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On Optimal Legal Standards For Competition Policy: A General Welfare‐Based Analysis

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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.

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  • Yannis Katsoulacos & David Ulph, 2009. "On Optimal Legal Standards For Competition Policy: A General Welfare‐Based Analysis," 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
    DOI: 10.1111/j.1467-6451.2009.00393.x
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    References listed on IDEAS

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    1. Arndt Christiansen & Wolfgang Kerber, 2006. "Competition Policy With Optimally Differentiated Rules Instead Of “Per Se Rules Vs Rule Of Reason”," Journal of Competition Law and Economics, Oxford University Press, vol. 2(2), pages 215-244.
    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," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(1), pages 95-116, April.
    4. Padilla, Jorge & Evans, David S., 2004. "Designing Antitrust Rules for Assessing Unilateral Practices: A Neo-Chicago Approach," CEPR Discussion Papers 4625, C.E.P.R. Discussion Papers.
    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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    Citations

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    Cited by:

    1. Antony W. Dnes & Raymond Swaray, 2020. "Criminalizing price‐fixing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1417-1430, December.
    2. Seifert, Jacob, 2020. "Optimal legal standards for competition policy revisited," Economics Letters, Elsevier, vol. 194(C).
    3. Katsoulacos, Yannis & Ulph, David, 2020. "Optimal legal standards for competition policy further re-visited," Economics Letters, Elsevier, vol. 196(C).
    4. Shastitko, Andrey, 2014. "Effects of the Third Party Errors," Published Papers re9021, Russian Presidential Academy of National Economy and Public Administration.
    5. Lang, Matthias, 2017. "Legal uncertainty as a welfare enhancing screen," European Economic Review, Elsevier, vol. 91(C), pages 274-289.
    6. Mungan, Murat C. & Wright, Joshua, 2022. "Optimal standards of proof in antitrust," International Review of Law and Economics, Elsevier, vol. 71(C).
    7. Katsoulacos, Yannis & Ulph, David, 2017. "Regulatory decision errors, Legal Uncertainty and welfare: A general treatment," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 326-352.
    8. S. Avdasheva & S. Golovanova & Y. Katsoulacos, 2019. "Optimal Institutional Structure of Competition Authorities Under Reputation Maximization: A Model and Empirical Evidence from the Case of Russia," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(2), pages 251-282, March.
    9. Bisceglia, Michele & Piccolo, Salvatore & Tarantino, Emanuele, 2023. "M&A advisory and the merger review process," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    10. Immordino, Giovanni & Polo, Michele, 2014. "Antitrust, legal standards and investment," International Review of Law and Economics, Elsevier, vol. 40(C), pages 36-50.
    11. Yannis Katsoulacos & Svetlana Avdasheva & Svetlana Golovanova, 2021. "Determinants of the (Slow) Development of Effect-Based Competition Enforcement: Testing the Impact of Judicial Review on the Choice of Legal Standards by Competition Authorities," Journal of Industry, Competition and Trade, Springer, vol. 21(1), pages 103-122, March.
    12. Keith N. Hylton & Wendy Xu, 2020. "Error Costs, Ratio Tests, and Patent Antitrust Law," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(4), pages 563-591, June.
    13. 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.
    14. Valentiny, Pál & Antal-Pomázi, Krisztina, 2023. "Versenyközgazdászok [Competition economists]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 647-671.

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