Optimal Legal Standards in Antitrust: Traditional v. Innovative Industries
A dominant firm undertakes a given business practice that is regulated by an antitrust enforcer by the choice of a legal standard, fines and accuracy. In traditional industries the incumbent and technology are already established, while in innovative industries the successful innovator becomes dominant. In the former case, marginal deterrence is key to enforcement, and discriminating rules are always dominant when fines are unbounded, or they are replaced with per-se illegality when fines are capped and the practice is likely to be socially harmful. In innovative industries marginal deterrence interacts with average deterrence (the impact of enforcement on innovation effort). Then, per-se legality is preferred when the practice is likely to be welfare beneficial, moving to a discriminating rule when social harm becomes more likely. When fines are capped, per se-legality, discriminating rule and per-se illegality are alternatively chosen when the practice is more and more likely to be socially harmful.
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