Rational Antitrust Analysis

422 Pages·2013·1.65 MB·English

Rational Antitrust
Analysis

An inquiry into antitrust assessment principles
and procedures

Dr. Philos. thesis

Peder Østbye
Oslo, January 2013

© Peder Østbye 2013
© Peder Østbye, 2013

Series of dissertations submitted to the
Faculty of Law, University of Oslo
No. 59

ISSN 1890-2375

All rights reserved. No part of this publication may be
reproduced or transmitted, in any form or by any means, without permission.

Cover: Inger Sandved Anfinsen.
Printed in Norway: AIT Oslo AS.

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The thesis is produced by Akademika publishing merely in connection with the
thesis defence. Kindly direct all inquiries regarding the thesis to the copyright
holder or the unit which grants the doctorate.
“Rationality is the ability and inclination to use
instrumental reasoning to get on in life.”
R. Posner

© Peder Østbye 2013
Preface

This is a thesis handed in as a Dr. Philos thesis at University of Oslo. Dr. Philos is an
unsupervised doctorate outside the conventional PhD program. It is a lonesome project to
write a Dr. Philos thesis. You work years on a project with substantial uncertainty associated
with success. My adjudication committee provided justified, constructive and extremely
valuable critics on the first version of this thesis. The committee encouraged and challenged
me to do a major revision of this first version for a second and last chance for the thesis to be
adjudicated for Dr. Philos. I took the challenge and am truly thankful to the adjudication
committee, Dr. Juris Anders Chr. Stray Ryssdal, Dr. Polit Tina Søreide, and Professor Morten
Hviid.
As this is an unsupervised thesis, I have no supervisors to thank. I have, however,
benefited from fruitful discussions with members of the Norwegian competition law society.
This has to some extent filled the gap from lack of supervision. I have also been given the
opportunity to present my ideas at several Norwegian academic institutions where I received
valuable feedback. Especially valuable was a presentation at the Norwegian School of
Economics administered by Professor Lars Sørgard, and a presentation at the department of
Economics, University of Oslo, administered by Associate Professor Jo Thori Lind. I would
like to direct a special thanks to Steinar Undrum, who was my manager at my former
employer, Department of Competition Policy, Norwegian Ministry of Government
Administration and Reform. Steinar is always accommodating for discussions and shares my
keen interest in the application of economic principles in law. Steinar is by far the most
experienced competition policy practitioner I have ever met, and will probably ever meet. I
would also like to thank my former colleague, close friend, and excellent lawyer Olav Boge,
who has always been willing to discuss my ideas. Olav has the property to always find a
funny twist to our discussions.
I would like to thank my present employer, Simonsen Advokatfirma, for letting me
use time to finish this thesis. I would also like to thank the administration at University of
Oslo, especially Gro Tømmerek, for professional and smooth handling of the practical issues.
I would also like to mention that I benefitted from good proofreading services at a reasonable
price from totaleditors.com.
I dedicate this thesis to my parents, my wife, Assem, and my daughter, Karima, who
reminds me that there are far more complex and beautiful things man can create than a
doctoral thesis.

Peder Østbye
January, 2013

© Peder Østbye 2013
RATIONAL ANTITRUST ANALYSIS
Table of contents

1 Introduction ...................................................................................................................... 1
2 The antitrust legal framework ........................................................................................ 5
2.1 Introduction and motivation ....................................................................................... 5
2.2 The substantive antitrust rules .................................................................................... 5
2.2.1 Antitrust rules on the surface.................................................................................. 5
2.2.2 The purpose of antitrust law ................................................................................... 6
2.2.3 Prohibition of anticompetitive cooperation .......................................................... 12
2.2.4 Prohibition of abuse of dominance ....................................................................... 15
2.2.5 Regulation of mergers and other concentrations .................................................. 19
2.3 Antitrust procedure and antitrust evidence assessment ............................................ 22
2.3.1 The role of the procedure ..................................................................................... 22
2.3.2 Organization of the procedure .............................................................................. 24
2.3.3 Rules on admissible evidence .............................................................................. 33
2.3.4 Standard of proof .................................................................................................. 37
2.3.5 Burden of proof .................................................................................................... 38
2.3.6 Standard of review ............................................................................................... 39
3 An analytical framework for rational antitrust analysis ............................................ 43
3.1 Introduction and motivation ..................................................................................... 43
3.2 What is antitrust analysis? ........................................................................................ 43
3.3 What is a rational antitrust analysis? ........................................................................ 45
3.3.1 Antitrust analysis and the assumptions of rationality ........................................... 45
3.3.2 Expected utility maximization and rational antitrust analysis ............................. 52
3.3.3 From expected utility maximization to expected loss minimization .................... 55
3.4 Expected loss minimization in antitrust analysis ..................................................... 57
3.4.1 Rational determination of antitrust rules .............................................................. 57
3.4.2 Expected loss minimization and evidence assessment ......................................... 57
3.4.3 Expected loss minimization and model-based inferences .................................... 59
3.5 How to deal with unavailable and subjective probabilities ...................................... 60
3.5.1 The absence of precise probabilities .................................................................... 60
3.5.2 Dealing with subjective probabilities ................................................................... 63
3.6 What is the utility and loss from an antitrust decision? ........................................... 65
3.6.1 Economic welfare and efficiency as an objective standard .................................. 66
3.6.2 Problems with economic welfare and efficiency as an objective standard .......... 68
3.6.3 Are there alternatives to economic welfare and efficiency as a standard? ........... 69
3.7 Rational antitrust analysis and actual antitrust analysis ........................................... 70
3.7.1 The substantive antitrust rules .............................................................................. 71
3.7.2 Antitrust analysis and the antitrust legal procedure ............................................. 71
3.7.3 Some obstacles for rationality in antitrust analysis .............................................. 72
3.7.4 Are rational antitrust analysis and actual antitrust analysis compatible? ............. 76
3.8 Can and should rationality guide antitrust analysis? ................................................ 77
3.8.1 Can rationality guide antitrust analysis? .............................................................. 77
3.8.2 Should rationality guide antitrust analysis? ......................................................... 78
3.9 Conclusions .............................................................................................................. 79
4 Rationality in the determination of antitrust rules ..................................................... 81
4.1 Introduction and motivation ..................................................................................... 81
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4.2 Standards, rules, and precision level in antitrust law ............................................... 82
4.2.1 Rationality in the choice between rules and standards ......................................... 82
4.2.2 Rational precision level of antitrust rules ............................................................. 91
4.2.3 Rules, standards, and precision in the actual determination of antitrust law ....... 97
4.2.4 Rules, standards, and precision in US antitrust law ............................................. 98
4.2.5 Rules, standards, and precision in EU competition law ..................................... 105
4.2.6 Discussion and critique ...................................................................................... 112
4.3 Jurisprudence and the evolution of rational antitrust rules..................................... 117
4.3.1 The principle of precedence ............................................................................... 117
4.3.2 Precedence and path-dependence ....................................................................... 119
4.3.3 Precedence and analogical reasoning ................................................................. 121
4.3.4 Precedence-based rules and the standard of proof ............................................. 124
4.4 Institutional factors, incentives, and the evolution of rational antitrust rules ........ 126
4.4.1 Decision makers as utility maximizers ............................................................... 126
4.4.2 Efficiency versus interest group influence ......................................................... 127
4.4.3 Determination of rules and social choice ........................................................... 133
4.5 Conclusions ............................................................................................................ 133
5 Rationality in the assessment of antitrust evidence ................................................... 139
5.1 Introduction and motivation ................................................................................... 139
5.2 Rational evidence assessment ................................................................................ 139
5.2.1 The superior principle ........................................................................................ 139
5.2.2 A decision theoretic framework for rational evidence assessment .................... 140
5.2.3 Rationally assessing the probative force of evidence ......................................... 147
5.2.4 Some additional insight on probability and probative force .............................. 158
5.2.5 Decision value of evidence ................................................................................ 171
5.2.6 Minimizing costs ................................................................................................ 174
5.2.7 Decision value, evidence costs, and rational evidence gathering ....................... 177
5.2.8 Rational versus actual evidence assessment in antitrust .................................... 184
5.3 Actual evidence assessment in antitrust ................................................................. 185
5.3.1 The framework for actual antitrust evidence assessment ................................... 185
5.3.2 Abductive reasoning and actual evidence assessment ....................................... 188
5.3.3 The impact of institutional biases ....................................................................... 198
5.3.4 The impact of cognitive biases ........................................................................... 203
5.3.5 Analogical reasoning .......................................................................................... 214
5.3.6 Appeal to expert knowledge ............................................................................... 219
5.3.7 The impact of rhetoric and abuse of rhetoric ..................................................... 227
5.3.8 Some comments ................................................................................................. 232
5.4 Modeling actual evidence assessment in antitrust .................................................. 234
5.4.1 Modeling actual evidence assessment ................................................................ 234
5.4.2 A model of actual evidence assessment in antitrust ........................................... 234
5.4.3 Modeling evidence assessment in an inquisitorial process ................................ 237
5.4.4 Modeling evidence assessment in an adversarial process .................................. 240
5.4.5 Comparing the inquisitorial and adversarial model outcomes ........................... 245
5.4.6 Some comments on model complications .......................................................... 257
5.5 Conclusions ............................................................................................................ 261
6 Rationality in the assessment of economic models in antitrust analysis ................. 268
6.1 Introduction and motivation ................................................................................... 268
6.2 Economic models in antitrust analysis ................................................................... 268
6.2.1 What is a model? ................................................................................................ 268
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6.2.2 Economic models ............................................................................................... 278
6.2.3 Inferences from economic models in antitrust analysis ..................................... 304
6.2.4 Economic models and the Daubert standard ...................................................... 309
6.3 Rational model based inferences in antitrust analysis ............................................ 319
6.3.1 Decision theoretic framework for rational model-based inferences .................. 319
6.3.2 Qualitative assessment of the informative value of models ............................... 323
6.3.3 Quantitative assessment of the informative value of models ............................. 328
6.4 Actual assessment of economic models in antitrust analysis ................................. 343
6.4.1 Actual evidence assessment and economic models ........................................... 343
6.4.2 Are the right models generated? ......................................................................... 348
6.4.3 Will models be assessed according to their informative value? ......................... 360
6.5 Conclusions ............................................................................................................ 369
7 Conclusions ................................................................................................................... 375
References ............................................................................................................................. 393
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1 Introduction
This thesis is a study into the rationality of antitrust analysis. Antitrust analysis consists of the
determination and interpretation of antitrust rules and the assessment of evidence in the
application of antitrust law. The main statutory antitrust laws are taken as given in this study.
Thus, the focus of this study is the determination of rules and the assessment of evidence
associated with deciding antitrust cases. The antitrust laws are the legal rules regulating
actions that restrict competition between businesses in the market place. Broadly speaking,
the antitrust laws cover cooperation between businesses that restricts the competitive pressure
among them, practices that might exclude competitors from competing fiercely in the market
place, and mergers and acquisitions that restrict competition.
From the perspective of rationality, this study aims to shed some light on the state of play
after more than a century of intellectual debates on the proper interpretation of antitrust rules,
how to assess different types of evidence in antitrust cases, and, in particular, the use of
economic analysis as evidence in antitrust cases. Modern decision theory has established a
standard that can be used to analytically assess the rationality of antitrust analysis. Thus, the
standard used for assessing the rationality of antitrust analysis in this study is how antitrust
analysis would have been performed by a rational decision maker following the principles of
rationality established in modern decision theory.
This study is directed at antitrust analysis as such, independently of jurisdiction.
However, for practical purposes, US federal antitrust law and EU competition law are used as
a basis for the analysis. This is appropriate since, firstly, the two regimes are, at the time of
writing, the two main antitrust jurisdictions in the world in terms of international research and
scrutiny. Secondly, the two systems, although similar in many respects, are subject to both
substantive and procedural differences that make them useful to illustrate key issues that are
relevant for assessing the rationality of antitrust analysis. One such crucial difference is the
adversarial nature associated with US antitrust law procedure and the inquisitorial nature
associated with EU competition law procedure.
This study is devoted to three main research questions: What is a rational antitrust
analysis? Do the assessment principles and procedures applied in antitrust analysis facilitate
rational antitrust decisions? How can the assessment principles and procedures applied in
antitrust analysis be made more rational? The assessment principles and procedures used in
antitrust analysis are the subjects for this study. This means that the assessment of rationality
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in antitrust analysis herein will focus on the ability of the assessment principles and
procedures applied in antitrust analysis to yield rational decisions. The assessment principles
applied in decision making cannot be scrutinized properly independently of the organization
of the assessment procedure the decision making is performed within. For instance, if one
operates with a factual presumption of anticompetitive effects in deciding an antitrust
violation, the performance of this presumption is dependent on whether the decision
procedure is designed such that this presumption actually becomes refuted when it should. A
general analysis of the interdependencies between the assessment principles and the
organization of the procedure in achieving rational antitrust decisions is the most important
contribution to research that follows from this study. This study does not, however, seek to
determine the rationality of all substantive antitrust rules and their associated decisions. That
would be a far too ambitious a task.
Research in law and economics has provided many seminal contributions on the
application of decision theory in legal analysis in general and in antitrust analysis in
particular. Thus, this study might most aptly be considered as a contribution to the field of law
and economics, in particular to the law and economics of antitrust. However, this study raises
general issues that might be of interest to researchers in law and legal reasoning in general,
legal theory, and other areas of law, such as evidence law, who may not have any particular
interest in law and economics or antitrust.
Chapter Two provides the reader with a basic introduction to the substantive antitrust
laws and procedures in the US and EU. It is a descriptive chapter that is not meant to be a part
of the research provided by this study. Chapter Two sets the stage for the research in the
subsequent chapters by introducing terms and concepts crucial for this study. Furthermore, it
will make this study self-contained in the sense that it will not be necessary to consult external
antitrust law literature to understand the research in this study. Finally, a key purpose of
Chapter Two is to highlight some key differences between US antitrust law and EU
competition law. These differences will be crucial in discussing the rationality of antitrust
analyses, and thus for the research in this study.
Chapter Three offers a more precise description of the various components of antitrust
analysis and a basic framework for assessing the rationality of antitrust analysis. This
framework will inform the remaining research in the study by contextualizing the research
addressed in the subsequent chapters. In addition, this chapter also raises some independent
research questions. The chief research questions of this chapter are: What is a rational
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