It has long been settled that antitrust law is to be developed and modified accordingly using the tenants of neoclassical economics. The central tenant of this field of study is that economic actors make decisions in a rational manner in order to maximize expected utility. However, recent experience has seemed to suggest that in some limited circumstances neoclassical economics lacks a reasonable explanation for the behavior of economic actors. It is in these cases that a relatively young application of economics, known as behavioral economics, can serve as a useful tool for evaluating the behavior of economic actors. Behavioral economics essentially modifies some of the principles upon which neoclassical economics was founded in order to account for various behavioral biases and analyze the implications of actual, as opposed to theoretical, human behavior. In fact, numerous judicial decisions and recent changes to the Merger Guidelines as well as the Antitrust Division Policy Guide to Merger Remedies have seemed to tip their hat to the idea that market participants do not always act as perfect expected-utility maximizers. Given the fact that antitrust law is deeply entrenched in economic thought, that it is increasingly relying on rule of reason analysis, and that it is already subject to significant agency regulation, this legal field is well-suited for behavioral economics. The application of behavioral economics to antitrust, or behavioral antitrust, would be especially helpful in the context of merger review, which can easily be seen in the case of F.T.C. v. Whole Foods Markets, Inc. Therefore, although further empirical research and review will be required, it must be understood that behavioral antitrust can serve as a guide in the future for cases in which the irrationality of the human mind clouds the interpretative power of the rational-choice model
Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits--of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities, (1)
This quote by renowned economist John Maynard Keynes holds substantial weight in today's markets and gives credence to a relatively young, but quickly growing, facet of economics known as behavioral economics. (2) Behavioral economics studies the effects of social, cognitive, and emotional factors on the economic decisions of individuals and institutions. (3) This article begins with a general survey of economics and a discussion about how psychology has been applied to it to create the subfield of behavioral economics. The article will then discuss how behavioral economics can be applied to antitrust law to provide new insights and explain those scenarios for which conventional economics is inadequate. The discussion begins with a survey of existing research. The article moves on to analyze how merger review is a specific area in which behavioral antitrust could be helpful through a case study of FTC v. Whole Foods Market, Inc. (4) Finally, the article will look at areas that are ripe for additional empirical research and are testable grounds on which to challenge some of the assumptions of neoclassical economics in the context of merger review.
A MARRIAGE OF LAW AND ECONOMICS
"Economics is the study of how society manages its scarce resources." (5) In order to understand how a society would go about allocating these limited resources, it is important to bear in mind the basic assumptions of conventional economics, which will be contested, or perhaps enlightened, below. First, all people face tradeoffs when making their daily choices. (6) When deciding which choice to make, the rational individual understands that "the …