A PYMNTS Company

What Does Behavioral Economics Mean for Competition Policy?

By  |  April 2, 2010

Matthew Bennett, Amelia Fletcher, Liz Hurley, David Ruck, Apr 01, 2010

This paper looks at whether behavioral economics fundamentally changes our understanding of competition policy. We argue that behavioral economics is an important incremental advance in our understanding, just as informational economics was before it. But this does not mean that all previous economic models of competition and markets are now irrelevant. For the most part, they still provide valid and valuable insights. Importantly, behavioral economics does not question our belief in competition policy as a tool for making markets work well for consumers.

    Get the Full Story

    Complete the form to unlock this article and enjoy unlimited free access to all PYMNTS content — no additional logins required.

    Subscribe to our daily newsletter, PYMNTS Today.

    By completing this form, you agree to receive marketing communications from PYMNTS and to the sharing of your information with our sponsor, if applicable, in accordance with our Privacy Policy and Terms and Conditions.

    Nevertheless, the existence of behavioral biases does have a number of implications for the way in which markets work. Behavioral biases on the consumer side emphasize the importance of the demand side in making markets work well, and the important synergies between consumer policy and competition policy. Behavioral biases may also have implications for anticompetitive behavior. In spite of this, behavioral economics does not necessarily imply more intervention. Markets can often solve their own problems and even where they can’t, there are dangers inherent in over-paternalism limiting consumer choice. Behavioral economics also emphasizes the difficulties that authorities can have in trying to correct for such biases.