Chillin'Competition

This is the question which arises from the growing influence of behavioral economics in competition law.

Ahead of a conference in Vienna which will take place next week (“Industry v. Competition“, see programme below), and where I have to speak of this issue, I would like to share a thought with my readers :

There’s an irrational me that understands that economic agents do not necessarily seek to profit maximize;

There’s a rational me that thinks that this is probably the exception more than the rule. Irrationality is not, and cannot, be a good basis for devising general rules and making public policy choices. In so far as firms’ behavior is concerned, the rationality hypothesis remains indeed a reasonable assumption because most CEOs, and more generally sales agents go to business school and learn how to make informed decisions. In so far as consumers are concerned, the undisputable success of low costs business model, and customers’ increased sensitivity to price in times of crisis are blows to the irrationality hypothesis. At best, behavioral economics shall play at the margins, and inform individual decisions on particular cases where markets depart from rationality (retail banking and telcos, where consumers do not switch despite price competition).

So no, we do not need a shrink.

Programm

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