A LITIGATOR’S PERSPECTIVE ON THE EVOLVING ROLE OF ECONOMICS IN ANTITRUST LITIGATION

By Daniel M. Wall¹

I. PRELUDE

The first substantial assignment I had as an antitrust lawyer dropped me into the deep end of the law and economics pool. It was 1981 and I was a first-year lawyer in the DOJ Antitrust Division’s Honors Program and I had been assigned to the trial team for United States v. AT&T, the landmark case that resulted in the breakup of the Bell System. After the government rested its case in chief, AT&T filed a comprehensive motion to dismiss. One part of that motion challenged the legal sufficiency of the government’s predatory pricing theory on the ground that the government had not proven that AT&T had charged long distance rates below its average variable costs.

It would be difficult to overstate how intimidated I was when asked to respond to this particular part of AT&T’s motion. AT&T’s brief was strong and grounded in what was arguably the seminal article fusing antitrust law and economics into "one thing": Phillip Areeda and Donald F. Turner’s Predatory Pricing and Related Practices Under Section 2 of the Sherman Act.² The "Areeda and Turner test" that originated in this article required the plaintiff in a predatory pricing case to show that the defendant’s prices were below short run marginal costs or (as a proxy for marginal costs) average variable costs, and in the six years between the publication of that article and AT&T’s motion numerous courts had already adopted that standard. The momentum behind the Areeda and Turner test was strong enough that AT&T boldly proclaimed that the "only accepted test for predatory pricing is whether rates were intentionally set at a level below marginal costs." AT&T also argued, for the most part correctly, that the government had not made a case under that test.