Competition Law and the Bounded Rationality of Firms

Firms often take decisions that depart from rationality. The case studies presented in this book strengthen this conclusion in the context of competition law by highlighting how firms take decisions that do not follow the paradigm of rational, profitmaximization. Moreover, literature from different disciplines shows that bounded rationality in firms is systematic rather than random and firms often knowingly take boundedly rational decisions. One reason for bounded rationality is the behavioural biases of managers. The discussion in this book has described some of the behavioural biases of managers and how these biases are perpetuated in the decision-making of firms. One bias that is particularly prevalent in managerial decisions is overconfidence bias. This can more particularly effect decisions to merge or enter new markets.