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ON OPTIMAL LEGAL STANDARDS FOR COMPETITION POLICY: A GENERAL WELFARE-BASED ANALYSIS -super-

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  • YANNIS KATSOULACOS
  • DAVID ULPH

Abstract

We present a new welfare-based framework for optimally choosing legal standards (decision rules). 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 necessary and sufficient set of conditions for determining when an Economics or Effects-Based approach would be able to discriminate effectively between benign and harmful actions and consequently dominate per se as a decision-making procedure. We then show that in a full 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 investigation of only a fraction of the actions taking place. We therefore derive necessary and sufficient conditions for adopting Discriminating Rules , as advocated by the Effects-Based approach . 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. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

Suggested Citation

  • Yannis Katsoulacos & David Ulph, 2009. "ON OPTIMAL LEGAL STANDARDS FOR COMPETITION POLICY: A GENERAL WELFARE-BASED ANALYSIS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 410-437, September.
  • Handle: RePEc:bla:jindec:v:57:y:2009:i:3:p:410-437
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    References listed on IDEAS

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    1. Arndt Christiansen and Wolfgang Kerber & Wolfgang Kerber, 2006. "Competition Policy with Optimally Differentiated Rules Instead of "Per se Rules vs. Rule of Reason"," Marburg Working Papers on Economics 200606, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. 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.
    3. 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.
    4. repec:oup:jcomle:v:2:y:2006:i:2:p:215-244. is not listed on IDEAS
    5. repec:reg:rpubli:336 is not listed on IDEAS
    6. Giovanni Immordino & Michele Polo, 2008. "Judicial Errors and Innovative Activity," Working Papers 337, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. John Vickers, 2007. "Competition Law and Economics: A Mid-Atlantic Viewpoint," Antitrust Chronicle, Competition Policy International, vol. 3.
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    Cited by:

    1. Lang, Matthias, 2017. "Legal uncertainty as a welfare enhancing screen," European Economic Review, Elsevier, vol. 91(C), pages 274-289.
    2. Immordino, Giovanni & Polo, Michele, 2014. "Antitrust, legal standards and investment," International Review of Law and Economics, Elsevier, vol. 40(C), pages 36-50.
    3. Yannis Katsoulacos & David Ulph, 2016. "Legal uncertainty, competition law enforcement procedures and optimal penalties," European Journal of Law and Economics, Springer, vol. 41(2), pages 255-282, April.
    4. Juwon Kwak, 2016. "Optimal antitrust enforcement: information cost and deterrent effect," European Journal of Law and Economics, Springer, vol. 41(2), pages 371-391, April.
    5. Tim Reuter, 2016. "Private antitrust enforcement and the role of harmed parties in public enforcement," European Journal of Law and Economics, Springer, vol. 41(3), pages 479-507, June.
    6. Shastitko, Andrey, 2014. "Effects of the Third Party Errors," Published Papers re9021, Russian Presidential Academy of National Economy and Public Administration.
    7. repec:eee:indorg:v:53:y:2017:i:c:p:326-352 is not listed on IDEAS
    8. Giovanni Immordino & Michele Polo, 2011. "Optimal Legal Standards in Antitrust: Traditional v. Innovative Industries," Working Papers 420, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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