(FORTUNE Magazine) – Is antitrust law designed to advance consumer welfare? There should not be any doubt about the answer, but the U.S. has been equivocating over it since the first federal antitrust statute, the Sherman Act, was enacted 98 years ago. As often as not, antitrust policy has been a political arena in which special business interests struggle for advantage at the expense of consumers. Under the Warren Court antitrust was clearly politics of an egalitarian, redistributionist variety, and superior efficiency came to be viewed as an unfair competitive advantage. Scholarship in the field has advanced since then, and the intellectual climate surrounding antitrust has changed for the better. Enforcement policy and judicial decisions have become much more likely to reflect rational economic analysis that comes down on the side of the consumer. But special- interest groups continue to advance their claims. Now it seems quite possible that what consumers have gained during the 1980s in the executive and judicial branches will be taken away by Congress. Two recent developments illustrate the continuing confusion. One is the Supreme Court's May decision in Business Electronics Corp. v. Sharp Electronics Corp. The other is a bill by Senator Howard Metzenbaum (D-Ohio) misleadingly titled the Retail Competition Enforcement Act of 1987. Both deal with manufacturers' ability to influence retailer prices under Section 1 of the Sherman Act. There the resemblance ends. The Supreme Court's decision is a step toward greater competition. The Metzenbaum bill is anticompetitive; it would sacrifice consumer interests to those of one business interest, discount retailers. It has passed the House and has been favorably reported out by the Senate Judiciary Committee. Business Electronics was the exclusive retailer of Sharp Electronics' calculators in the Houston area until Sharp appointed Gilbert Hartwell as a second retailer for the area. Like many other manufacturers, Sharp published a list of suggested minimum retail prices, but neither retailer was obliged to follow them. Business Electronics often sold below the suggested prices and usually below Hartwell's prices. Hartwell complained to Sharp several times about the price cutting and finally threatened to end its dealership unless Sharp stopped selling to the discounter. After Sharp agreed, Business Electronics sued, alleging a conspiracy to fix retail prices in violation of Section 1 of the Sherman Act. THE SUPREME COURT'S decision confirms that manufacturers have the legal right to influence the prices charged by resellers, an important aspect of a competitive marketplace. It does not legalize the practice called resale price maintenance -- a manufacturer and a retailer still cannot agree on a price. But the decision rejects the so-called per se rule that any discussion of price is tantamount to an agreement. A plaintiff will be required to provide evidence that an agreement was struck. The decision still does not get to the heart of the problem. Agreements between manufacturers and retailers on prices have been illegal since the 1911 Dr. Miles case. There was no clear reason then, and there is none now, why that should be so. The Dr. Miles Court reasoned that since the retailers could not lawfully agree among themselves on prices, the manufacturer should not be able to set prices for them. That is a non sequitur. The effects on consumers are wholly different. When a group of retailers fix prices, they gain above- competitive profits at the expense of consumers. A manufacturer who sets retail prices has no incentive to create such a profit for its retailers. Quite the contrary: Doing so would reduce the manufacturer's profits because it would lower sales. Price is only one aspect of competition. Some consumers willingly pay more to get information and service, particularly if the product is complex. For example, Sharp's calculators, costing up to $1,000, were sold primarily to businesses. Customers for such products are apt to want a full line of models to examine as well as information and service. The manufacturer can best provide these things by setting the retail price so that the retailer is encouraged to compete by offering them. In such cases, the manufacturer has made a judgment that consumers will respond favorably to the package of services offered. If he is right, consumers show by their purchases that they consider their welfare enhanced. If he is wrong, they buy from another maker. True, the manufacturer could find other ways to make retailers provide service and information -- by sending people out to monitor the retailers' performance, for example. But such methods are less efficient than a straightforward price agreement, and thus more costly to consumers. Not all buyers, of course, want additional information and service. Many manufacturers compete primarily with lower prices. In some markets a manufacturer may sell differentiated products, one line to discounters who provide no information or service and another to retailers who do. ALL THIS has been understood for years. But the law has incompletely adjusted. In the 1977 Sylvania case, the Court noted that if retailers of one brand were permitted to compete against one another on price, customers would visit the full-service retailer who hires trained staff to give information, then buy at a lower price from another retailer who has incurred none of the costs. Before long, the first retailer will stop providing information and service, having discovered that he is merely giving it away. To eliminate this so-called free-ride problem, the Supreme Court lets manufacturers assign exclusive territories to retailers. Business Electronics is a halfway step toward applying the same reasoning to resale price setting. While Sharp did not fix its retailers' prices, it certainly influenced them. Yet the Court decided that the Sherman Act had not been violated; it had no evidence that Sharp and Hartwell had agreed on a retail price. It is difficult to understand why, as a matter of policy, terminating a price cutter in order to preserve higher prices is lawful, while making an explicit agreement to do the same thing is not. But inconsistency is better than the wrong policy rigidly adhered to. The particular virtue of the Sherman Act is that it was designed to evolve as economic understanding progressed. Though the results have not been uniformly good, due in part to the political sympathies of some judges, the rules of antitrust have come under increasingly rigorous scrutiny from those who understand the economics of the marketplace. In recent years the law has improved substantially. Into this intellectual process, which promises to make the law more responsive to consumer desires, the Retail Competition Enforcement bill has now intruded. The Metzenbaum bill would take the economic evolution of the Sherman Act in this area away from the courts by codifying a per se rule against resale price maintenance. The Sherman Act has proved the most beneficial of our antitrust statutes precisely because it leaves specific rules about competition to the courts. In framing their decisions, courts are not subject to the pressures of special interests. Moreover, it is virtually impossible for a legislature of hundreds of men and women to reason together about economics. The least successful antitrust statutes, the Clayton Act and the Robinson-Patman Act, were attempts by Congress to lay down precise rules about competition and monopoly. When it has been most precise, Congress has been most wrong. So it is with the proposed amendment. Though the bill is presented as codifying existing law, it would in fact destroy the rule Business Electronics rested upon. The bill states that a conspiracy can be proved merely by evidence that a manufacturer received a communication from a retailer about price competition and, in response, terminated another retailer. The very considerable legal dangers thus created would inhibit valuable exchanges of information. Under the Metzenbaum bill, a manufacturer should be skittish about conversations of any sort with dealers, whether about market conditions, sales efforts, or new consumer services. He certainly won't want to receive a call from one retailer complaining in any way about the conduct of another. In a suit by a terminated retailer, the jury may be allowed to guess that the ^ communications were actually complaints about competition and that the termination was, as the bill puts it, ''in response.'' Triple damages follow. THE BILL is advanced with a good deal of rhetoric about the importance of discount stores to consumers on low budgets. Discounters would not disappear even if retail price maintenance were completely legal. They simply would not be able to cut prices on all brands. Indeed, if keeping prices down is the object, manufacturers should not be allowed to require retailers to provide information and services by contract either, since that also makes their products more expensive. The bill is a political victory for discounters. They would be given a powerful legal weapon against those who would challenge their lower prices with service and information. Whatever it is, the Metzenbaum bill is not pro-competitive. More important, the bill typifies a primitive political counterattack on antitrust's increasing economic rationality. Should a Democrat win the presidency and Democrats retain control of both houses of Congress, we may expect more of the same thinking, including attacks on corporate mergers and perhaps even on size achieved by internal growth. Senator Joseph R. Biden Jr., for example, has already promised that his judiciary committee will bear down harder on antitrust issues. Business Electronics and the Retail Competition Enforcement bill suggest that our antitrust attitudes are still schizophrenic. It remains to be seen whether economics or politics -- the interests of American consumers or those of particular segments of American business -- will determine the course of the law.