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Optimal antitrust enforcement: Competitor suits, entry, and post-entry competition

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  • Schwartz, Warren F.
  • Wickelgren, Abraham L.
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    Abstract

    We consider the effect of competitor suits in a model in which an incumbent can take an action that deters the entry of a rival. The option to sue the incumbent can provide a subsidy for entry which can maintain competition even when the incumbent takes this action. Liability for the entrant's lost profits, however, can soften post-entry competition. If the incumbent's action is potentially efficient, taking market structure as given, e.g. it reduces her costs, then competitor suits can generate some post-entry competition without deterring this efficient cost-reduction. If the incumbent's action is inefficient, e.g. it increases the rival's costs (but does not reduce the incumbent's costs), then competitor suits (even with maximal antitrust liability) cannot deter the incumbent from increasing the rival's costs by at least a small amount. Thus, the paper suggests that while competitor suits have advantages for efficient actions that deter efficient entry, they do not work well for inefficient actions that deter entry.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 95 (2011)
    Issue (Month): 7 ()
    Pages: 967-972

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    Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:967-972

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    Web page: http://www.elsevier.com/locate/inca/505578

    Related research

    Keywords: Antitrust enforcement; Competitor suits;

    References

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    1. Shavell, Steven, 1993. "The Optimal Structure of Law Enforcement," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 255-87, April.
    2. Besanko, David & Spulber, Daniel F, 1990. "Are Treble Damages Neutral? Sequential Equilibrium and Private Antitrust Enforcement," American Economic Review, American Economic Association, vol. 80(4), pages 870-87, September.
    3. Bourjade, Sylvain & Rey, Patrick & seabright, paul, 2009. "Private antitrust enforcement in the presence of pre-trial bargaining," MPRA Paper 34840, University Library of Munich, Germany.
    4. Baker, Jonathan B, 1988. "Private Information and the Deterrent Effect of Antitrust Damage Remedies," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(2), pages 385-408, Fall.
    5. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    6. Gianmaria Martini & Cinzia Rovesti, 2004. "Antitrust policy and price collusion. Public agencies vs delegation," Recherches économiques de Louvain, De Boeck Université, vol. 70(2), pages 127-151.
    7. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    8. Baumol, William J & Ordover, Janusz A, 1985. "Use of Antitrust to Subvert Competition," Journal of Law and Economics, University of Chicago Press, vol. 28(2), pages 247-65, May.
    9. Salant, Stephen W, 1987. "Treble Damage Awards in Private Lawsuits for Price Fixing," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1326-36, December.
    10. Wickelgren Abraham L., 2004. "A Model of Welfare-Reducing Settlement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-22, May.
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