Friday, October 12, 2007
Posted by D. Daniel Sokol
Franklin Fisher of MIT's Department of Economics has some important thoughts the limitations of bright lined tests in antitrust in the latest issue of the Journal of Competition law and Economics titled Economic Analysis and "Bright Line" Tests.
ABSTRACT: Economists testifying in antitrust cases often encounter the demand by attorneys and judges for "bright-line" tests – simple rules supposedly based on economic analysis. This paper argues that, although such tests can have their uses, they are very likely to lead to error without a clear understanding of the purposes of the tests and the economics behind them. Issues discussed include: market definition, market share, the role of profits, and, especially, anti-competitive conduct (including the Areeda-Turner) test for predatory pricing. Examples are drawn from actual court cases (mostly in the U.S.), in many of which the author was an expert witness. The best known of these was the U.S. case against Microsoft, but there are many others.