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Optimal Sequential Investigation Rules in Competition Law

  • Wolfgang Kerber


    (Philipps-University Marburg)

  • Jürgen-Peter Kretschmer


    (Philipps-University Marburg)

  • Georg von Wangenheim


    (University of Kassel)

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.

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Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200816.

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Length: 32 pages
Date of creation: 2008
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200816
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  1. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer, vol. 13(1), pages 57-84, April.
  2. 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.
  3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
  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 150-63, April.
  5. 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.
  6. 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.
  7. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521816632.
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