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Antitrust, legal standards and investment

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  • Immordino, Giovanni
  • Polo, Michele

Abstract

We study the interaction of a firm that invests in research and, if successful, undertakes a business practice to exploit the innovation, and an enforcer that sets legal standards, fines and accuracy. In this setting deterrence on actions interacts with deterrence on research. When the practice increases expected welfare the enforcer commits not to intervene by choosing a more rigid per-se legality rule to boost investment, moving to a more flexible discriminating rule combined with type-I accuracy for higher probabilities of social harm. Patent and antitrust policies act as substitutes in our setting; additional room for per-se (illegality) rules emerges when fines are bounded. Our results on optimal legal standards extend from the case of (uncertain) investment in research to the case of (deterministic) investment in physical assets.

Suggested Citation

  • Immordino, Giovanni & Polo, Michele, 2014. "Antitrust, legal standards and investment," International Review of Law and Economics, Elsevier, vol. 40(C), pages 36-50.
  • Handle: RePEc:eee:irlaec:v:40:y:2014:i:c:p:36-50
    DOI: 10.1016/j.irle.2014.08.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pavlova, Natalia & Shastitko, Andrey, 2014. "Effects of Hostility Tradition in Antitrust: Leniency Programs and Cooperation Agreements," EconStor Preprints 122051, ZBW - German National Library of Economics.
    2. Immordino, Giovanni & Pagano, Marco & Polo, Michele, 2011. "Incentives to innovate and social harm: Laissez-faire, authorization or penalties?," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 864-876, August.
    3. Shastitko, Andrey, 2014. "Effects of the Third Party Errors," Published Papers re9021, Russian Presidential Academy of National Economy and Public Administration.
    4. 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.
    5. SĖŒastitko, Andrej E., 2013. "Effects of third party errors," EconStor Preprints 121747, ZBW - German National Library of Economics.
    6. repec:eee:rujoec:v:2:y:2016:i:4:p:375-401 is not listed on IDEAS
    7. Harold Houba & Evgenia Motchenkova & Quan Wen, 2013. "Legal Principles in Antitrust Enforcement," Tinbergen Institute Discussion Papers 13-178/II, Tinbergen Institute.

    More about this item

    Keywords

    Legal standards; Accuracy; Antitrust; Innovative activity; Enforcement;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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