrust, Vol. 33, №2, Spring 2019.
3. Clayton Act, 38 Stat. 730, codified at 15 U.S.C. §§ 12–27.
4. Sherman Act, 26 Stat. 209, codified in 15 U.S.C. §§ 1–38.

Disclaimer: The information contained in this article is not legal advice. It should not be construed as legal advice and should not be relied upon as such.