Daniel Sokol at the Antitrust & Competition Blog highlighted an interesting paper recently posted on SSRN.  Maurice Stucke of U.S. Department of Justice’s Antitrust Division has authored an article entitled Behavioral Economists at the Gate: Antitrust in the 21st Century.  Stucke notes that antitrust economics accepts, largely unquestioned, rational choice theory (i.e., that ”actors are rational, have willpower, and will act in their own self-interest”).  (Note: all quotes in this post are from the article; footnotes and citations omitted).  As a result:

One uniformly accepted tenet, according to Posner, is that business firms are profit-maximizers, so that “the issue in evaluating the antitrust significance of a particular business practice should be whether it is a means by which a rational profit maximizer can increase its profits at the expense of efficiency.”

In recent years, however, behavioral economists have found

that individuals do not always act in ways the rational choice theories predict. Drawing from the findings of other disciplines, such as psychology, neuroscience, and sociology, behavioral economists note that a sizeable percentage of their test subjects systemically deviate from these rational choice theories’ predicted outcome in several important ways …

The article, “identifies some possible paradoxes and anomalies with respect to antitrust’s merger theories. It appears anecdotally that some corporate behavior is (or is not) occurring that is not readily explainable under antitrust’s rational choice theories.”  As a result, there ”is an empirical question as to the degree the federal antitrust agencies, relying upon their Merger Guidelines, are indeed accurately forecasting the likely competitive effects of mergers today.”

Stucke also recommends five legislative changes “[t]o encourage such post-merger review and to empirically test the Merger Guidelines’ predictive qualities”:

• First, Congress should expressly provide the federal antitrust agencies with subpoena authority for non-public information to conduct such post-merger review.
• Second, Congress should require the federal antitrust agencies to publish their summary findings of any merger subject to a Second Request in which the agency: (i) took no enforcement action; (ii) permitted the merger in part to be consummated pursuant to a consent decree; or (iii) challenged the merger in court, but lost.
• Third, for any successful cartel or monopolization prosecution, Congress should require the agency to report two to five years after the completion of the prosecution the state of competition in that industry, as described above.
• Fourth, Congress should require the federal antitrust agencies to make publicly available a computerized database identifying all civil and criminal antitrust consent decrees, pleas, or litigated actions under section 1 of the Sherman Act.
• Fifth, any publicly held company that seeks to rely on an efficiency defense before the agencies and/or the courts should be required to publicly report its claimed efficiencies in its SEC filings.

The paper is more interesting – and deserving of comment – that this brief summary.  It is worth reading.  Download it while it is hot.

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