Economic Expert Testimony

• Pages: 231-268

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CHAPTER VIII

ECONOMIC EXPERT TESTIMONY

Economists often play a role in explaining some of the evidence in

both civil and criminal antitrust conspiracy cases. This Chapter examines

in greater depth the legal and practical considerations of using economists

effectively in attempting to prove or disprove conspiracy. It starts with a

description of some of the theoretical underpinnings of economic analysis

and their limitations. A discussion of how economists analyze market

conditions that may be conducive to collusion follows. The chapter then

turns to a review of empirical tools economists employ to inform their

analyses of market conditions. Finally, the chapter reviews the legal

standards of admissibility of expert economic testimony that have been

applied in the antitrust conspiracy context.

A. The Use of Economic Evidence to Support or Detract from an

Inference of Conspiracy

In antitrust conspiracy cases where there has not been a guilty plea by

one or more defendants, or where a guilty plea is restrictive compared to

the potential scope of the conspiracy, the testimony of an expert economist

can be important in helping to support or refute liability. An expert

economist can aid the court and/or trier of fact in understanding the

economic significance of evidence introduced in the case through applying

economic reasoning to explain some of the evidence (and often

incorporating a range of peer-reviewed papers to support that reasoning).1

While horizontal price fixing and some other forms of conspiracy are

per se antitrust violations, “a Section 1 plaintiff’s offer of co nspiracy

evidence must tend to rule out the possibility that the defendants were

acting independently” to survive summary judgment or to support a civil

1. See 2 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANT ITRUST LAW: AN

ANALYSIS OF ANTITRUST PRINC IPLES AN D THEIR APPLICATION, ¶ 309a (4th

ed. 2014); The Sedona Conference Working Group on the Role of

Economics in Antitrust Law, Commentary on the Role of Economics in

Antitrust Law, 7 SEDONA CONF. J. 69, 123-26 (2006).

232 Proof of Conspiracy Under Federal Antitrust Laws

jury verdict.2 In cases resting on circumstantial or ambiguous evidence of

conspiracy, a plaintiff “must show that the inference of conspiracy is

reasonable in light of the competing inferences of independent action or

collusive action that could not have harmed respondents.”3

Defendants are not entitled to summary judgment or directed verdict

“merely by showing that there is a plausible explanation for their conduct;

rather, the focus must remain on the evidence proffered by the plaintiff

and whether that evidence tends to exclude the possibility that [the

defendants] were acting independently.”4 Appropriately grounded in the

facts of the case, economic analysis can often provide insight into this

question.5

Because economic theory suggests that mere parallel pricing or other

parallel practices can be the result of independent behavior based on

common perceptions of market conditions or expected (but not agreed

upon) responses from competitors, the law has developed to require the

plaintiff to identify certain types of evidence or indicators that support an

inference of agreement, often called “plus factors.”6 The evidence put

forth by plaintiffs typically falls into two categories: (1) evidence

regarding the behavior of the defendants (e.g., communications or

meetings between the defendants or sharing of information); and (2)

evidence regarding the conduciveness of the relevant market to

conspiracy.7

2. Bell Atl. Corp. v. Twombly, 550 U.S.544, 554 (2007).

3. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588

(1986).

4. Intervest, Inc. v. Bl oomberg, L.P., 340 F.3 d 144, 160 (3d Cir. 2003)

(quoting Rossi v. Standard Roofing, 156 F.3d 452, 466 (3d Cir. 1998)

(internal quotations omitted)).

5. For more on the appropriate uses and limitations on expert economic

testimony as evidence on the question of agreement, see 2 AREEDA &

HOVENKAMP, supra note 1, ¶ 309c (4th ed. 2014); Herbert Hovenkamp,

Economic Experts in Antitrust Cases, in 5 MOD. SCI. EVID. § 44:12 (David

L. Faigman et al., eds., 2015-16 ed.); The Sedona Conference Working

Group on the Role of Economics in Antitrust Law, Chapter VI. Economics

and Proof of Concerted Action, 6 SEDONA CONF. J. 69 (2005).

6. William E. Kovacic et al., Plus Factors and Agreement in Antitrust Law,

110 MICH. L. REV. 393, 405-06 (2011). See Chapter III for a more

comprehensive discussion of “plus factors.”

7. See Gregory J. Werden, Economic Evidence on the Existence of Collusion:

Reconciling Antitrust Law with Oligopoly Theory, 71 ANTITRUST L.J. 719,

791 n.337 (2004) (“Economic literature on the structural characteristics of

Economic Expert Testimony 233

With respect to the latter category of evidence, economic principles

and knowledge can be used to evaluate the characteristics of the market at

issue, and, in particular, whether the nature and structure of transactions,

products, and firms in the particular market make successful collusion

more or less likely. In addition, economists can assess whether observed

market outcomes are consistent with independent action or, conversely,

support an inference that market actors have been colluding, tacitly or

explicitly.8

B. The Distinction Between Tacit Collusion and Explicit Collusion

As explained in Chapter VII, it is important to note that the economic

concept of collusion is not necessarily consistent with the legal concept of

agreement.9 Firms in an oligopolistic industry often recognize their mutual

interdependence over time. What economists sometimes call “tacit”

collusion can arise when firms recognize their shared interests in higher

prices over a longer time horizon, anticipate their rivals’ actions by

observing each other’s market behavior, and take actions that are

consistent with these shared interests.10 When all firms in the industry

industries in which conspiracies were prosecuted criminally indicates that

conspiracies have occurred despite unfavorable conditions.”).

8. See, e.g., In re Chocolate Confectionary Antitrust Litig., 801 F.3d 383, 399

(3d Cir. 2015); In re High Fructose Corn Syrup Ant itrust Litig., 295 F.3d

651, 655 (7th Cir. 2002).

9. See Chapter VII.2.d, supra (quoting Professor Hovenkamp’s stateme nt that

“the discipline of economics ha[s] no competence to determine whether

parallel behavior among independent actors amount[s] to a legal

‘agreement’” (quotation marks omitted)); see also Robert H. Porter & J.

Douglas Zona, Collusion in Economics, in ISSUES IN COMPE TITION LAW

AND POLICY 1069, 1071 (Wayne Dale ed., 2008) (“Under interdependent

oligopoly, there need be no agreement. Under consciously parallel or

tacitly collusive behavior, an agreement (if any) is tacit. Under explicit

collusion, there is a n actual agreeme nt and some common understanding.

As a matter of economics, it is difficult and perhaps impossible to

distinguish between these types of behavior on the bases of outcomes

alone.”).

10. See Edward Green et al., Tacit Collusion in Oligopoly, in OXFORD

HANDBOOK ON INTERNATIONAL ANTITRUST ECONOMICS, at 464-97

(2015); 6 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW:

AN ANALYSIS OF ANTITRUST PRINCIPLES AND THEIR APPLICATION,

¶ 1410b (3d ed. 2010); DENNIS W. CARLTON & JEFFREY M. PERLOFF,

MODERN INDUSTRIAL ORGANIZATION 127 (4th ed. 2005).