Dynamic Analysis and the Limits of Antitrust Institutions

Abstract:     
The static model of competition, which dominates modern antitrust analysis, has served antitrust law well. Nonetheless, as commentators have observed, the static model ignores the impact that competitive (or anti-competitive) activities undertaken today will have upon future market conditions. An increased focus upon dynamic competition surely has the potential to improve antitrust analysis and, thus, to benefit consumers. The practical value of proposals to increase the use of dynamic analysis must, however, be evaluated with an eye to the institutional limitations that antitrust agencies and courts face when engaged in predictive fact-finding. We explain and evaluate both the current state of dynamic antitrust analysis and some recent proposals that agencies and courts incorporate dynamic considerations more deeply into their analyses. We show antitrust analysis is not willfully ignorant of the limitations of static analysis; on the contrary, when reasonably confident predictions can be made, they are readily incorporated into the analysis. We also argue agencies and courts should view current proposals for a more dynamic approach with caution because the theories underpinning those proposals lie outside the agencies’ expertise in industrial organization economics, do not consistently yield determinate results, and would place significant demands upon reviewing courts to question predictions based upon those theories. Considering the current state of economic theory and empirical knowledge, we conclude that competition agencies and courts have appropriately refrained from incorporating dynamic features into antitrust analysis to make predictions beyond what can be supported by a fact-intensive analysis.

Number of Pages in PDF File: 23

Keywords: Antonin Scalia, Areeda, business models, exclusive dealing, Hovenkamp, innovation markets, Joseph Schumpeter, Kenneth Arrow, mergers, monopolization, monopoly, new products, price predation, recoupment, Richard J. Gilbert, Sherman Act, strategic entry deterrence, Syufy Enterprises, Trinko, Verizon

JEL Classification: K21, L41, L42, L43, L44, L51

Accepted Paper Series