Rationality Analysis in Antitrust
Christopher R. Leslie
University of California, Irvine School of Law
University of Pennsylvania Law Review, Vol. 158, No. 2, 2010
UC Irvine School of Law Research Paper No. 2010-9
Federal judges employ a form of rationality analysis in antitrust cases whereby courts assume that firms do not engage in conduct that is not clearly profit maximizing. Federal judges hold that some alleged anticompetitive conduct is simply irrational and therefore the antitrust defendants are entitled to judgment as a matter of law. Although judges routinely reject antitrust claims that they perceive to be irrational, federal judges are not the best evaluators of business rationality for several related reasons, including that most judges: 1) have no relevant business experience; 2) are unfamiliar with pertinent economics and historical scholarship on anticompetitive conduct; 3) fail to recognize that businesses pursue goals beyond profit maximization; 4) are unable to appreciate how it may be rational for firms to intentionally display irrational behavior; 5) do not consider constraints on business decision-making that affect the quality of such decisions; and 6) are subject to cognitive biases, including hindsight bias and confirmation bias, that can lead them to mistakenly view alleged conduct as irrational.
This Article examines several recent antitrust decisions in which courts held that the alleged anticompetitive conduct made “no economic sense” under the judges’ view of rationality. These cases include allegations of predatory pricing, price-fixing conspiracies, group boycotts of a supplier, and conspiracies to conceal invalid patents. In these cases, courts found the alleged conduct to be implausible despite strong - and sometimes irrefutable - evidence that the conduct did in fact occur.
The Article concludes that judges should focus more on the facts and evidence presented in support of the allegations that the defendant engaged in anticompetitive conduct and less on whether the observed conduct appears consistent with a particular vision of rationality. The Article advocates a more informed version of rationality analysis that is consistent with underlying antitrust principles.
Number of Pages in PDF File: 94
Keywords: Antitrust, Rationality, Game Theory
JEL Classification: K21, L40, L41, C7
Date posted: February 24, 2010 ; Last revised: July 20, 2010
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