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Optimal Sequential Investigation Rules in Competition Law

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Author Info

  • Wolfgang Kerber

    ()
    (Philipps-University Marburg)

  • Jürgen-Peter Kretschmer

    ()
    (Philipps-University Marburg)

  • Georg von Wangenheim

    ()
    (University of Kassel)

Abstract

Although both in US antitrust and European competition law there is a clear evolution to a much broader application of "rule of reason" (instead of per-se rules), there is also an increasing awareness of the problems of a case-by-case approach. The "error costs approach" (minimizing the sum of welfare costs of decision errors and administrative costs) allows not only to decide between these two extremes, but also to design optimally differentiated rules (with an optimal depth of investigation) as intermediate solutions between simple per-se rules and a fullscale rule of reason. In this paper we present a decision-theoretic model that can be used as an instrument for deriving optimal rules for a sequential investigation process in competition law. Such a sequential investigation can be interpreted as a step-by-step sorting process into ever smaller subclasses of cases that help to discriminate better between pro- and anticompetitive cases. We analyze both the problem of optimal stopping of the investigation and optimal sequencing of the assessment criteria in an investigation. To illustrate, we show how a more differentiated rule on resale price maintenance could be derived after the rejection of its per-se prohibition by the US Supreme Court in the "Leegin" case 2007.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/16-2008_kerber.pdf
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200816.

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Length: 32 pages
Date of creation: 2008
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200816

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Related research

Keywords: Law Enforcement; Decision-Making; Competition Law; Antitrust Law;

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References

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  1. Kaplow, Louis, 1995. "A Model of the Optimal Complexity of Legal Rules," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 150-63, April.
  2. Paul L. Joskow, 2002. "Transaction Cost Economics, Antitrust Rules, and Remedies," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 95-116, April.
  3. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer, vol. 13(1), pages 57-84, April.
  4. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, April.
  5. Isaac Ehrlich & Richard A. Posner, 1974. "An Economic Analysis of Legal Rulemaking," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 257-286, January.
  6. repec:fth:eeccco:119 is not listed on IDEAS
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Cited by:
  1. Haucap, Justus, 2010. "Eingeschränkte Rationalität in der Wettbewerbsökonomie," DICE Ordnungspolitische Perspektiven 08, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Oliver Budzinski & Isabel Ruhmer, 2008. "Merger Simulation in Competition Policy: A Survey," MAGKS Papers on Economics 200807, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Vanberg, Viktor J., 2009. "Consumer welfare, total welfare and economic freedom: on the normative foundations of competition policy," Freiburg Discussion Papers on Constitutional Economics 09/3, Walter Eucken Institut e.V..

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