Because legal decisions are adopted with imperfect information, decision-makers must strive to create a decision process and make decisions that are rational in light of the costs and benefits of information-gathering and the inevitable uncertainty under which they decide. Presumptions play an important role in this. Antitrust law contains a number of important presumptions, which: ‘run the gamut along a continuum from irrebuttable (i.e. conclusive) anticompetitive presumptions to rebuttably anticompetitive to competitively neutral to conclusively procompetitive and finally to irrebuttable procompetitive presumptions. These presumptions are based on the effects inferred from the market conditions’ and most capture the central tendency of the category of conduct to increase or decrease competition and consumer welfare.
This paper – which can be found here – seeks to understand, through the lens of economic decision theory, how the appropriate presumption for various categories of conduct should be established, and how rational presumptions and their associated post-rebuttal evidentiary burdens of production and persuasion can be better formulated and explained. It is structured as follows:
- Section II briefly reviews the role of decision theory in setting presumptions and associated evidentiary burdens to rebut them.
Decision theory provides a formal methodology for rational decision-making when information is imperfect. It recognizes that it will not be economical to pursue perfect information; instead, it may be economical to restrict the amount of information that is required or even permitted to be introduced into the decision-making process. It also recognises that evidence (like all information) generally is incomplete and subject to error. Thus, legal standards must balance the magnitude as well as the likelihood of harm flowing from mistakes in enforcement, when combined with enforcement costs, in order to ensure that law enforcement is socially beneficial. Decisions can be made more accurate and more efficient by incorporating presumptions into the analysis along with case-specific evidence.
The author then criticises competition literature’s focus on Type I and Type II errors (i.e. erroneous convictions and erroneous acquittals) for overlooking whether a legal standard will lead to imperfect deterrence. This is a crucial dimension as regards the effectiveness of competition law and the social benefits that flow from it, and should have significant impact on rule and presumption design.
- Section III applies this decision-theoretic analysis to presumptions and associated evidentiary burdens.
Under a full “unstructured” rule of reason analysis, decision-makers would analyse every piece of evidence to gauge and balance the relative likelihoods and magnitudes of competitive harms and benefits from the conduct at issue. However, judicial decisions can be made more efficiently and accurately if appropriate presumptions are introduced into the analysis. These presumptions should serve as initial predictions of the likely impact of a category of conduct on consumer welfare (or price, and output as a proxy) in the absence of further case-specific information.
In decision-theoretical terms, the strength of a presumption should vary with the degree of certainty regarding the potential outcomes of the conduct or set of facts giving rise to it. As a result, the strength of presumptions falls along a continuum. Some presumptions are irrefutable – good examples of this are per se rules of legality and illegality, which the paper reviews in detail. On the other hand, most presumptions are rebuttable – i.e. they place a burden on the party disfavoured by the presumption to produce evidence susceptible of rebutting that presumption. The strength of a presumption should depend on the magnitude and likelihood of certain competitive effects flowing from the relevant conduct or facts. In turn, the burden of production (and perhaps also the burden of persuasion) placed on the disfavoured party depends on the strength of the presumption and on the reliability of the available evidence – the stronger the presumption is, the higher the evidentiary burden to rebut the presumption should be, and vice versa.
- Section IV applies this analysis to the multi-step burden-shifting rule of reason decision process.
In practice, the rule of reason is not the pure ‘effects-based’ analysis that is often advertised. Instead, there is a constant shift in the burden of proof from the plaintiff to the defendant, with actual balancing of effects only occurring in a very small number of cases. This burden shifting framework is supported by a number of presumptions, as well as by rules on the burden of proof and persuasion.
In cases where there may be doubts about whether a conduct should be prohibited per se, courts apply a “quick look” approach. This can be seen a part of the same basic decision process as the multi-step rule of reason, but with an additional step at the outset whereby the defendant must show a plausible efficiency justification for its conduct.
Decision theory analysis has several implications for this multi-step decision process. First, the same basic burden-shifting structure can apply to conduct where procompetitive or anticompetitive presumptions apply. Second, the amount of evidence required to rebut a presumption should depend on the strength of the ‘effects inference’ underpinning that presumption. Third, while the usual statement of how the multi-step rule of reason should operate envisions that the issues should be analysed and evaluated in a rigid sequence, such sequencing is not compelled or even suggested by decision theory. Instead, sequencing is merely an organizational tool for the court to organize its thinking about the elements of the proof – but, it is argued, it is not clear that this sequencing is efficient or generates time savings in practice.
- Section V outlines a project for reviewing and revising current presumptions. It is argued that antitrust would be more coherent and transparent if the presumptions were given an even more ubiquitous role in antitrust jurisprudence. In principle, appellate courts could determine and make explicit a set of legal presumptions across a wide array of narrow categories of conduct. This more precise classification would permit stronger presumptions and would reduce the likelihood of error. Presumptions should also set out the rebuttal burdens.
Some current presumptions regarding some conduct categories are only implicit. Those would benefit from being analysed and made explicit. Old-standing (explicit) presumptions might need to be revisited and re-evaluated in light of more recent judicial experience, changes in market realities, and analytic and empirical developments in economics. At this point, the author runs through a number of potential updates of US antitrust rules.
Comment: This last section brings to the forefront the reason why I think this article is so interesting: because discussions about the nature of rules and evidentiary requirements in competition law are also discussions about what types of conducts should be prohibited as anticompetitive. This is why the discussion in this last section, which focuses on which presumptions to apply to specific business conducts, read like a review of recent academic developments regarding the appropriate treatment of specific antitrust infringements.
The use of decision-making theory in the article also allows one to emphasise a point that is sometimes ignored: in practice, the distinction between legal rules and evidentiary presumptions can be fuzzy or even non-existent. The way rules of evidence are framed can be – and often is – critical to the practical meaning of legal rules and standards. This, in turn, is crucial to the ultimate deterrent effect of competition law.
It follows that the debate in the antitrust literature should move beyond focusing on how bright line rules might lead to false positives, or on how detailed effects analysis may minimise false negatives but at the cost of increased enforcement costs. Instead, there are myriad substantive and procedural rules, including presumptions and rules of evidence, that are crucial to the identification of certain conducts as potentially unlawful. Discussions on whether certain conducts are anticompetitive or not – the daily staple of competition papers – implicitly reflect views on the legal process – and on the applicable presumptions and rules of evidence – and which tends to be fairly simplistic. My guess is that such pieces of work would be greatly enriched by taking this procedural dimension of decision theory into account.