The Rise of Economics in Competition Policy

Fast forward to 2015 and we see a case in which the Supreme Court of Canada rejected the government’s challenge to a merger essentially on the grounds that the government had failed to provide econometric evidence of a parameter critical to the estimation of the impact of the merger on total surplus in the market.2 Economics is now the foundation of virtually every case in the central areas of com [...] The Integration of Economics into the Law on Single Firm Conduct As in all areas of competition policy, the economic basis for intervention is driven by evidence of the suppression of competition reflecting either exclusion (as in the example of the last paragraph) or higher prices. [...] An evaluation or prediction of the effects of the law in the area of the single firm strategies must recognize the sequential nature of the strategic interaction of the players where contracts are involved: first, the law places a restriction on the set of contracts that firms must enter into; second, the contracts are chosen and entered into voluntarily; third, market participants act rationally [...] The seller, anticipating that the buyer will renegotiate future prices to capture some of the returns (quasi-rents) from the investment, will invest with the anticipation of capturing only part of the return. [...] In finding for the defendant, reversing the lower court’s decision, the appellate court cited favourably the free-riding defense of the defendant, American Express.46 Where the economic thinking in this area has most evolved is in the anticompetitive uses of the contracts.