Toward a Consistent Theory of the Welfare Analysis of Agreements

Toward a Consistent Theory of the Welfare Analysis of Agreements

By
William F. Baxter, Daniel P. Kessler
Stanford Law Review.
1995, Vol. 47, Issue 4, Pages 615-631

After reviewing traditional antitrust classifications of agreements, Professors Baxter and Kessler conclude that these labels are unhelpful and misleading. The classification of an agreement as "horizontal" or "vertical" provides little guidance as to either its effect on social welfare or its legality under the antitrust laws. The authors propose an alternative system that classifies agreements based on the parties' economic relationships as producers of substitutes or of complements. They also suggest that an unwillingness to recognize that many agreements affect relationships with producers of both substitutes and complements has led to confusion in the antitrust analysis of agreements. In conclusion, they discuss the welfare analysis of such agreements and propose a method of evaluating their legality under the antitrust laws.