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Optimal Legal Standards in Antitrust: Traditional v. Innovative Industries

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  • Giovanni Immordino
  • Michele Polo

Abstract

A dominant firm undertakes a given business practice that is regulated by an antitrust enforcer by the choice of a legal standard, fines and accuracy. In traditional industries the incumbent and technology are already established, while in innovative industries the successful innovator becomes dominant. In the former case, marginal deterrence is key to enforcement, and discriminating rules are always dominant when fines are unbounded, or they are replaced with per-se illegality when fines are capped and the practice is likely to be socially harmful. In innovative industries marginal deterrence interacts with average deterrence (the impact of enforcement on innovation effort). Then, per-se legality is preferred when the practice is likely to be welfare beneficial, moving to a discriminating rule when social harm becomes more likely. When fines are capped, per se-legality, discriminating rule and per-se illegality are alternatively chosen when the practice is more and more likely to be socially harmful.

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Bibliographic Info

Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 420.

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Date of creation: 2011
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Handle: RePEc:igi:igierp:420

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  1. Richard Nelson, 1962. "Introduction to "The Rate and Direction of Inventive Activity: Economic and Social Factors"," NBER Chapters, National Bureau of Economic Research, Inc, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 1-16 National Bureau of Economic Research, Inc.
  2. Giovanni Immordino & Marco Pagano & Michele Polo, 2009. "Incentives to Innovate and Social Harm:Laissez-Faire, Authorization or Penalties?," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 349, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Henrik Lando, 2006. "Does Wrongful Conviction Lower Deterrence?," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 35(2), pages 327-337, 06.
  4. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(2), pages 429-36, March.
  6. Yannis Katsoulacos & David Ulph, 2009. "ON OPTIMAL LEGAL STANDARDS FOR COMPETITION POLICY: A GENERAL WELFARE-BASED ANALYSIS -super-* ," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 410-437, 09.
  7. Gual, Jordi & Hellwig, Martin F. & Perrot, Anne & Polo, Michele & Rey, Patrick & Schmidt, Klaus M. & Stenbacka, Rune, 2005. "An Economic Approach to Article 82," Discussion Papers in Economics, University of Munich, Department of Economics 745, University of Munich, Department of Economics.
  8. Harold M. Groves, Chairman, Universities-National Bureau Committee for Economic Research, 1962. "The Rate and Direction of Inventive Activity: Economic and Social Factors," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number univ62-1.
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