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What Might Darwin Have Said About Private Contracts That Limit Competition?
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Business

I explains how private contracts and limited competition have been treated as presumptively illegal under the anti-trust laws which implicitly rest on the premise that more competition is always a good thing. Yet in many cases, unbridled competition is clearly inefficient. Consider tire expenditures by contestants in NASCAR races, which create wasteful arms races, or the Justice Department’s suit against the “Overlap Agreement,” a pact among elite universities to steer their limited financial aid dollars to students from low-income families. Absent such an agreement, schools were facing growing pressure to give aid to students with the best test scores, irrespective of family need. One apparent policy lesson from examples like these is that the Justice Department needs to reconsider its view that greater competition always promotes the public interest. As Darwin saw clearly, competition in nature serves the interests of individual organisms, but often does not serve the interests of larger groups. It’s the same with competition in the marketplace. There are obvious risks in permitting private parties to forge contracts whose aim is to limit competition. We need to examine whether there are ways to safely relax the current absolute prohibition on such contracts.

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