Economists are endemic to antitrust litigation. Their expertise is often necessary to explain why the conduct or merger at issue will have no impact (or a huge impact!) on competition in a market. Typically the opinions of economists are presented through the expert witnesses each party calls. Sometimes, though, economists who are not officially retained to opine on the issues will weigh in through the filing of an amicus brief, and sometimes such briefs can have a demonstrable impact.
In Federal Trade Commission v. Penn State Hershey Medical Center, 838 F.3d 327 (3d Cir. 2016), it appears that such an amicus brief may have been dispositive to the outcome of an appeal. In Penn State, the FTC sued to enjoin a merger between the two largest hospitals in the Harrisburg, Pennsylvania area, alleging that the merger could reduce competition in the market for general acute care services sold to commercial payors. The district court ruled against the FTC. It held that the FTC failed to “properly define the relevant geographic market,” and therefore gave the court “no way to determine whether the proposed merger was likely to be anticompetitive.” Id. at 334.
Prior to the appeal being heard, a group of 36 economists affiliated with top universities across the country filed an amicus brief explaining that the district court used a faulty economic theory when it denied the injunction. The brief highlighted two interrelated errors by the district court.
First, the district court incorrectly relied on what the economists called “patient inflow and outflow data” when it rejected the FTC’s proposed geographic market of the “Harrisburg Area” as too narrow. The district court’s focus on how many patients at these hospitals were Harrisburg residents and how many Harrisburg residents went to hospitals outside the Harrisburg area ignored empirical evidence and economic theory showing that that is not a proper way to analyze the anticompetitive effect of hospital mergers. A limitation in this method is the “Silent Majority Fallacy,” which posits that a patient may travel farther to receive healthcare not because of a price differential—because prices largely do not change if a patient is going to an in-network provider—but because of other factors like where the patients work or if the patient needs a particular service that is not offered locally. The patient flow data says nothing “about what the (silent) majority of ‘non-travelers’ would do in response to a post-merger price increase.”
Second, by focusing on patient flow data, the court ignored the reality that the “locus of price competition among healthcare providers is centered on competition to be included in insurers’ networks.” Hospital mergers therefore primarily increase prices because they permit the merged entities to extract a higher reimbursement price from insurers because customers may not refrain from buying an insurance policy that excludes the merged hospitals’ providers from an insurer’s network. The relevant market is defined by whether a “sufficient number of patients are unlikely to utilize a provider outside the proposed market in the face of a hypothetical, collective price increase by all sellers in the proposed market . . . even if a sizeable share of patients travel into or out of the proposed geographic market.”
When it came time to render a decision, the Third Circuit followed the economists’ amicus brief to a T. It stated: “As the amici curiae Economics Professors have persuasively demonstrated, patient flow data—such as the 43.5% number emphasized by the District Court—is particularly unhelpful in hospital merger cases because of two problems: the ‘silent majority fallacy’ and the ‘payor problem.’” Penn State, 838 F.3d at 340. The court then laid out the issues with the district court’s analysis just as the amicus brief did. Ultimately, the court applied the test the economists advocated for and found that the government had properly defined the relevant geographic market and had made a prima facie case that the merger would decrease competition in that market. The district court’s denial was reversed, and the case was remanded back to the district court with an instruction to order the injunction.
A brief filed by economists seemed to have had a major impact in Leegin v. Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877 (2007). In that case, the Supreme Court held that resale price maintenance agreements—a contractual obligation that a retailer not sell a manufacturer’s product below a certain price—should be evaluated under the “rule of reason.” This 5-4 decision reversed a nearly century-old rule that treated such vertical price restraints as per se illegal under the Sherman Act. A substantial factor in the court’s decision was an amicus brief filed by economists stating that “it is essentially undisputed that minimum [resale price maintenance] can have pro competitive effects and that under a variety of market conditions it is unlikely to have anticompetitive effects.” Id. at 889. Citing their brief, the Court held that “respected authorities in the economics literature suggest the per se rule is inappropriate, and there is now widespread agreement that resale price maintenance can have pro competitive effects.” Id. at 900.
Why did these briefs appear to resonate with the judges? The briefs may have been impactful because they appeared to present the consensus view of the economics academy. The briefs were signed by a large number of economists; the economists were affiliated with prestigious universities and institutions; and, crucially, there did appear to be any opposing amicus briefs from a similarly statured group of economists calling their conclusions into question. These factors gave the briefs an air of objectivity, which can appear lacking in expert witnesses presented by the parties. Amicus briefs filed by economists in antitrust cases should not be overlooked. We will continue to monitor similar briefs in future significant cases.