Free the Price-Cutters!

by Don Boudreaux on January 20, 2006

in Law, Prices

In the current issue of Regulation, law professor Daniel Crane has a well-worth-reading article on the perverse consequences of prohibitions on so-called "predatory pricing."

Here’s an especially interesting part of the article:

A study by Case Western law professor Arthur Austin is telling.  Austin interviewed jurors in four antitrust trials, including Brooke Group v. Brown & Williamson, the latest predatory pricing case decided by the Supreme Court.  Austin’s interviews revealed that "the jurors were overwhelmed, frustrated, and confused by testimony well beyond their comprehension…. [A]t no time did any juror grasp — even at the margins — the law, the economics, or any other testimony related to the allegations or defense."  Austin reports,

At no time have I encountered a juror who had the foggiest notion of what oligopoly, market power, or average variable cost meant, much less how they applied to the case….  Typical is the response I received when I asked a juror whether he remembered average variable cost.  The juror replied, ‘Yes, explain it to me.  I still don’t know what it means.’

Mind you, the jury found that Brown & Williamson engaged in predatory pricing, which required a finding that it had priced below average variable cost.  If the jury did not understand the legal test, on what basis did it award a $148.8 judgment against Brown & Williamson?

Fortunately, in 1993 the U.S. Supreme Court found in favor of Brown & Williamson on appeal.

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Barry P. January 21, 2006 at 4:22 am

Just remember: juries are full of people too dumb to get out of jury duty…

Manish Saini January 21, 2006 at 4:48 am

Do watch 12 Angry Men in case you haven't. A true reflection on how Jury should actually work.

gene berman January 22, 2006 at 8:37 am

There's not much point to criticizing the intellectual level of juries: they are what they are and the system we're stuck with because we don't know of a better one.

The very same criticisms might well be levelled at juries in (both civil and criminal) cases involving more everyday (presumed) offenses.

Juries will always be hard put to comprehend complex arguments involving specialized knowledge, not only of the law but of various technical disciplines.

The true lack is of economic understanding on the part of (presumably) disinterested elites, including legislators, administrative officials, the judiciary, etc. If, as is the general reality, these guys don't understand, what hope is there for such understanding to be prevalent among citizens from whom juries are selected? The very best that can be hoped for is that they'll be able to comprehend the legal ramifications and convict or not defendants charged with violations of laws that shouldn't exist in the first place.

Wild Pegasus January 22, 2006 at 7:58 pm

Prof. Austin taught me contracts my first year of law school, and he's currently supervising my copyright research. He's definitely off the beaten path, but he's brilliant.

On the third day of law school or so, he handed us a piece of paper with a bunch of strange doodles on it. One of them showed a stick figure being stabbed, and the stick figure's blood filling an oil can. Another made obscene acronyms out of "OIL" and the company's name (which I have since forgotten). When asked what this is, Prof. Austin said that these were the "notes" a juror had taken in a recent antitrust case. The case had gone for several weeks, and the sole notes taken were these goofy doodles.

Some of us blanched, and Prof. Austin flashed a wry smile and said, "That's why you settle."

- Josh

Michael January 23, 2006 at 10:15 am

I would make a slightly different point. Yes juries raise problems but the alternative (Judge-based trials) also raise problems. As I see it judges are more likely to make up their mind early on (think Judge Jackson in microsoft). This is because they will be well educated, and one thing one learns in school is to make decisions quickly. "thinking on your feet" is a trait of a successful lawyer. In general I think jurors take their responsibility to conisder all of the facts fairly seriously. Of course, there are exceptions as the doodle example demonstrates. However, I'd want more than a few outliers to throw off the jury system.

Helen'skid January 23, 2006 at 10:34 am

It is interesting how debate always revolves around the jurors. Yet little if any attention is paid to the fine legal minds that acquiessed to their service as jurors. Some attorney selected the dummy, and opposing counsel agreed!
Is there some qualifying test a juror must pass in order to determine the facts in a case? Yes there is; he must prove he is stupid. That is the quality a lawyer seeks.
This discussion should not be about ignorant jurors. It should be about the rent-seeking practices of the American Bar Assn. Lawyers have a minimum wage and it isn't $5.15/hr. Appeals mean more work at price controlled wages. It would be unethical to practice otherwise.

Jessup January 28, 2006 at 12:09 pm

…the issue is not 'dumb jurors' — but 'dumb laws'.

Laws that are incomprehensible mysteries to average citizens are unjust laws.

The "Rule-of-Law" demands that citizens understand the law… as a practical matter of what behavior is either formally prohibited or required in a society.

Complex and imprecise "law" is not law at all — but merely illegal dictate by government politicians & bureaucrats.

Of course, Federal predatory-pricing and Anti-Trust "laws" are outrageously
non-Constitutional {… illegal in the true sense} from the get-go.

Honest legislators, lawyers, and judges
would recognize this — and the situation would never reach the comical, but sad 'jury trial' stage referenced above. However, the requisite 'honesty' is rarely seen.

The jurors could serve as a final safety-valve on this illegal chain of events — but they were all educated in government schools… and have no concept of fundamental law & due process.


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