Economists, lawyers, and competition policy

During my short stay in TSE I have come to know many students interested in working in competition policy, either in the private sector – mainly in consulting firms– or in the public sector, likely in some competition authority. It’s hard to blame them! Competition policy is an interesting, growing and multi-disciplinary field that has become more and more important in the last decades and where economics have been given growing space as well. I say we have been “given” more space because antitrust is not originally ours, but instead your future best friends’: lawyers.

Let’s start by celebrating that we are at least being heard, which was not always the case. Antitrust regulation in the USA goes back to the 19th century, but a relevant and coherent involvement of economists did not exist until the mid-1970s. In fact, the secondary status of our colleagues was best summarized by Judge Richard Posner in 1971 when referring to economists in the Department of Justice as “handmaidens to the lawyers, and rather neglected ones at that”. Fortunately, successive guidelines and organizational changes during the following two decades started to shape the current influence that economic analysis has in the US antitrust institutions.

Some examples of the previous might probably be surprising to TSE students. For example, the extremely simple Herfindahl-Hirschman Index (HHI) was only introduced formally in the 1982 merger guidelines, more than 30 years after its invention. Another basic tool for competition analysis, the small but significant and non-transitory increase in price test (SSNIP), was also introduced in those same guidelines.

In Europe, the impact was higher in its beginnings since its competition policy is more recent than the American case. Nonetheless, the influence of economists has also been on the rise: either it be with legislative participation, infra-legislation contribution through guides, or simply by increasingly participating in the administrative and judicial proceedings as experts, invited either by the parties or directly by the authorities. Examples of economic influence can be found in some of the guidelines published in the last twenty years: market definition (1997), vertical restraints (2000), horizontal mergers (2004), non-horizontal mergers (2007) and exclusionary abuses (2008). As you can see, these are very recent documents.

Even if we have already experienced an important shift towards economics in competition policy, it is very likely that this trend will continue in the near future. In the last years we have seen larger and more data-intensive merger investigations at both sides of the Atlantic, while the revision of economic evidence by courts will hardly decline in the future. Also, the new Damages Directive from the European Union will standardize and incentivize the procedures for these claims and ensure a very large amount of work for economists in courts around the continent.

After this very brief historical review, TSE students interested in this field should be sure about two things:

1) Economists will continue to be very welcomed to the competition policy world; and

2) They will likely be working with lawyers the rest of their lives if they decide to do so. On what follows, we shall talk a bit about the second point.

Making things work between two professions with such a different background is especially interesting, but has also major challenges. I’m sure you have heard some TSE teachers say ironically (or not) “lawyers don’t understand this” or “well, try to explain that to a lawyer” and of course there is, at least, some reality in those expressions.

What does working with lawyers look like in real life for an economist? As was already said, it means working with people that have completely different thinking frameworks. Lawyers love facts. They may wrap them up many times in complex ways, but they are trained in a world with little space for greys, which is pretty much the opposite of the likely reader of this magazine. So in the first place, lawyers will reach to economists for economic facts (how much of our abilities can be transferred to something considered as a “fact” is a complex topic that could give place to many pages, but let’s just define a fact as something we can assure with a high level of confidence and little relevant assumptions). In other words, and even if this is a controversial topic, lawyers are naturally in the search of “bright-line” rules or tests, ones that are as simple as possible and that are not subject to vastly different interpretations. This is quite a challenge for economists, who have been taught various different simplified and limited models for each type of problem they will run into. So your first challenge will be being able to ponder and balance between the simplicity and clearness expected by lawyers and the likely mistakes you will make when oversimplifying economic problems.

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Of course competition law is a lot more than facts. The small space for “per-se” rulings and the advance of the “effects-based approach” have meant, on the other side, that lawyers needed to start adapting a bit to economists as well. And this adaptation has been in various levels mentioned above: They had to adapt to the economic concepts that have been increasingly included in legislation and regulations, to the administrative procedures that follow these regulations and to the jurisdictional dealings that arise in these types of cases. This last point is a growing concern for many judges as well, who are increasingly being asked to rule about topics that are outside of their technical reach and, in most jurisdictions, may need of external assistance to fulfil their tasks.

I have so far mentioned adaptation, tradeoffs and misunderstandings, but my intention is in no case to picture the relationship between lawyers and economists as a difficult one. I believe the challenges stated give way to very high rewards to both parties and lead to great professional and personal development opportunities. Both careers have plenty of the other’s missing attributes, which helps each of them move a step out of their limited world, facilitating the real understanding of interactions in what we call markets.

  by Ignacio Parot M.


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