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The rule of reason is a legal doctrine used to interpret the Sherman Antitrust Act, one of the cornerstones of United States antitrust law.While some actions like price-fixing are considered illegal per se, other actions, such as possession of a monopoly, must be analyzed under the rule of reason and are only considered illegal when their effect is to unreasonably restrain trade.
The consumer welfare standard gradually replaced the rule of reason principle as the dominant legal theory behind antitrust enforcement by the 1980s. The consumer welfare standard was influenced by microeconomic theory and is related to the economic theories of the Chicago school of economics . [ 5 ]
United States v. Alcoa, 148 F.2d 416 (2d Cir. 1945), [1] is a landmark decision concerning United States antitrust law.Judge Learned Hand's opinion is notable for its discussion of determining the relevant market for market share analysis and—more importantly—its discussion of the circumstances under which a monopoly is guilty of monopolization under section 2 of the Sherman Antitrust Act.
United States, 246 U.S. 231 (1918), was a case in which the Supreme Court of the United States applied the "rule of reason" to the internal trading rules of a commodity market. Section 1 of the Sherman Act flatly states: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the ...
Nondictatorship D: No voter in the society is a dictator. That is, there is no voter i in the society such that for every set of orderings in the domain of the constitution and every pair of distinct social states x and y, if voter i strictly prefers x over y, x is socially selected over y. [4]
One of the key criticisms focuses on Bork's use of the term "consumer welfare", which became the stated goal of American antitrust law. Bork argues that Congress enacted the Sherman Act as a "consumer welfare prescription". [4] The Supreme Court embraced this view in Reiter v. Sonotone Corp., 442 U.S. 330 (1979) and in all subsequent decisions.
There are no externalities and each actor has perfect information. Firms and consumers take prices as given (no economic actor or group of actors has market power). The theorem is sometimes seen as an analytical confirmation of Adam Smith's "invisible hand" principle, namely that competitive markets ensure an efficient allocation of resources.
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