On Optimal Legal Standards for Competition Policy: A General Welfare-Based Analysis
AbstractWe present a new welfare-based framework for optimally choosing legal standards in a variety of regulatory contexts. We formalise the decision-theoretic considerations widely discussed in the existing literature by capturing the quality of the underlying analysis and information available to a regulatory authority, and we obtain a precise set of conditions for determining when a Rule of Reason approach would be able to effectively discriminate between benign and harmful actions and consequently dominate Per Se as a decision-making procedure. We then show that in a welfare-based approach the choice between legal standards must additionally take into account (i) indirect (deterrence) effects of the choice of standard on the behaviour of all firms when deciding whether or not to adopt a particular practice; and (ii) procedural effects of certain features of the administrative process in particular delays in reaching decisions; and the coverage rate of the actions taking place. We therefore derive necessary and sufficient conditions for adopting discriminating rules (such as Rule of Reason). We also examine what type of discriminating rule will be optimal under different conditions that characterise different business practices. We apply our framework to two recent landmark decisions – Microsoft vs. EU Commission (2007) and Leegin Vs. PSKS (2007) – in which a change in legal standards has been proposed, and show that it can powerfully clarify and enhance the arguments deployed in these cases.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Andrews in its series Discussion Paper Series, Department of Economics with number 200812.
Date of creation: 15 Oct 2008
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Find related papers by JEL classification:
- K0 - Law and Economics - - General
- K2 - Law and Economics - - Regulation and Business Law
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
- L4 - Industrial Organization - - Antitrust Issues and Policies
- L5 - Industrial Organization - - Regulation and Industrial Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-31 (All new papers)
- NEP-COM-2009-01-31 (Industrial Competition)
- NEP-LAW-2009-01-31 (Law & Economics)
- NEP-REG-2009-01-31 (Regulation)
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