Review of Industrial Organization 16: 107–111, 2000.
General Editor’s Introduction
In Perspective: The Role of Economics at the Antitrust Division since 1974
WILLIAM G. SHEPHERD
The Review is pleased to present this collection of distinguished Papers from a
conference in honor of the establishment of the Economic Policy Ofﬁce in 1974.
That 1974 event followed the original creation of the “economic advisor’s” position
at the Division in 1965. Converting it to a major administrative post in 1974 was
a further step in the elevation of economics there. It reﬂected the rise of “new
Industrial Organization theory” during the 1970s and its embodiment in the Reagan
Administration’s Policies of the 1980s. The papers in this Special Issue illustrate
the Division’s continuing reliance on those theoretical ideas in the 1990s.
This Introduction will brieﬂy set these papers in the larger context of the eco-
nomic theory trends of the times.
The “new” ideas were a deliberate effort to
shift away from the century-old mainstream concepts that deﬁned monopoly power.
They tried new ways of deﬁning markets, they belittled market shares and rejected
concentration ratios for estimating market power, and they eliminated enforcement
toward vertical conditions, price discrimination, and other whole categories. The
writers of the new theories rejected older, now-“obsolete” ideas, replacing them
particularly with theories about potential entry. Though the “new” ideas have had
much popularity since 1980, their longer-run value continues to be open to doubt
Economists in the Division after 1965. In 1965 the economic ﬁeld of Industrial
Organization was given a new emphasis in the Antitrust Division. Donald F. Turner,
Harvard Law School’s brilliant and proliﬁc scholar of antitrust, was beginning
his 1965–68 term as head of the Division, and he declared the need to make
antitrust more economically rational. He brought in a strong team of talented
young lawyers to manage the Division, and he announced plans to issue merger
For a brief review of the trends and schools of thought, see my The Economics of Industrial
Organization, 4th ed., Prentice-Hall, 1997, Chapter 1. The “new” theory is presented in Richard
Schmalensee and Robert D. Willig, eds., Handbook of Industrial Organization,Cambridge,Mass.;
MIT Press, 1989; and Jean Tirole, The Theory of Industrial Organization, Cambridge, Mass.: MIT