Vol 12 (2015) - Issue 2

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Behavioural Economics and Some Implications for Competition Law

Introduction
This paper will seek to look at the legal toolkit and the economics and competition policy background of Art. 102 TFEU (the law prohibiting an abuse of a dominant position of an undertaking) against the backdrop of the general framework of EU Competition law, so as to enable a prima facie identification of certain aspects of application and enforcement of the latter where Behavioural Economics-inspired analysis could be of relevance.
The particularity of the application of the latter lies in its significant and increased dependence on economic insights drawn upon to perform an adequate competitive assessment: for example, the definition of dominance for the purposes of Art. 102 TFEU must inescapably draw on economic analysis – the legal term constitutes the reflection of an economic counterpart (in this case: significant market power) that hence has a determining role to play in the application of Art. 102. Furthermore, Art. 102 TFEU concerns unilateral conduct which – other than e.g. in the case were behaviour of more than one entity/party is involved (cartels or mergers) – often renders the availability and/or collection of necessary and sufficient data upon which competitive assessment is to rely, quite problematic.
The recurring claim by various commentators with regard to the economic analysis performed in abuse of dominance cases is that the European Commission has not been consistent in its reliance on economic theory. The Commission has sought to respond by buttressing the economic analysis underlying its decisional practice and to strengthen the More Economics-based Approach (hereinafter: MEA) for which it has declared to have opted. The economic theories relied on by the Commission have been influenced by neoclassical schools of thought, be it Chicago, Post-Chicago or Harvard School of thought. The emergence of alternative approaches, such as Behavioural Economics could be argued to call for a re-examination of the scope of economic thinking that needs to flow into the analysis for the purposes of EU competition law in general and Art. 102 TFEU in particular.
Behavioural Economics claims that human decisionmaking behaviour is in certain circumstances at odds with the predictions of standard economic theory. The latter is hence at times partly or entirely inadequate to reflect actual rather than projected market behaviour. Behavioural Economics claims to be able to detect flaws in human decision-making (heuristics and biases) that occur in a systematic and predictable manner and which render the assumption of rationality underlying all neo-classical economic models – upon which competition policy is based – contestable. While not seeking to supplant standard economic theory in toto, Behavioural Economics claims that it can provide valuable insights with regard to recurring deviations in human behaviour and decision-making that run contrary to the fundamental assumption that human actors decide relying on unbounded rationality, self-interest and willpower.