Antitrust Error

By Devlin, Alan; Jacobs, Michael | William and Mary Law Review, October 2010 | Go to article overview

Antitrust Error


Devlin, Alan, Jacobs, Michael, William and Mary Law Review


ABSTRACT

Fueled by economics, antitrust has evolved into a highly sophisticated body of law. Its malleable doctrine enables courts to tailor optimal standards to a wide variety of economic phenomena. Indeed, economic theory has been so revolutionary that modern U.S. competition law bears little resemblance to that which prevailed fifty years ago. Yet, for all the contributions of economics, its explanatory powers are subject to important limitations. Profound questions remain at the borders of contemporary antitrust enforcement, but answers remain elusive. It is because of the epistemological limitations of economic analysis that antitrust remains unusually vulnerable to error.

The fear of mistakenly ascribing anticompetitive labels to innocuous conduct is now pervasive. The Supreme Court has repeatedly framed its rulings in a manner that shows sensitivity to the unavoidability of error. In doing so, it has adopted the principle of decision theory that Type I errors are generally to be preferred over Type II. It has crafted a pro-defendant body of jurisprudence accordingly. In 2008, the Justice Department picked up the gauntlet and published the first definitive attempt at extrapolating optimal error rules. Yet, in 2009, the new administration promptly withdrew the report, opining that it could "separate the wheat from the chaff" and thus marginalizing the issue of error. Notwithstanding this confident proclamation, error remains as visible as ever. Intel's behavior in offering rebates has been subject to wildly fluctuating analysis by the U.S. and E.U. enforcement agencies. In a marked departure from precedent, the DOJ is again viewing vertical mergers with concern. And the agency has reversed course on the legality of exclusionary payments in the pharmaceutical industry. Antitrust divergence, both within and outside the United States, remains painfully apparent, demonstrable proof that vulnerability to error remains systemic. For this reason, error analysis may be the single most important unresolved issue facing modern competition policy.

This Article seeks to challenge the contemporary mode of error analysis in antitrust law. We explain the causes and consequences of antitrust error and articulate a variety of suggested cures. In doing so, we debunk the current presumption that false positives are necessarily to be preferred over false negatives. We highlight a variety of cases in which the contemporary bias in favor of underenforcement should be revisited.

TABLE OF CONTENTS

INTRODUCTION
 I. THE ROLE OF ERROR IN COMPETITION LAW
    A. The Contemporary Role of Error Analysis
    B. Antitrust's Unique Vulnerability to Error
    C. Questioning Contemporary Error Analysis
       1. Basic Error Analysis
       2. Debunking Current Error Analysis
       3. The Section 2 Report Debacle
II. REVISITING ERROR ANALYSIS IN U.S
    ANTITRUST LAW
    A. Rules and Standards
    B. Constructing Behavior-Specific Error Rules
       1. Merger Analysis
       2. "Pay-for-Delay" Agreements
       3. Refusals To Supply
       4. Predatory Pricing
       5. Vertical Distribution Contracts, Integration, and
          Product Tying
       6. Should Certain Instances of Price-Fixing Be
          Analyzed Under the Rule of Reason?
    C. Putting Faith in the Agencies? Prosecutorial
       Discretion as a Facilitator of a Permissive Rule
CONCLUSION

INTRODUCTION

In 2006, the Federal Trade Commission (FTC)and U.S. Department of Justice (DOJ or Justice Department) agreed to undertake a review of antitrust enforcement against monopolistic conduct. (1) This review was to culminate in a joint report setting forth their views and proposing, among other things, a general test for assessing arguably anticompetitive, unilateral conduct. (2) The review was undertaken, but the 2008 report that followed was approved by the Justice Department alone. (3) The general test that it proposed--no enforcement unless evidence demonstrated "substantial disproportion[ality]" between the anticompetitive harm and the procompetitive benefit caused by the conduct in question (4)--adopted the view that antitrust enforcement was so prone to administrative and judicial error that a wide margin of safety was necessary to prevent errors that would punish or discourage vigorously competitive conduct. …

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