Antitrust Reform and the Nirvana Fallacy: The Case Against a New Sherman Act

Demands for major antitrust reform are coming from all directions: politicians, industrial organization (IO) economists, and antitrust lawyers. While the political, legal, and economic debates vary in important ways, they all boil down to a single question: Do we need a “New” Sherman Act? Progressive IO economists argue that a “crisis” of competition in markets—evidenced by increasing levels of aggregate industry concentration—has resulted in systematic market power across the economy, and that a crisis of institutional credibility in the courts has biased antitrust law in favor of defendants. However, as this Article illustrates, the economic and empirical evidence support neither proffer. Rather than reform based on upon evidence of market failure or a failure of antitrust institutions, Progressive IO economists call for reform based upon the nirvana fallacy—a comparison of the today’s institutions with an imaginary set of perfect institutions guided by omniscient and well-intending economists. But economics is not on the agenda of current proposals for antitrust reform and calls for a “New” Sherman Act threaten to upend the long-standing partnership between law and economics on which the consumer welfare standard is predicated. Without such a partnership, antitrust institutions will struggle to achieve their objective of promoting competition on behalf of Americans.