Behavioral Firms: Does Antitrust Economics Need a Theoretical Update?

By Elizabeth M. Bailey – 

Modern day antitrust analyses are grounded in traditional neoclassical economics theory, assuming consumers and firms are rational, profit maximizing entities. While allowances are made for consumers to depart from neoclassical theory in consumer protection, the enforcement of antitrust policies continues to assume firms as rational, profit-maximizing entities. However, empirical literature in finance and economics has provided a growing collection of real world examples of the ways in which firms depart from profit maximization. As a result, it makes sense to fill the gap in our knowledge: How well do the market outcomes from behavioral firms approximate the market outcomes predicted by neoclassical economic models — is antitrust policy, relying on the traditional neoclassical framework, getting it right enough of the time?

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