AAI requests Department of Transportation to postpone short deadline and give serious antitrust scrutiny to both airline alliances that have been proposed by United/USAirways and Delta/Northwest/Continental

FTC:WATCH No. 594 ISSN. 0196-0016 September 9, 2002

THE AAI COLUMN

Business schools, competition, and antitrust

By Albert A. Foer, Gregory Gundlach, Norman Hawker, and Lawrence J. White

As the nation ponders the guilt of corporate over-reachers, wondering whether our business leaders know anything about law, ethics or self-restraint, attention increasingly focuses on what top management is taught in the business schools. The American Antitrust Institute has been studying one aspect of this question: what are future decision-makers taught in business school about the nature of competition and the constraints of the antitrust laws?

We would like to present several generalizations from our study that were discussed at the AAI's conference on July 1 and to present a modest proposal.

Competition is an essential feature of the business school curriculum and it is the subject of at least three different (often quite separate) disciplines: strategic management, marketing, and economics.

What is taught in the economics curriculum is more or less exactly what is taught by economics professors in liberal arts departments, with greater attention paid to applications. However, only a portion of this business school teaching covers industrial organization and only a relatively small portion of the business students are exposed to economics courses beyond basic micro and macro economics.

Nearly all business school students study strategic management. These courses typically define the overriding goal of a business firm as that of striving to gain a sustainable competitive advantage. The insights of Michael Porter (who was originally trained in industrial organization economics) play a particularly important role. These courses tend to ignore direct discussion of antitrust issues. When antitrust issues are covered, it is generally at a high level of abstraction. (Only rarely does a business school offer a course directly focused on antitrust or integrates business law--including antitrust-- into other courses in a systematic way.)

The marketing curriculum also reaches a high proportion of students. While also addressing the firms' pursuit of sustainable competitive advantage, courses in marketing deal primarily with questions of how managers define and choose a market, shape products, communicate through promotion, manage distribution relationships, and set the firm's prices. In doing so, the marketing curriculum brings a real-world focus on how managers attempt to compete.

What the strategic management and marketing curricula seem to have in common is an emphasis on the real-world and empirical nature of competition. The abstraction and deductive logic of the neoclassical model of competition found in economics plays a supporting role or, at best, a co-equal role with principles of psychology, sociology and other behavioral disciplines. Neither consumers nor managers are considered exclusively rational in their decision-making. Information as the basis for decisions is emphasized to be generally incomplete. Profit maximization is considered but one of a multitude of appropriate goals to be brought into balance. Overall, the orientation is generally dynamic, with static models of competition not considered particularly relevant.

That our business schools tend to see the world so differently from the Chicago School should be of concern to the antitrust community. Is our deference to neoclassical economics causing us to miss something important?

At the same time, something seems to be missing in the business schools: exposure to and a healthy awareness of the role of government in constraining marketplace behavior. Business students should not be turned into law students, but recent events demonstrate that business students need a clearer understanding and more awareness of how and why the search for a sustainable competitive advantage has publicly imposed limitations.

Much conversation today focuses on the teaching of ethics in the business schools. Antitrust, thus far, has played little if any role in business ethics courses. This is a particular shame, because as any antitrust expert knows, there are very few blacks and whites in this field. While ethical concerns do not play a role in formal antitrust analysis, judgment plays a very large role in business decisions, and the ethical component of judgment should be explored within the context of the corporation's responsibilities to its various stakeholders, which may include customers, suppliers, and even (according to some ethicists) competitors.

These observations lead us to a suggestion: within the business school framework, there should be a forum of stakeholders to discuss how to expand the future manager's understanding of antitrust. This forum should include representatives of antitrust law, industrial organization economics, strategic management, marketing, and business ethics. The product of this forum should prove useful far beyond the business school quadrangle.

Albert A. Foer is President of the American Antitrust Institute, . He has taught antitrust courses to business students at two universities. Gregory Gundlach is a professor of marketing at the University of Notre Dame. Norman Hawker is a professor of strategic management at Western Michigan University. Lawrence J. White is an economics professor at the Stern School, N.Y.U. Their individual papers on aspects of this essay will be published by the New York Law School Law Review.