On Optimal Legal Standards for Competition Policy: A General Welfare-Based Analysis
We present a new welfare-based framework for optimally choosing legal standards in a variety of regulatory contexts. We formalise the decision-theoretic considerations widely discussed in the existing literature by capturing the quality of the underlying analysis and information available to a regulatory authority, and we obtain a precise set of conditions for determining when a Rule of Reason approach would be able to effectively discriminate between benign and harmful actions and consequently dominate Per Se as a decision-making procedure. We then show that in a welfare-based approach the choice between legal standards must additionally take into account (i) indirect (deterrence) effects of the choice of standard on the behaviour of all firms when deciding whether or not to adopt a particular practice; and (ii) procedural effects of certain features of the administrative process in particular delays in reaching decisions; and the coverage rate of the actions taking place. We therefore derive necessary and sufficient conditions for adopting discriminating rules (such as Rule of Reason). We also examine what type of discriminating rule will be optimal under different conditions that characterise different business practices. We apply our framework to two recent landmark decisions – Microsoft vs. EU Commission (2007) and Leegin Vs. PSKS (2007) – in which a change in legal standards has been proposed, and show that it can powerfully clarify and enhance the arguments deployed in these cases.
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- Giovanni Immordino & Michele Polo, 2008. "Judicial Errors, Legal Standards and Innovative Activity," CSEF Working Papers 196, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 04 Jun 2010.
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- 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.
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- Arndt Christiansen and Wolfgang Kerber & Wolfgang Kerber, 2006. "Competition Policy with Optimally Differentiated Rules Instead of "Per se Rules vs. Rule of Reason"," Marburg Working Papers on Economics 200606, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- David S. Evans & A. Jorge Padilla, 2004.
"Designing Antitrust Rules For Assessing Unilateral Practices: A Neo-Chicago Approach,"
- Evans, David S & Padilla, Atilano Jorge, 2004. "Designing Antitrust Rules for Assessing Unilateral Practices: A Neo-Chicago Approach," CEPR Discussion Papers 4625, C.E.P.R. Discussion Papers.
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