REGULATORS’ DECISIONS ON MERGERS SHAPED BY THE ‘STANDARDS OF PROOF’ IN THEIR JURISDICTION
Different guidelines – or ‘standards of proof’ – on whether a merger or acquisition should go ahead have a significant influence on the decision-making of people working in competition agencies. That is the conclusion of research by Bruce Lyons, Gordon Menzies and Daniel Zizzo, presented at the Royal Economic Society’s 2010 annual conference.
Their study placed current regulatory practitioners from nine different jurisdictions (plus a sample of non-professionals) under experimental conditions to see how they would behave given different regulations. Among the findings:
· Both professionals and non-professionals adapt their decisions in light of the stated regulatory standards.
· Professionalisation matters in at least three ways: it sharpens distinctions between standards; it is associated with a more sophisticated weighing of different volumes of evidence; and it is associated with a greater adjustment for the potential cost of errors.
· Older practitioners tend to be tougher.
· The ‘ARCSE’ criterion (accurate, reliable, consistent and sufficient evidence) proposed by the European Court of Justice is interpreted as placing almost as high a standard of proof as the ‘beyond reasonable doubt’ standard from criminal law.
More…
There is considerable debate about the alternative economic approaches to merger control taken by competition authorities. But differences in economic analysis are not the only reason for alternative decisions.
A theoretical literature has related the standards of proof to other dimensions of the rules of evidence, such as default rules, burden of proof and accuracy of evidence. This has been approached both from an economic perspective and that of the law. Neither has provided a systematic empirical appraisal of what matters in practice.
The aim of this paper is to understand how legal decision-making is influenced by alternative standards of proof in the face of limited and conflicting evidence.
The authors conduct an experiment in decision-making in the context of merger appraisal. They analyse whether alternative standards of proof make any practical difference to decision-making; whether the interpretation of standards of proof is professionally determined; whether there is a connection between experience and toughness; whether people take the volume of evidence and cost of errors into account; and whether there are systematic cognitive biases in their decision-making.
The experiment is conducted on current practitioners from nine different jurisdictions, in addition to student subjects.
The central finding of the research is that standards of proof count.
The ‘ARCSE’ criterion (accurate, reliable, consistent and sufficient evidence) proposed by the European Court of Justice was interpreted as placing almost as high a standard of proof as the ‘beyond reasonable doubt’ standard from criminal law.
Both lay and professional samples adapt their decisions in the light of the stated standard. Both also adopt a conservative reluctance to find harm in a proposed merger and they weigh the costs of Type 1 errors.
Professionalisation does matter importantly in at least three ways:
· it sharpens distinctions between standards;
· it is associated with a more sophisticated weighing of different volumes of evidence;
· and it is associated with a greater adjustment for the potential cost of errors.
Precisely how this professionalisation effect works cannot be determined. But the authors do find that it is not particularly associated with years of work experience, gender, legal versus economics training, nationality or civil versus common law background.
There is evidence that older practitioners tend to be tougher.
The results leave open explanations based on agency-provided training, competition agency culture and self-selection of individuals into careers in competition agencies.
The fact that standards matter to professionals means that more attention should be given to identifying appropriate standards of proof, as well as clarifying economic theories of harm. This is important both in establishing agency norms and when comparing apparent differences in decisions across jurisdictions.
ENDS
‘Professional interpretation of the standard of proof: an experimental test on merger regulation’ by Bruce Lyons, Gordon Menzies and Daniel Zizzo
Bruce Lyons is professor of economics in the School of Economics at the University of East Anglia (UEA) and deputy director of the ESRC Centre for Competition Policy
Gordon Menzies is a senior lecturer in the School of Finance and Economics at the University of Technology, Sydney and deputy director of the UTS Paul Woolley Centre for Capital Market Dysfunctionality
Daniel Zizzo, professor of economics in the School of Economics at UEA, is primarily an experimental and behavioural economist
The ESRC Centre for Competition Policy (CCP), at the University of East Anglia, undertakes competition policy research, incorporating economic, legal, management and political science perspectives, which has real-world policy relevance without compromising academic rigour
More information about CCP and its research is available from: www.uea.ac.uk/ccp