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On Optimal Legal Standards for Competition Policy: A General Welfare-Based Analysis

Author

Listed:
  • Yannis Katsoulacos
  • David Ulph

Abstract

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.

Suggested Citation

  • Yannis Katsoulacos & David Ulph, 2008. "On Optimal Legal Standards for Competition Policy: A General Welfare-Based Analysis," Discussion Paper Series, Department of Economics 200812, Department of Economics, University of St. Andrews.
  • Handle: RePEc:san:wpecon:0812
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    File URL: http://www.st-andrews.ac.uk/~wwwecon/papers/dp0812.pdf
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    References listed on IDEAS

    as
    1. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
    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. repec:reg:rpubli:336 is not listed on IDEAS
    4. 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.
    5. 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).
    6. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Legal standards; decision theoretic approach; Per Se; Rule of Reason; Competition Policy; discriminating decision rules.;

    JEL classification:

    • K0 - Law and Economics - - General
    • K2 - Law and Economics - - Regulation and Business Law
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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