The new Chicago School
In the same period, in Chicago a new free-market oriented school was strongly opposing the Harvard structuralist view. The exponents of the new Chicago School, like Milton Friedman and George J.
Stigler, by comparison to the previous generation, had radicalized their emphasis on the desirability of competition, and attacked the S-C-P paradigm advocates on several points. They suggested a different interpretation of the data, claiming that the link between concentration and profitability put forward by the S-C-P paradigm had to be interpreted differently: for them firms were large and profitable because they were more efficient; the new Chicago scholars interpreted the high profit rates in industries supplied by a small number of firms as an effect of efficiency, and not of monopoly power. The direction of the causal mechanism from market structure to performance attributed to the S-C-P paradigm was reversed: it is the performance of firms which affects their behaviour and modifies market structure, not vice-versa. For them entry conditions are endogenous, and change according to a firm’s behaviour, so market structure spontaneously adjusts to its most efficient configuration. The S-C-P approach was also criticized by advocates of the new Chicago School for another reason: not only did they claim that the Harvard interpretation of the data was wrong, but also that the empirical method in itself needed to be replaced by a rigorous theoretical approach. The approach they adopted was the neoclassical theory of perfect competition, and they accordingly treated most of the real markets as if they were at their perfectly competitive equilibrium values - the so-called “good approximation assumption”. A very important bone of contention between the two schools was antitrust policy, as on this ground the new Chicago School deeply diverged not only from Harvard position, but even from the positive role for the government advocated by Simons and the first Chicago School. On the basis of their trust in the efficiency of the markets, the new Chicago scholars attacked all kind of de-concentration policies previously adopted, and starting from the 1970s their influence on antitrust decisions was increasingly strong (Martin 2007).
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