Economics and Competition Law

Economics is the study of how society decides what, how and for whom to produce.”

Begg, Fischer and Dornbusch

A lawyer who has not studied economics…is very apt to become a public enemy.

Justice Brandeis (1916)

To abandon economic theory is to abandon the possibility of rational
antitrust law.

Judge Robert Bork (1978)

 


It is undoubted that economics has come to play a crucial role in competition law assessments.

This might represents a natural evolution of the area, as competition policy rests on the economic idea that it is appropriate to limit the exercise of market power in the interest of economic efficiency and welfare. And economics goals are at the heart of modern competition law regimes, i.e. society/consumer welfare.

At the most fundamental level economics is concerned with the implication of a rational choice, hence it is an essential tool for figuring out the effects of legal rules.

Economics studies how markets work, how they allocates goods and services to different consumers. Competition law is concerned with how markets work; its general objective is to ensure that there is competition between market players, and that this competition benefits consumers.

Economics can help understand how markets operate, how firms (will) behave, and whether their behaviour will eventually benefit consumers; it helps answering questions that are central to competition law cases.

But, if on the one hand economics has helped clarify some of the debated issues, on the other hand it might have brought also some non-sense. Why? “[a]lthough economic theory is indispensable to our task, clear-cut answers are often impossible. The complexities of economic life may outrun theoretical tools and empirical knowledge. We often will remain uncertain about the economic results of the particular practice or market structure under examination. Nor can we always predict the consequences of prohibiting some particular behavior. Thus, we shall time and again meet this question: How far must we search for economic truth in a particular case when the economic facts may be obscure at best, when the relevant economic understanding may be controversial or indefinite, and when the statute does not give us a clear-cut value choice?” ( P. Areeda, L. Kaplow and A. Edlin, Antitrust Analysis, Problems, Text and Cases, Aspen
Publishers, 6th Edition, 2004, p. 105)

Glossary of Industrial Organisation Economics and Competition Law – OECD

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