A Bayesian View of Post-Acquisition Evidence and Antitrust

• Published date: 01 December 1977
• Date: 01 December 1977
• DOI: http://doi.org/10.1177/0003603X7702200402
• Subject Matter: Article

A

BAYESIAN

VIEW

OF

POST-ACqUISITION

EVIDENCE

AND

ANTITRUST

by

I.

INTRODUCTION

Section 7 of the Clayton Act intends to proscribe mergers

and acquisitions whose effects "may be substantially to lessen

competition, or to tend to create a monopoly," 1a choice of

words indicative of congressional concern "with probabilities,

not with certainties." 2Or, more specifically, Section 7 seeks

to

"arrest

in their incipiency restraints or monopolies in a

relevant market which, as a reasonable probability, appear

at the time of suit likely to result from the acquisition

...

whether or not actual restraints or monopolies, or the sub-

stantial lessening of competition, have occurred or are in-

tended." SThis emphasis on probabilities implies that the

antitrust authorities initially, and,

if

asuit is brought, the

courts subsequently, must both assess the probability that an

acquisition will have anticompetitive effects, and determine

what constitutes a"reasonable" probability, and still further

that the courts must delimit the scope of the evidence upon

which these probabilistic judgments are to be based, The

primary focus of this paper is on the "assessment"

and

"evi-

dence" issues, but the formalistic approach to the problem,

which the paper advocates, demands that

at

least paasing

reference be made to the "reasonableness" issue as well.

Within the specialized context of Section 7, determination

of the appropriate evidence becomes a matter of both eco-

nomics and law.

That

is, it is first necessary to determine the

facts

that

are relevant for economic analysis, and

it

is then

necessary to determine which of those facts,

and/or

their

economic implications, would be admissible under law. As a

• Professor and Chairman, Department of Management, Univer-

sity of Florida, Gainesville, Fla.

757

758

THE

ANTITRUST

BULLETIN

practical matter, the question of relevance is resolved by the

state

of the

art,

legal precedent, the analytical sophistication

of the litigants, and the litigants' perceptions of the analytical

sophistication of the court. A cynical generalization would

place the point of resolution

at

the lowest common denomi-

nator

on the preceding list,

and

would offer this as an ex-

planation

for

the courts' persistent reliance on such indi-

vidually ambiguous economic indicia as concentration ratios,

size and number of firms, sales-intensity ratios, and

rates

of

return, as "facts

that

speak for themselves." The question

of admissibility is resolved by a court's interpretation of the

law and eongressicnal intent, as well as by reliance on legal

precedent.

In

principle, the extent of admissible evidence can be de-

fined by

anyone

of three basic cut-off points: (1) the date

on which the acquisition was consummated; (2) the date of

suit;

and (3) the

date

of trial. Congressional intent in the

matter

is not especially clear.

It

has been argued, for ex-

ample,

that

"at

the time of Section 7's original enactment in

1914, Congress did not contemplate

that

an acquisition's

legality should be tested by conditions at the time of suit,

for

it

expressly provided

that

'nothing contained in this

section shall be held to affect or impair any

right

heretofore

legally

acquired.'"

4And, further,

"Senator

O'Conor, the

Senate manager of the amended Clayton Act

stated:

'[I]t

is

the aim of this

bill-to

strike

at

impending combinations in

their incipiency,

rather

than to wait until a monopoly has

been established and then

attempt

to break

it

up.'"

GThe

Supreme Court's interpretation of congressional intent differs

sharply from these views, and, as set forth in du Pont and

quoted above, establishes the time of suit as the

appropriate

evidential cut-off point. This unequivocal statement has pro-

vided the foundation for the subsequent debate on post-acqui-

sition evidence and

its

relevance. The purpose of this

paper

is to interject aBayesian perspective into the controversy."

The core of the

paper

is divided into two

parts.

Section IT

indicates how the courts have dealt with post-acquisition evi-