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Optimal Sequential Investigation Rules in Competition Law

Author

Listed:
  • Wolfgang Kerber

    () (Philipps-University Marburg)

  • Jürgen-Peter Kretschmer

    () (Philipps-University Marburg)

  • Georg von Wangenheim

    () (University of Kassel)

Abstract

Although both in US antitrust and European competition law there is a clear evolution to a much broader application of "rule of reason" (instead of per-se rules), there is also an increasing awareness of the problems of a case-by-case approach. The "error costs approach" (minimizing the sum of welfare costs of decision errors and administrative costs) allows not only to decide between these two extremes, but also to design optimally differentiated rules (with an optimal depth of investigation) as intermediate solutions between simple per-se rules and a fullscale rule of reason. In this paper we present a decision-theoretic model that can be used as an instrument for deriving optimal rules for a sequential investigation process in competition law. Such a sequential investigation can be interpreted as a step-by-step sorting process into ever smaller subclasses of cases that help to discriminate better between pro- and anticompetitive cases. We analyze both the problem of optimal stopping of the investigation and optimal sequencing of the assessment criteria in an investigation. To illustrate, we show how a more differentiated rule on resale price maintenance could be derived after the rejection of its per-se prohibition by the US Supreme Court in the "Leegin" case 2007.

Suggested Citation

  • Wolfgang Kerber & Jürgen-Peter Kretschmer & Georg von Wangenheim, 2008. "Optimal Sequential Investigation Rules in Competition Law," MAGKS Papers on Economics 200816, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:200816
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/16-2008_kerber.pdf
    File Function: First version, 2008
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    References listed on IDEAS

    as
    1. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, March.
    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. Unknown & Michael Salinger & Dennis Carlton, 2007. "Economic Analysis of Competition Practices in the EU and the U.S.: A View from Chief Economists," CPI Journal, Competition Policy International, vol. 3.
    4. Kaplow, Louis, 1995. "A Model of the Optimal Complexity of Legal Rules," Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 150-163, April.
    5. 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.
    6. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(1), pages 57-84, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Oliver Budzinski & Isabel Ruhmer, 2010. "Merger Simulation In Competition Policy: A Survey," Journal of Competition Law and Economics, Oxford University Press, vol. 6(2), pages 277-319.
    2. Haucap, Justus, 2010. "Eingeschränkte Rationalität in der Wettbewerbsökonomie," DICE Ordnungspolitische Perspektiven 08, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Vanberg, Viktor J., 2009. "Consumer welfare, total welfare and economic freedom: on the normative foundations of competition policy," Freiburg Discussion Papers on Constitutional Economics 09/3, Walter Eucken Institut e.V..
    4. Jürgen-Peter Kretschmer, 2014. "How to deal with resale price maintenance: What can we learn from empirical results?," European Journal of Law and Economics, Springer, vol. 38(2), pages 343-368, October.

    More about this item

    Keywords

    Law Enforcement; Decision-Making; Competition Law; Antitrust Law;

    JEL classification:

    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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