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Antitrust Error Costs

By  |  May 31, 2021

By Herbert Hovenkamp (University of Pennsylvania)

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    The idea that error costs should inform judgments about actions with uncertain consequences is well established. When we act on imperfect information, we consider not only the probability of an event, but also the expected costs of making an error. In 1984 Frank Easterbrook used this idea to rationalize an anti-enforcement bias in antitrust, reasoning that markets are likely to correct monopoly in a relatively short time while judicial errors are likely to persist. As a result, false positives (recognizing a problem when there is none) are more costly than false negatives.
    The engine that drove the error cost framework was the work of George J. Stigler and Milton Friedman, mainly in the 1940s and 1950s. They had attempted to dismantle theories of imperfect competition in favor of models in which competition nearly always prevailed unless restrained by government action.

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