Should Antitrust Survive Behavioral Economics?

By Avishalom Tor – 

The accepted economic justification for antitrust law rests on the neoclassical microeconomic model that shows that perfect competition maximizes efficiency and welfare. This model assumes that consumer demand reveals rational consumer beliefs and preferences. Yet an otherwise competitive market that caters to “erroneous” demand based on consumers’ mistaken beliefs or constructed, ad-hoc preferences, such as those revealed by behavioral research, will fail to maximize efficiency and welfare. After clarifying the challenges posed by the behavioral evidence, this article outlines two responses that show why antitrust law remains indispensable even in the face of consumers’ bounded rationality.

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