Behavioral Economics in Antitrust

Elizabeth Bailey

3/18/2015
(Original Publish Date: 4/25/2011)

Imagine this: When it comes to making decisions, people are like Mr. Spock. They dispassionately weigh pros and cons. They don’t let their emotions cloud their decisions. If mistakes are made - maybe buying an overvalued Internet stock or a Las Vegas condo - they learn from them and don’t repeat them. None of this is true, of course. But conventional economic theory assumes it is. And these assumptions helped to shape the economics of antitrust. Conventional economic models used in antitrust assume that consumers and firms are rational. US courts, government agencies and practitioners rely on those models and economic techniques derived from them to predict the economic effect of alleged anti-competitive conduct and to make decisions about challenging proposed mergers and acquisitions. However, a growing body of research shows that people and firms do not always behave like Spock.