Behavioral economics has become an additional tool at the disposal of antitrust agencies and defense counsel. While the findings of behavioral economists are often considered justification for additional government regulation of the free market, a growing behavioral literature suggests caution against excessive intervention. It is sometimes overlooked that behavioral biases that affect consumers and firms, can and often do affect policymakers. Furthermore, because of the nature of the political process, policies may rather institutionalize rather than overcome behavioral biases. As such, regulatory solutions to overcome behavioral biases may be inferior to market dynamics which may succeed in eliminating behavioral biases over time. As the debate over the alleged failure of antitrust policy in the past forty years and the need for more aggressive antitrust enforcement intensifies, it becomes vital to understand if and how best to reform antitrust in light not only of the behavioral biases of consumers and firms, but of policymakers as well.
By Andrea Asoni
I. COGNITIVE BIASES EVERYWHERE
Economists have long recognized that among the justifications for government intervention are so-called “market failures,” conditions that prevent the market economy to lead to efficient outcomes. Broadly speaking market failures include market power, which limits the incentives of firms to compete for consumers and perhaps innovate, asymmetries of information, w...
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