Commissioner Rosch v. Economics, Again

Josh Wright —  7 October 2008

I’ve been critical of the Federal Trade Commission, and particularly Commissioner Rosch, for embracing what I think is a dangerously obsolete view of the role of economics in antitrust. First, it was the Section 2 Report response and before that, it was Commissioner Rosch’s observation that “any kind of economic analyses that require the use of mathematical formulae are of little persuasive value in the courtroom setting” and that “when I see an economic formula my eyes start to glaze over.” To be fair, Commissioner Rosch’s point is that sophisticated economic evidence is not persuasive to courts and that the FTC ought to focus on non-economic evidence that is, we are told, more effective. Rosch repeats the same story in a recent speech on administrative litigation where he notes that one of the problems with staff analysis is that it is too focused on complex economic analysis:

Third, application of a very high standard also induces staff to present recommendations to the Commission that are primarily based on complex economic analysis rather than on the stories about competitive effects told by non-economic evidence. That’s entirely understandable. After all, as to mergers, the Commission has seemingly provided staff with a cookbook in the form of the Merger Guidelines, and the recipes in that cookbook seem to call first and foremost for critical loss or simulation studies based on economic analysis …. The problem is that, as the experienced trial lawyers told us at the hearings on Unilateral Effects, while those economic analyses have value, what matters most to lay trial judges considering antitrust cases (and what they most clearly understand) is the competitive effects story told by non-economic evidence.

I understand that the agency wants to win cases. That can be important. Thats what this is about. Commissioner Rosch believes that focusing on economic evidence doesn’t help win cases because trial judges don’t get it. That is fair enough. I certainly can understand that litigation strategy might call for focusing on non-economic evidence if it is more effective. But Commissioner Rosch is not a trial judge, he’s a Commissioner at the federal agency which is designed to have antitrust expertise and make enforcement decisions that make consumers better off. So let’s separate out the trial point from the issue of what staff ought to be presenting to Commissioners in order to have a Complaint issued.

What bothers me about this now fairly consistent push from the Commissioner to reduce the role of economic analysis both at in trial and at the Commission level is that the Bureau of Economics provides economic inputs to competition agencies that can be very helpful in making the right decision at the Complaint stage. What about all of that non-economic evidence that trial judges love so much? Well, Geoff has written pretty persuasively about the problem with placing too much weight on “hot docs” and the like. One of the major lessons of economics in antitrust is that sometimes economic analysis can provide answers that counter conventional wisdom. That is, after all, the wisdom of an effects-based antitrust policy. The promise of economics in antitrust, and really I thought this battle was won long ago, is that economic tools are uniquely situated help distinguish competitive from anticompetitive conduct. This is a hard task. And I don’t really understand the argument that at the Commission level, we should be using less of our best tool because it is complicated and can involve Greek letters.

Don’t get me wrong, I think that economists have some responsibility here to make their work more accessible to their audience. That includes Commissioners. But I also think that Commissioners at an expert antitrust agency have the responsibility and obligation to use all of the tools at their disposal not just to win cases — but to understand the underlying economic issues which shed light on whether the challenged conduct will harm or help consumers in practice. If its too complicated, decision makers should ask for help. There are a lot of economists at the FTC who are very good at what they do, including explaining complex analysis to generalists. Some have even done it for a living with students. I understand Commissioners must always make these decisions with an eye toward what is likely to prevail in court, but perhaps the right line of inquiry is how to make economic evidence more persuasive and teach generalist judges what they need to know rather than reducing the role of economics in favor of non-economic considerations that are much more likely to mislead us about the competitive effects of a practice.