Monday, November 1, 2004

Oligopoly theory and Section One Claims

Gregory J. Werden, Senior Economic Counsel, Antitrust Division, U.S. Department of Justice, has published a nice article entitled "Economic Evidence on the Existence of Collusion: Reconciling Antitrust Law with Oligopoly Theory" at 71 Antitrust Law Journal 719 (2004). The article provides a useful survey of economic theories of oligopoly, focusing principally on the ideas of Edward Chamberlin, George Stigler, and various contemporary game theorists. Mr. Werden highlights the difficulties each theory poses for developing a coherent Section One analysis and demonstrates how these difficulties are reflected in the jurisprudence of Turner and Posner. Here's a sample:

"There is indeed something of a lack of consensus on modern oligopoly theory. Placing great stock in models of repeated games, some economists may believe that pricing coordination commonly arises from unspoken agreements. These economists may find most circumstantial evidence utterly ambiguous as to whether there was a spoken agreement. Focusing instead on the Prisoners' Dilemma game and Stigler's model, other economists may believe that unspoken agreements are at best rare, and they may readily infer the existence of a spoken agreement from circumstances."

Professor Werden also shows how this lack of scholarly consensus on oligopoly theory affects the admissibility of expert witnesses under the Daubert/Joiner/Kumho standard.

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