Behavioral Economics: Implications for Antitrust Practitioners

01 June 2010
By Dr. Elizabeth M. Bailey

For antitrust practitioners, there are two familiar behavioral assumptions used in the economic models that underlie antitrust analyses: firms maximize their profits and consumers maximize their utility. Understanding how consumers and firms depart from the assumptions that underlie standard economic models is the focus of a field of economics research called "behavioral economics." For an antitrust practitioner, understanding how well actual decision-making behavior lines up with that assumed in standard economic models makes good sense because antitrust analyses rely on economic models.

This article, by NERA Special Consultant Dr. Elizabeth M. Bailey, published in The Antitrust Source, discusses why it is not necessary for the assumptions underlying the standard economic models to hold perfectly for the standard models to provide valuable predictions of economic outcomes in antitrust matters. In addition, Dr. Bailey explains that, since antitrust analyses are fact-specific, it makes good sense for private parties, government agencies, and the courts to incorporate alternate economic models based on behavioral economics only when the facts and data in the specific issue at hand merit the use of an alternate analytical framework.