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.