Behavioral economics wards off 'danger' of competition law losing relevance, says UK judge

18 September 2018 10:58am

14 September 2018. By Simon Zekaria.

Behavioral economics is key to ward off the “danger” of competition law losing step with real-world business practices and the way consumers behave, which isn’t always rational, UK Judge Vivien Rose said today.

Behavioral economics — generally defined as the psychological study of individuals’ economic decision-making which isn’t always rational — is “not just a theoretical approach,” Rose told a conference* in London today. Rose is a High Court judge who will start serving at the higher Court of Appeal in January 2019.

The shift to analyzing human behavior in antitrust enforcement amounts to “major changes in economic theory in recent years,” said Rose, citing the role of human traits such as “social preferences” and “lack of control” as influencing economic decisions as well as market outcomes.

“Competition has to resonate with the businesspeople involved in the cases,” said Rose, adding that a failure to acknowledge the role of behavioral economics in competition enforcement could result in a “danger” of a “discord” between the application of the law and how businesses or consumers act.

Recent cases heard at the UK's specialized competition tribunal, the Competition Appeal Tribunal have explored the role and importance of human behavior in influencing financial and commercial decisions.

Last week, Ping Europe lost its challenge against an antitrust fine levied for the golf-club maker’s ban on online sales of clubs in the UK. The case touched on the importance and benefit of consumers choosing custom-fitted clubs through face-to-face fittings in store.

And in June, Pfizer and Flynn Pharma secured the annulment of antitrust fines imposed on them over the pricing of an epilepsy drug. The case, which tested whether the companies abused their market clout, explored to what extent the UK's national health service's power to set drug prices influenced the actions of doctors and pharmacists when prescribing medicines to patients.

On the drugs case, Rose said the CAT had assessed how individual doctors and pharmacists took decisions to control the supply of epilepsy drugs. This was brought into focus, said Rose, after the CMA's infringement decision put "continuity of supply" — the dependence of patients getting access to drugs for serious health conditions — as a "significant barrier to entry" for rival pharmaceutical companies.

“Understanding human nature can explain the explanatory power of economics,” said Rose.

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