Tuesday, October 14, 2008
Posted by D. Daniel Sokol
Malcolm B. Coate and Jeffrey H. Fischer both of the FTC's Bureau of Economics have an interesting paper in Daubert, Science, and Modern Game Theory: Implications for Merger Analysis.
ABSTRACT: To be admissible in federal court under the Daubert standard, expert economic testimony must be (1) based on scientific analysis; and (2) aid the dispute resolution process. Expert evidence should be considered scientific when it (1) meets Karl Popper's falsification standard; and (2) some evidence compatible with the scientific proposition is provided. Standard competitive and monopoly models are well supported in the literature and therefore would generally meet this standard, while structuralism clearly fails the test. Modern game theoretic analysis focuses on either collusion (coordinated interaction) or unilateral effects but only raises the possibility of a merger-related competitive problem and thus must be supported with case-specific evidence to be considered scientific. Economic evidence underpinning game theoretic analysis can involve either a "systematic" study of competition in a market or a narrow "shock" analysis of a specific economic event. When both parties to a merger dispute provide evidence admissible under the Daubert standard, the court must resolve the scientific dispute in the decision on the merits.