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"The rule of reason is the accepted standard for testing whether a practice restrains trade in violation of" Section 1 of the Sherman Act.1 Although the express language of Section 1 contains no such limitation, the Supreme Court "has repeated time and again that § 1 'outlaw[s] only unreasonable re- straints.' "2 And the Court has consistently distinguished the unreasonable re- straints on the basis of impact on competition. My thesis in this article is that the rule of reason focuses solely on how a challenged restraint affects the competitive process. I also explain that commentators either have merely as- serted that a welfare standard must be applied or mistakenly claimed that the Supreme Court has endorsed a welfare standard.
Because antitrust commentary employs the argot of welfare economics, I begin by reviewing relevant terms and concepts. Part I of this article also clarifies the contributions of Professor Robert Bork on the primacy of "con- sumer welfare" and its meaning. I explain that Bork's views are misunder- stood and unfairly criticized in large part because "consumer welfare" has a different meaning now than the one he ascribed to it. Finally, Part I highlights major themes and points of contention in the long-running welfare debates. I explain that much commentary either conflates the goal of the Sherman Act with its liability standard or proceeds from the false premise that the policy choice is between two welfare measures, neither being what Professor Bork called "consumer welfare."
The rule of reason was developed by the Supreme Court,3 and Part II of this article reviews the Court's relevant decisions. It first recapitulates ways in which the Court articulated and explained the rule of reason. It then reviews the reasoning of modern decisions by the Court addressing or applying the rule, demonstrating that the impact of a challenged restraint on the competi- tive process is the only issue the Court considers under the rule of reason. Finally, Part II shows there is no merit in claims that Supreme Court decisions support a welfare standard.
Part III outlines an application of the rule of reason, consistent with prece- dent, considering only how restraints affect the competitive process. In partic- ular, Part III sets out a burden-shifting approach in which the...