Explainability Of Economic Reasoning In Judicial Decisions

Introduction

Explainability of economic reasoning in judicial decisions refers to the requirement that courts clearly disclose how economic evidence, theories, models, assumptions, empirical data, and market effects have contributed to the legal conclusion. In competition law, this is particularly important because disputes increasingly depend on complex concepts such as market definition, market power, counterfactual analysis, efficiencies, foreclosure, consumer welfare, innovation effects, and quantitative economic evidence.

A judgment may be legally correct but insufficiently explainable if it merely states that an economic effect is “likely,” “substantial,” or “anti-competitive” without explaining the evidentiary basis, economic methodology, assumptions, competing hypotheses, and causal chain leading to that conclusion.

Explainability therefore operates at the intersection of:

Rule of law and judicial reasoning;

Procedural fairness;

Economic expertise;

Evidence and expert testimony;

Administrative and judicial review; and

Accountability in competition enforcement.

In modern digital and AI-driven markets, this principle becomes even more important because courts may be asked to review economic conclusions generated from algorithms, large datasets, econometric models, simulations, or expert evidence.

1. Meaning Of Explainability Of Economic Reasoning

Explainability does not mean that every judgment must reproduce an entire economic model. Rather, the court should make the decisional pathway intelligible.

A sufficiently explainable economic judgment normally answers:

What economic proposition did the court accept, what evidence supported it, what methodology was used, what assumptions were made, what alternative explanations were considered, and why did the evidence satisfy the applicable legal standard?

For example, if a court concludes that a dominant undertaking engaged in exclusionary conduct, the judgment should ideally explain:

Conduct → economic mechanism → market effect → competitive harm → legal characterisation

Thus:

Exclusive arrangement
↓
Reduction of contestable distribution channels
↓
Rivals lose effective access to customers
↓
Entry/expansion becomes more difficult
↓
Competitive constraint weakens
↓
Article 102 / domestic abuse provision potentially infringed

This makes the economic reasoning reviewable rather than conclusory.

2. Why Economic Explainability Matters In Judicial Decisions

A. Economic conclusions can determine legal outcomes

Competition law frequently contains concepts whose application depends heavily upon economics.

Examples include:

relevant market;

dominance;

market power;

substantial lessening of competition;

foreclosure;

predatory pricing;

excessive pricing;

efficiencies;

barriers to entry;

network effects;

innovation competition.

Consequently, unexplained economic reasoning can effectively become unexplained legal reasoning.

B. Preventing judicial conclusions from becoming “black boxes”

A court may receive:

econometric studies;

regression analysis;

demand estimates;

diversion ratios;

critical-loss analysis;

merger simulations;

pricing evidence;

internal business documents;

consumer surveys;

market-share data;

expert reports.

Simply selecting one expert's conclusion does not adequately demonstrate judicial reasoning.

The court should identify why that evidence was preferred.

C. Facilitating appellate review

An appellate court cannot meaningfully review a conclusion if the lower court does not disclose its reasoning.

Explainability therefore performs an important institutional function:

Reasoned economic finding → identifiable methodology → appellate review → correction of error

This is particularly important where economic assessments involve considerable discretion.

3. Relationship Between Legal Reasoning And Economic Reasoning

Economic reasoning does not replace legal reasoning.

The court must move through two distinct stages.

Stage 1 — Economic assessment

The court asks:

What happened in the market?

What was the likely counterfactual?

What economic mechanism operated?

What effect did the conduct have?

Was the effect sufficiently probable or substantial?

Stage 2 — Legal assessment

The court asks:

Which statutory provision applies?

What legal test governs?

Who bears the burden of proof?

What standard of proof applies?

Does the economic evidence satisfy that test?

Therefore:

Economic evidence informs the legal test; it does not itself determine the legal test.

This distinction is particularly important when courts review competition authorities.

4. Explainability And The Standard Of Proof

Economic reasoning must also be connected to the applicable evidentiary standard.

A judgment should distinguish between:

possibility;

plausibility;

probability;

substantial likelihood;

balance of probabilities;

clear evidence;

legally sufficient proof.

For example, a finding that conduct could foreclose competitors is different from a finding that it is likely to foreclose competitors.

The court should therefore explain the transition:

Evidence → inference → probability → legal conclusion.

Failure to make this transition explicit can create difficulties on appeal.

5. Counterfactual Reasoning

One of the most important features of economic reasoning is the counterfactual.

Competition law frequently asks:

What would have happened absent the challenged conduct?

For example:

Actual world

Dominant platform imposes an exclusivity condition.

Counterfactual

The exclusivity condition does not exist.

Comparison

If rival entry would probably have been significantly greater in the counterfactual, the court may infer a foreclosure effect.

The judgment should explain why the proposed counterfactual is economically credible.

This is particularly important in:

merger cases;

exclusionary conduct;

predatory pricing;

refusal to deal;

vertical restraints;

innovation cases.

6. Explainability Of Market Definition

Market definition is another area where judicial economic reasoning must be transparent.

A court may consider:

substitutability;

demand-side substitution;

supply-side substitution;

geographic constraints;

switching costs;

price elasticity;

customer behaviour;

product functionality.

The judgment should not merely say:

“The relevant market is X.”

It should explain why products outside X were not sufficiently substitutable.

This is increasingly difficult in digital markets because products may have:

zero monetary prices;

multi-sided demand;

data-based competition;

attention-based competition;

network effects;

rapidly changing functionality.

7. Explainability And Expert Evidence

Courts increasingly depend upon economists and other experts.

However, expert evidence does not automatically become judicial fact.

The court must retain independent responsibility for deciding:

whether the methodology is reliable;

whether assumptions are justified;

whether data are representative;

whether the model is sensitive to assumptions;

whether alternative models produce materially different results.

A court should therefore avoid the problem of “expert substitution”, where the expert effectively decides the economic question and the judgment simply adopts the expert's conclusion.

8. Explainability And Quantitative Economic Evidence

Quantitative evidence may appear authoritative because it contains sophisticated mathematics.

But numerical precision does not necessarily mean economic certainty.

For example:

Estimated foreclosure = 17.4%

does not by itself establish that competition was harmed.

The court should consider:

dataset quality;

sample selection;

model specification;

confidence intervals;

omitted variables;

measurement error;

sensitivity analysis;

alternative specifications.

The principle is:

Mathematical complexity cannot substitute for evidentiary reliability.

9. Explainability In Digital And AI Markets

AI-driven markets intensify this problem.

A competition case may involve an algorithm determining:

prices;

search rankings;

access;

recommendations;

credit;

advertising;

platform visibility;

procurement;

resource allocation.

A court may therefore confront an economic conclusion such as:

“The algorithm increased foreclosure.”

The judgment should ideally identify:

What the algorithm did;

What economic incentive it implemented;

What market participants were affected;

What behavioural change occurred;

How the change affected competition;

Whether alternative explanations existed; and

Why the evidence establishes causation.

Otherwise, the economic reasoning risks becoming an AI-assisted black box inside a judicial black box.

10. Major Case Laws

1. United Brands Company v Commission — Case 27/76

Court: Court of Justice of the European Union
Year: 1978

Importance

United Brands is foundational for explaining the economic reasoning behind relevant market definition and dominance.

The Court examined whether bananas constituted a separate relevant product market by considering characteristics such as:

physical properties;

consumer preferences;

substitutability;

competitive conditions.

The Court did not simply rely upon market-share figures.

Explainability principle

The case demonstrates that a judicial economic conclusion should identify the economic evidence connecting product characteristics with substitutability.

Significance

The judgment illustrates:

Product characteristics → consumer behaviour → substitutability → relevant market → dominance.

Thus, economic reasoning becomes part of the legal reasoning rather than an unexplained assumption.

11. Continental Can v Commission — Case 6/72

Court: Court of Justice of the European Union
Year: 1973

Issue

The case concerned dominance and the competitive significance of corporate conduct in concentrated markets.

Economic reasoning

The Court considered the structure of competition and the ability of an undertaking to affect competitive conditions.

Explainability significance

Continental Can demonstrates that judicial analysis of dominance requires attention to:

market structure;

competitive constraints;

position of the undertaking;

potential effects on competition.

A court should therefore explain why the economic structure of the market makes particular conduct legally significant.

12. Hoffmann-La Roche v Commission — Case 85/76

Court: Court of Justice of the European Union
Year: 1979

Importance

Hoffmann-La Roche is one of the leading authorities on abuse of dominance and loyalty-inducing exclusivity arrangements.

The Court considered the economic and competitive implications of fidelity rebates and exclusive purchasing obligations.

Explainability principle

The decision illustrates the importance of explaining the mechanism by which contractual arrangements may:

strengthen customer loyalty → restrict effective access to customers → make rival entry or expansion more difficult → reinforce dominance.

The economic mechanism must connect the conduct to the legal finding of abuse.

13. AKZO Chemie BV v Commission — Case C-62/86

Court: Court of Justice of the European Union
Year: 1991

Issue

The case concerned predatory pricing.

Economic reasoning

The Court developed important principles concerning the relationship between price levels and exclusionary strategy.

Explainability significance

AKZO demonstrates why economic reasoning must be tied to observable evidence.

A court considering predatory pricing should explain:

the relevant price measure;

the relationship between price and cost;

whether the pricing strategy can exclude an efficient competitor;

whether the conduct has an exclusionary rationale.

Broader principle

A price below an economically relevant cost benchmark may be highly significant, but the judgment must explain why that benchmark is appropriate and what competitive inference follows from it.

14. Tetra Pak International SA v Commission — Case C-333/94 P

Court: Court of Justice of the European Union
Year: 1996

Importance

Tetra Pak concerns dominance and abusive conduct across closely connected markets.

Economic reasoning

The case illustrates the importance of examining:

market relationships;

structural advantages;

customer dependence;

leveraging;

competitive constraints.

Explainability principle

Economic reasoning should identify the causal relationship between the undertaking's position in one market and the competitive consequences in another.

This becomes particularly important today for digital ecosystems where firms operate across:

operating systems;

app stores;

cloud services;

advertising;

payments;

search;

data services.

15. Intel Corp. v Commission — Case C-413/14 P

Court: Court of Justice of the European Union
Year: 2017

Importance

Intel is one of the most significant modern cases concerning the relationship between legal presumptions and economic evidence.

The case involved rebates granted by a dominant undertaking.

The Court required consideration of whether the Commission's economic analysis was sufficient to establish the exclusionary capability of the rebates where the undertaking had challenged that capability.

Explainability significance

Intel is particularly important because it demonstrates that courts must distinguish between:

legal classification of conduct

and

economic assessment of its actual or potential exclusionary effects.

The economic analysis may involve:

coverage;

duration;

market position;

share of demand affected;

rebate conditions;

as-efficient-competitor analysis.

Broader principle

Where economic evidence is relevant to the legal conclusion, the decision-maker must genuinely engage with that evidence.

16. Commission v CK Telecoms UK Investments — Case C-376/20 P

Court: Court of Justice of the European Union
Year: 2023

Importance

This merger case is particularly significant for economic theories of harm and judicial review.

The case concerned the Commission's assessment of a merger in an oligopolistic market and the theory that the transaction could eliminate an important competitive force.

Explainability significance

The case illustrates that a competition authority must adequately substantiate:

the theory of harm;

the competitive significance of the merging firm;

the causal connection between the merger and likely harm;

the evidentiary basis for the prediction.

Broader lesson

A complex economic theory cannot be accepted merely because it is economically plausible.

The decision-maker must demonstrate why:

Evidence + economic theory + market facts = sufficiently established competitive harm.

This is particularly relevant to modern merger control involving innovation, ecosystems and potential competition.

17. United States v Philadelphia National Bank — 374 U.S. 321

Court: Supreme Court of the United States
Year: 1963

Importance

This is an important U.S. authority on market concentration and merger analysis.

The Supreme Court recognised the importance of market structure in evaluating competitive effects.

Explainability significance

The case demonstrates the importance of making the connection between:

market structure;

concentration;

competitive constraints; and

likely competitive effects.

It also illustrates a broader tension between structural presumptions and detailed economic analysis.

18. Brown Shoe Co. v United States — 370 U.S. 294

Court: Supreme Court of the United States
Year: 1962

Importance

Brown Shoe is significant for market definition and merger analysis.

The Court considered practical indicia of market boundaries and competitive relationships.

Explainability principle

Market definition should not be treated as a purely mathematical exercise.

The judgment illustrates the importance of explaining the commercial realities underlying market boundaries.

This is relevant today where formal product categories may not capture competition between digital services.

19. Brooke Group Ltd. v Brown & Williamson Tobacco Corp. — 509 U.S. 209

Court: Supreme Court of the United States
Year: 1993

Importance

Brooke Group is a major U.S. authority on predatory pricing.

The Court required consideration of:

below-cost pricing; and

a reasonable prospect of recoupment.

Explainability significance

The decision demonstrates how an economic theory must be translated into legally relevant elements.

The court must explain:

Why is the price economically exclusionary?

and

Why could the undertaking reasonably recover its losses after competitors are weakened or excluded?

This is a classic example of economic reasoning supporting, rather than replacing, legal reasoning.

20. Trinko — Verizon Communications Inc. v Law Offices of Curtis V. Trinko

Citation: 540 U.S. 398 (2004)

Importance

Trinko concerns refusal to deal and the limits of antitrust intervention.

Explainability significance

The Supreme Court was concerned with the institutional and economic difficulties associated with requiring courts to supervise ongoing commercial relationships.

The decision demonstrates that explainability also involves explaining why intervention itself is economically and administratively justified.

Thus, judicial economic reasoning can include:

costs of intervention;

risk of false positives;

incentives to invest;

difficulty of determining appropriate commercial terms.

21. Key Principles Emerging From The Case Law

The cases collectively support several important principles.

Principle 1 — Economic conclusions must be reasoned

A court should explain how it moves from economic evidence to a legal conclusion.

Principle 2 — Economic evidence must be connected to the legal test

It is insufficient to demonstrate that conduct has an economic effect.

The court must establish why that effect satisfies the relevant statutory test.

Principle 3 — Alternative explanations matter

Where economic evidence is capable of supporting multiple interpretations, the judgment should explain why one interpretation is preferred.

Principle 4 — Quantitative evidence is not self-proving

Statistics, regression results and economic models require interpretation.

The court should examine their:

assumptions;

limitations;

reliability;

relevance.

Principle 5 — Counterfactuals must be credible

Economic harm frequently depends upon comparing the actual world with a hypothetical alternative.

The court should explain why the counterfactual is appropriate.

22. Explainability And Judicial Review Of Competition Authorities

When reviewing a competition authority, courts face a delicate problem.

They should not simply replace the authority's economic judgment with their own.

At the same time, judicial deference cannot mean:

“The authority said the economic effect exists, therefore it exists.”

A workable model is:

Authority

Produces evidence and economic analysis.

↓

Court

Checks methodology, evidence, reasoning and legal sufficiency.

↓

Judicial conclusion

Determines whether the authority's economic inference is sufficiently supported.

This preserves institutional expertise while maintaining judicial accountability.

23. Explainability And Standard Of Reasoned Decision-Making

A well-reasoned competition judgment should generally disclose five components.

1. Evidence

What evidence was before the court?

2. Method

How was the evidence economically analysed?

3. Assumptions

What assumptions were necessary?

4. Inference

What economic conclusion follows?

5. Legal consequence

Why does that economic conclusion satisfy the statutory test?

This can be represented as:

Evidence → Method → Assumptions → Economic inference → Legal conclusion

24. Explainability Failures

Several recurring failures can undermine economic reasoning.

A. Assertion without analysis

“The conduct harmed competition.”

Problem: No explanation of the mechanism.

B. Numerical determinism

“Market share is 70%, therefore dominance exists.”

Problem: Market share is important but may not alone establish market power.

C. Expert deference

“The economist concluded that foreclosure occurred.”

Problem: The court has not independently evaluated the expert evidence.

D. Model opacity

“The econometric model demonstrates harm.”

Problem: No explanation of assumptions or reliability.

E. Causation gap

Conduct occurred → prices changed → infringement.

Problem: The intervening causal mechanism is unexplained.

25. Explainability In AI-Assisted Judicial Decision-Making

The issue becomes substantially more difficult if courts or experts use AI systems.

Suppose an AI model predicts:

“The proposed merger has a 78% probability of reducing innovation.”

A court should not treat 78% as a legal conclusion.

It should ask:

What dataset produced the estimate?

What variables were used?

What is the counterfactual?

What assumptions were embedded?

How sensitive is the result?

Can the result be independently reproduced?

What alternative models were tested?

What is the error rate?

Does the prediction establish the legal standard?

This establishes a crucial rule:

AI-generated economic reasoning must remain subordinate to judicially explainable reasoning.

26. Explainability As A Due-Process Safeguard

Economic explainability also protects parties against arbitrary decision-making.

A party should be able to understand:

which evidence was accepted;

which evidence was rejected;

why an economic theory was accepted;

why competing theories were rejected;

how the legal test was applied.

This allows the party to challenge the decision effectively.

Thus:

Explainability → procedural fairness → effective appeal → judicial legitimacy

27. Explainability And Institutional Legitimacy

Competition decisions can have enormous economic consequences.

A judicial decision may:

prohibit a merger;

impose substantial penalties;

require divestiture;

compel access;

restrict contractual practices;

regulate pricing;

affect technological innovation.

Because the consequences are significant, the legitimacy of the decision depends not merely upon the outcome but upon the quality and transparency of the reasoning.

28. A Judicial Framework For Explainable Economic Reasoning

Courts can employ the following framework:

Step 1 — Identify the legal question

What statutory element must be established?

Step 2 — Identify the economic question

What economic proposition is relevant to that legal element?

Step 3 — Identify evidence

What documents, data, expert evidence and market information support the proposition?

Step 4 — Test methodology

Is the economic methodology appropriate?

Step 5 — Test assumptions

Would changing important assumptions materially change the result?

Step 6 — Consider alternatives

Are there credible alternative explanations?

Step 7 — Establish causation

How does the conduct produce the alleged competitive effect?

Step 8 — Apply the legal standard

Does the evidence satisfy the required legal threshold?

Step 9 — Explain uncertainty

What remains uncertain, and why does the remaining uncertainty not prevent the legal conclusion?

Step 10 — State the conclusion

The final conclusion should follow visibly from the preceding reasoning.

29. Six-Level Explainability Model

For complex competition cases, judicial economic reasoning can be conceptualised through six levels:

A judgment that addresses all six levels is substantially more explainable than one that merely states an economic conclusion.

30. Critical Evaluation

Explainability does not require courts to become economists.

There are legitimate institutional limits.

Courts may lack:

specialist economic staff;

access to complete datasets;

ability to replicate sophisticated models;

time to reproduce complex simulations.

Therefore, the appropriate standard is not maximum technical disclosure but sufficient intelligibility and reviewability.

The court should explain the economically material reasoning necessary to understand the decision without turning the judgment into an economics textbook.

There is also a danger of false precision. Excessive reliance on elaborate models can create an appearance of scientific certainty even where the underlying assumptions are contested.

Consequently:

Explainability requires transparency about uncertainty as well as transparency about conclusions.

31. Relationship With Modern Digital Competition Law

The doctrine is particularly important for:

AI markets;

algorithmic pricing;

digital mergers;

platform self-preferencing;

data monopolisation;

cloud markets;

app stores;

ecosystem foreclosure;

network effects;

interoperability;

switching costs;

innovation competition.

In such markets, conventional indicators such as price and market share may be insufficient.

Courts may need to examine:

Data + attention + compute + network effects + innovation + interoperability + switching costs

Therefore, judicial economic reasoning must become capable of explaining non-price competitive effects.

32. Conclusion

Explainability of economic reasoning in judicial decisions is a fundamental component of modern competition-law adjudication. It requires courts to make the economic pathway from evidence to legal conclusion sufficiently transparent for the parties, appellate courts, regulators and the public.

The central requirement can be expressed as:

Economic evidence must not merely be cited; it must be reasoned through.

The leading cases—from United Brands, Continental Can and Hoffmann-La Roche through AKZO, Tetra Pak, Intel and CK Telecoms, together with U.S. authorities such as Philadelphia National Bank, Brown Shoe, Brooke Group and Trinko—demonstrate different dimensions of this principle.

The modern standard should therefore be:

Evidence → Economic methodology → Assumptions → Counterfactual → Causal mechanism → Competitive effect → Legal threshold → Remedy

In AI-intensive competition disputes, this becomes even more important. A court should never allow an economic model, algorithm, expert system or quantitative prediction to become a substitute for humanly intelligible judicial reasoning. The ultimate decision must remain attributable to the court and sufficiently explained to permit meaningful scrutiny, appeal and institutional accountability.