PROBABILITY, PRESUMPTIONS AND EVIDENTIARY BURDENS IN ANTITRUST ANALYSIS: REVITALIZING THE RULE OF REASON FOR EXCLUSIONARY CONDUCT.
|Gavil, Andrew I.
|Symposium: The Post-Chicago Antitrust Revolution
INTRODUCTION 2109 I. THE RULE OF REASON, COMPETITIVE HARM, AND THE ROLE OF PROBABILITY, INFERENCE, AND PRESUMPTION 2114 A. The Origins of the Rule of Reason 2114 B. Satisfying the Plaintiff's Burden of Production 2115 C. The "Enquiry Meet for the Case" 2117 D. Developing New Presumptions 2118 II. ACHIEVING A SOUND DECISION-THEORETIC APPROACH TO ANTITRUST LEGAL STANDARDS FOR EXCLUSIONARY CONDUCT 2119 A. Decision Theory and Probabilistic Competitive Harm 2119 B. The Chicago School's Reliance on Decision Theory to Support its Critique of Antitrust 2122 C. The Errors and Inapplicability of the Chicago School Prescriptions for Current Antitrust Analysis 2125 III. RECOMMENDED GUIDING PRINCIPLES FOR OPERATIONALIZING THE "ENQUIRY MEET FOR THE CASE" FOR ANTICOMPETITIVE EXCLUSIONARY CONDUCT 2131 A. Basic Structure of the Inquiry and Allocation of Burdens 2132 1. The Default Presumption Under the Rule of Reason Should Be "Neutral" Competitive Effects 2132 2. The Plaintiff's Evidentiary Burden Should Not Be Elevated Ex Ante 2132 a. The Plaintiff's Evidentiary Burden Should Be Probable Anticompetitive Effects, Not Actual Anticompetitive Effects 2132 b. The Plaintiff's Evidentiary Burden Should Not Require Quantification 2133 3. Direct Proof of Market Power or Anticompetitive Effects Should Obviate the Need for Circumstantial Proof 2133 4. Courts Should Set a Lower Burden on the Plaintiff in Exclusionary Conduct Cases When the Defendant Has Substantial Market Power 2134 5. The Plaintiff's Initial Evidentiary Burden Should Be Reduced to Reflect the Possible Absence of a Valid Efficiency Justification 2136 6. The Defendant Should Not Be Able to Meet Its Burden of Production to Show Cognizable Efficiency Benefits Based on Purely Categorical Justifications 2137 7. Courts Should Subject Defendant's Justifications to a Less Restrictive Alternative Standard 2138 B. Guiding Principles for Adopting Procompetitive Presumptions for Exclusionary Conduct by Firms with Substantial Market Power 2138 1. Substantial Evidence Should Be Required to Justify Procompetitive Presumptions 2138 a. Narrow Categories 2139 b. False Positives and False Negatives 2140 2. When an Appropriate Procompetitive Presumption Is Adopted, It Should Raise the Plaintiff's Burden to Show Competitive Harm, Not Append Additional Evidentiary Requirements 2140 3. Alleged Innovation Benefits of Monopoly Should Not Justify a Procompetitive Presumption for Exclusionary Conduct by Firms with Substantial Market Power 2141 4. Complaints About Exclusionary Conduct by a Competitor Neither Justify a Procompetitive Presumption nor an Imposition of a Higher Evidentiary Burden on the Plaintiff 2142 CONCLUSION 2142 INTRODUCTION
From its origins in the Sherman Act of 1890 (1) and the Clayton Act of 1914, (2) U.S. antitrust law has prohibited "exclusionary" conduct: conduct by one or more rivals that has a tendency to impede competition by disadvantaging one or more competitors. Such conduct can be challenged under Section 1 of the Sherman Act when it involves concerted action that unreasonably restrains trade. (3) Exclusionary conduct also can be challenged under Section 2 of the Sherman Act when it constitutes an attempt to monopolize (4) or "monopolization." (5) As one commentator has described it, exclusion has always been a "core concern" of antitrust law. (6)
Beginning with the Supreme Court's 1911 decision in Standard Oil, (7) both Section 1 and Section 2 have been implemented with a "rule of reason." (8) The rule of reason has served the essential purpose of differentiating conduct that might adversely affect a competitor in the normal course of competition from conduct that handicaps it in a way that significantly impairs the competitive process. The analysis also generally includes direct or circumstantial evidence of "market power," what Justice Stephen Breyer has described as the ability to "make a difference" in the marketplace. (9)
Importantly, and to operationalize it as a useful framework for courts evaluating competitive effects, the rule of reason has evolved into a recognized burden-shifting framework that is common to both Section 1 and Section 2. (10) The plaintiff, public or private, must meet an initial burden of production sufficient to show that the conduct is likely to be anticompetitive. If it makes that showing, the burden of production shifts to the defendant, who can undermine the plaintiff's evidence and thus prevent the burden from shifting, and/or offer affirmative evidence showing a recognized procompetitive justification likely to eliminate any anticompetitive tendency of its conduct. If it does so, the plaintiff, who bears the ultimate burden of persuasion, can respond in kind by undermining the defendant's evidence of justification, and/or proffering additional evidence to show that the conduct remains likely to have an unreasonably anticompetitive effect. In the context of Section 1, this approach has been described as a "continuum" that can vary in application with the strength of the parties' respective evidence of probable competitive harm. (11)
Despite its origins as a prominent feature of antitrust law, and this shared framework for evaluating anticompetitive conduct of various forms, exclusionary conduct has been the focus of far more robust debate over the last half-century than have many forms of concerted action. Conservative commentary has long been skeptical of exclusionary conduct allegations, even those involving firms with substantial market power. This conservative critique of antitrust law has been highly influential and has facilitated a transformation of antitrust standards of conduct since the 1970s. The combination of objections from the business community, conservative academic criticism, and political change launched a generation-long movement toward increasingly more permissive standards of conduct.
Although these changes have taken many forms, all were influenced by a common and repeated message: competition law was over-deterrent. It was prone to condemn conduct that was likely beneficial in many instances, or competitively inconsequential at worst. (12) Conservatives attributed this tendency to bright line rules of liability, undemanding burdens of proof of anticompetitive effect, lack of appreciation for efficiency, and the limited competence of antitrust decision-makers to correctly differentiate procompetitive from anticompetitive conduct. These commentators also espoused a range of assumptions based on their views that previously suspect types of exclusionary conduct were more likely procompetitive and that highly concentrated markets were likely to perform well. (13)
Critics relied heavily on the assumption that the costs of false positive errors (i.e., erroneous convictions and over-deterrence) far exceeded the costs of false negatives (i.e., erroneous acquittals and under-deterrence). These critics further assumed that the effects of false positives would be lasting because of the enduring impact of court decisions. By contrast, they assumed that the effects of false negatives would largely be dissipated by the self-correcting tendencies of markets. (14)
The proscribed cure was a combination of greater economic sophistication, reliance on bright-line rules of now-liability, and lessened reliance on bright-line rules of liability. The influence of this approach did not end with the analysis of particular practices. The goal of preventing false positives provided a focus for the comparative evaluation of alternative legal rules, (15) and became a barometer for evaluating the scope of antitrust prohibitions. (16) This translated into a call for a higher evidentiary burden on plaintiffs in cases alleging exclusionary conduct, which included a requirement of more economic evidence to support competitive harm allegations. (17)
Many of the assumptions that guided this generation-long retrenchment of antitrust rules were mistaken, and advances in the law and in economic analysis have rendered them anachronistic. This is especially the case with respect to exclusionary conduct. (18) Professors Krattenmaker and Salop showed that foreclosure conduct is not illusory and can lead to harm to competition by raising the costs of competitors and allowing the perpetrator to achieve or maintain monopoly power. (19) Professor Kaplow and others showed the errors in the claim that exclusionary vertical restraints could not be used to extend or maintain monopoly power. (20)
As Professor Jonathan Baker has observed, rote invocation of error cost analysis can itself produce errors, particularly with respect to exclusionary conduct. (21) Continued reliance on what are now exaggerated fears of "false positives," and failure adequately to consider the harm from "false negatives," have led courts to impose excessive demands of proof on plaintiffs that belie both established procedural norms and sound economic analysis. (22) This does not result in more reasonable antitrust standards, but instead results in an embedded ideological preference for non-intervention and a "thumb on the scales" (23) that creates a tendency toward false negatives, particularly in modern markets characterized by economies of scale and network effects. (24) Indeed, the effect goes well beyond a "thumb on the scales," because it effectively shifts the default presumption from neutral to pro-defense. There are also excessive administrative costs, as ever "more" evidence is demanded, without regard for its cost or whether it is likely to significantly improve the accuracy of decisions.
In this article, we build on this prior work to explain how these erroneous assumptions about markets, institutions, and conduct have distorted the antitrust decision-making process and produced an excessive risk of false negatives in exclusionary conduct cases involving firms attempting to achieve, maintain, or enhance dominance or substantial market power. To redress this...
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