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Innovation and Optimal Punishment, with Antitrust Applications

Author

Listed:
  • Keith N. Hylton

    (Boston University Law School)

  • Haizhen Lin

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

This paper modifies the optimal penalty analysis by incorporating investment incentives with external benefits. In the models examined, the recommendation that the optimal penalty should internalize the marginal social harm is no longer valid as a general rule. We focus on antitrust applications. In light of the benefits from innovation, the optimal policy will punish monopolizing firms more leniently than suggested in the standard static model. It may be optimal not to punish the monopolizing firm at all, or to reward the firm rather than punish it. We examine the precise balance between penalty and reward in the optimal punishment scheme.

Suggested Citation

  • Keith N. Hylton & Haizhen Lin, 2008. "Innovation and Optimal Punishment, with Antitrust Applications," Working Papers 2008-09, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2008-09
    as

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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2008-09-hylton-lin.pdf
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    References listed on IDEAS

    as
    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    2. Polinsky, A Mitchell & Shavell, Steven, 1992. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 133-148, April.
    3. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    4. David S. Evans & Richard Schmalensee, 2002. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Chapters,in: Innovation Policy and the Economy, Volume 2, pages 1-50 National Bureau of Economic Research, Inc.
    5. Peterman, John L, 1979. "The International Salt Case," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 351-364, October.
    6. Tom Lee & Louis L. Wilde, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 429-436.
    7. repec:reg:rpubli:443 is not listed on IDEAS
    8. Keith N. Hylton, 1996. "Optimal Law Enforcement and Victim Precaution," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 197-206, Spring.
    9. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    optimal law enforcement; optimal antitrust penalty; monopolization; innovation; internalization; strict liability; static penalty;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • 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
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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