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Hot Docs vs. Cold Economics

Hot Docs vs. Cold Economics

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Published by GlobalEcon
Dr. Geoffrey Manne, Director at Global Economics Group, and Marcellus Williamson identify problems with three types of documents commonly used by courts to determine whether antitrust violations have occurred. In “Hot Docs VS. Cold Economics” (Arizona Law Review, Vol. 47), the authors contend that these documents have little foundation in economics and that the likelihood of error resulting from the use of business documents is substantial. They conclude that antitrust enforcement must rely on rigorous economic analysis rather than flawed perceptions of business conduct.
Dr. Geoffrey Manne, Director at Global Economics Group, and Marcellus Williamson identify problems with three types of documents commonly used by courts to determine whether antitrust violations have occurred. In “Hot Docs VS. Cold Economics” (Arizona Law Review, Vol. 47), the authors contend that these documents have little foundation in economics and that the likelihood of error resulting from the use of business documents is substantial. They conclude that antitrust enforcement must rely on rigorous economic analysis rather than flawed perceptions of business conduct.

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Published by: GlobalEcon on Mar 16, 2011
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HOT DOCS VS. COLD ECONOMICS
G
EOFFREY 
A. M 
ANNE 
∗ 
 
& E. M 
ARCELLUS 
ILLIAMSON 
∗∗ 
 
The use of business documents to prove antitrust violations can betroubling. This article identifies three classes of business documentsthat are used by courts and antitrust agencies to determine whether antitrust violations have occurred: Accounting documents, market definition documents, and intent documents. Each is problematic.Accounting information is sufficiently disconnected from underlying economic reality that it presents a distorted and unreliable picture of economic consequences. Businesses characterize markets for myriad reasons, most having nothing to do with elasticity, the criterion of market definition relevant to the antitrust laws. Likewise, corporateactors express intentions and motivations for rhetorical and other purposes, not necessarily because they possess the capacity to achievetheir “intended” effect. Principled antitrust enforcement must rely onevidence of actual economic effect, rather than flawed characterizations of business conduct.
Introduction................................................................................................1I. Economics and Antitrust ........................................................................5II. The Business Mind vs. Economics........................................................9A. Business vs. Efficiency .................................................................12B. Economics vs. Law........................................................................17III. The Business Document vs. Economics.............................................20A. Accounting Documents.................................................................21B. Market Definition Documents.......................................................27C. Intent Documents: “Fighting Words”............................................40IV. Conclusion: The Business Document Fallacy.....................................47I
NTRODUCTION
 It is beyond dispute that antitrust adjudication is difficult.
1
Where it is
Assistant Professor of Law, Lewis & Clark Law School.
∗∗
Partner, Latham & Watkins LLP, Washington, DC. We have benefited fromcomments by Ed Brunet, Tad Lipsky, Todd Lochner, Henry Manne, Joe Miller, HannoKaiser and the Lewis & Clark faculty workshop.
1
As one commentator recently described modern antitrust adjudication:Under the Chicago School approach, antitrust cases have become more
 
2
ANNE 
& W 
ILLIAMSON 
[11-May-05tenuous to expect individual business people to understand the realeconomic effect of their decisions, it is perhaps even more troubling toimpose that burden on courts. But it does not follow that we shouldabandon the attempt to achieve principled, accurate adjudication for the sakeof a faulty, yet facile, alternative.
2
The use of business documents to proveantitrust violations, however, can be just that. Reliance by courts andregulators on accounting information, business rhetoric and expressions of intent to prove antitrust violations is misplaced. And the likelihood of error resulting from the use of business documents is substantial.Nevertheless, there is a regulatory and scholarly effort to bring businessdocuments and business rhetoric to bear in proving antitrust cases.
3
Thisapproach has a “the light’s better over here” feel to it.
4
It is undoubtedly
complicated and less predictable. Proving economic issues requires extensivedocumentary evidence and endless testimony from economists and other experts.Most judges, and nearly all juries, lack the training necessary to make economicdeterminations. Although fact finders are adept at determining ‘who did what,when, and why,’ they lack the experience necessary to determine the significanceof specific economic conditions. Economists themselves cannot agree on theeconomic impact of many types of business conduct. If economists cannoteffectively evaluate the market effects of particular competitive practices, certainlyjudges and juries cannot be expected to do so.Thomas A Piraino, Jr.,
Regulating Oligopoly Conduct Under the Antitrust Laws
, 89M
INN
. L. R 
EV
. 9, 40-41 (2004) (quoting Mark Crane,
The Future Direction of Antitrust,
56
 
A
NTITRUST
L.J. 3, 15 (1987)) (other citations omitted).
2
As Justice Holmes observed, “[i]f justice requires the fact to be ascertained, thedifficulty of doing so is no ground for refusing to try.” O
LIVER 
W
ENDELL
H
OLMES
, J
.,T
HE
C
OMMON
L
AW
48 (1880).
3
 
See, e.g.
, Albert A. Foer,
The Third Leg of the Antitrust Stool: What the BusinessSchools Have to Offer to Antitrust 
, 47 N.Y.L. S
CH
. L. R 
EV
. 21 (2003)
 
(______);
 
MarinaLao,
Reclaiming a Role for Intent Evidence in Monopolization Analysis
, 54 A
M
. U. L.
EV
. 151 (2004); Norman W. Hawker,
Antitrust Insights from Strategic Management 
, 47N.Y.L. S
CH
. L. R 
EV
. 67 (2003) (suggesting that the antitrust community should consider and research strategic management, which “may create a new antitrust revolution”); Spencer Weber Waller,
The Use of Business Theory in Antitrust Litigation
, 47 N.Y.L. S
CH
. L.
EV
. 119, 122 (2003)
 
Spencer Weber Waller,
The Language of the Law and the Languageof Business
, 52 C
ASE
W.
ES
. L. R 
EV
. 283 (2001) (antitrust has devalued business“discourse” and theory and antitrust has been impoverished by this choice); Harry S. Gerla,
A Micro-Microeconomic Approach to Antitrust Law: Games Managers Play
, 86 M
ICH
. L.
EV
. 892, 929 (1988) (attempting to “construct. . . a theory of antitrust law in which thekey actors are the real-world human managers of the firms rather than the theoretical profit-maximizing firms posited by classical microeconomic theory”). Professor Waller notes,among other things, that “[s]ophisticated corporations expend too many resources in their strategic planning and marketing decisions not to take seriously the results of that work.”
Id 
. at 334.
4
 
See
Ronald A. Cass,
Trade Subsidy Law: Can a Foolish Inconsistency Be Good Enough for Government Work?
,
 
21 L
AW
& P
OL
Y
I
NT
L
B
US
. 609, 618 n. 40 (1990)(commenting on the use of accounting data in dumping cases and likening it to “the joke
 
12-May-05]
OT 
D
OCS VS 
. C 
OLD
CONOMICS 
3easier to “discover” anticompetitive behavior and relevant markets byinferences from business language than it is from rigorous economic analysis.Not only regulators but also courts (to say nothing of juries) are moved bybusiness rhetoric. However, it is not clear that business rhetoric bears muchrelationship to economic reality. Business managers are not, generally,economists; nor are they antitrust lawyers. Accounting, accountability,personal incentives and other concerns that do not relate in an obvious wayto the maximization of the firm’s profits influence the daily operation of business  and the language of business  far more than do underlyingeconomic and legal concepts.Antitrust law must chart a narrow course between fostering andrestraining competition. Because the same economic activity can havedesirable or undesirable consequences depending on the circumstances, by itsnature antitrust analysis is constrained to outlaw not, generally, specificconduct, but rather 
conduct that has specific economic characteristics
.
5
 Identifying conduct that has – or is likely to have in the future – anticompetitive effect is difficult. It is an inherently economic exercise, andone that is somewhat at odds with the courts’ traditional reliance ondocumentary evidence to demonstrate actus reus or mens rea.At the same time, the effort to identify business documents to make outan antitrust case is extremely burdensome. “[S]earching out intent tends tomake antitrust litigation interminable with the massive discovery or trial thatthreatens to overburden the system. . . . [E]ven seemingly irrelevantfragments are introduced in the hope that they might add up to something.Even worse, emphasizing purpose frequently masks a failure to analyze theconduct.”
6
Particularly in the arena of merger enforcement, federal antitrustregulators, using their power under the Hart-Scott-Rodino AntitrustImprovements Act, have access to and make use of business documents inmaking enforcement decisions and proving their prima facie antitrust cases.
7
 The issue for present purposes is not the cost of obtaining these documents
about the drunk looking for his car keys not where he dropped them but under thelamppost where the light is better”).
 
5
Frank H. Easterbrook,
On Identifying Exclusionary Conduct 
, 61 N
OTRE
D
AME
L.
EV
. 972, 975 (1986) (“It takes economists years, sometimes decades, to understand whycertain business practices work, to determine whether they work because of increasedefficiency or exclusion.”).
See also
 
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.
,475 U.S. 574, 587-95 (1986) (antitrust violation may not be inferred from conduct thatpotentially has both procompetitive and anticompetitive effects).
6
7 P
HILLIP
E. A
REEDA
, A
NTITRUST
L
AW
§1506 (p. 393) (1986).
7
15 U.S.C. § 18a (2000).

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