Optimal Tests for Strategic Antitrust Sham Litigation, paper presented at the Centre for Law and Economics (original) (raw)
We propose a simple and accurate test method for recognizing anticompetitive sham suits. We consider the problem of testing the null hypothesis that a lawsuit vis-´a-vis an actual or potential competitor is not sham against the alternative that the suit is sham. We develop game theoretical model of bargaining and litigation in the context of entry deterrence, to analyze the incentive of a predator, reacting strategically to the judicial norm creating process, to pursue sham litigation and achieve anticompetitive goals. The theory implies that the question of whether an illegal sham act is baseless or not is irrelevant. When considering open suits-against-competitors to antitrust liability, assessing whether the alleged predator’s legal expenditures can be expected to pay off is necessary, but insufficient. An appropriate test for sham litigation should be based on close examination of the market structure and thorough analysis of the economic relationship between the parties in dispute. Reputation is the hallmark of the test: the incumbent battles to maintain others’ perception of its readiness to fight entry via frivolous legal battle.
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