Vertical Antitrust Policy as a Problem of Inference

39 Pages Posted: 6 Apr 2005

See all articles by James C. Cooper

James C. Cooper

George Mason University - Antonin Scalia Law School

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Daniel P. O'Brien

Microfoundations

Michael Vita

U.S. Federal Trade Commission - Bureau of Economics

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Date Written: April 5, 2005

Abstract

The legality of nonprice vertical practices in the U.S. is determined by their likely competitive effects. An optimal enforcement rule combines evidence with theory to update prior beliefs, and specifies a decision that minimizes the expected loss. Because the welfare effects of vertical practices are theoretically ambiguous, optimal decisions depend heavily on prior beliefs, which should be guided by empirical evidence. Empirically, vertical restraints appear to reduce price and/or increase output. Thus, absent a good natural experiment to evaluate a particular restraint's effect, an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive.

Suggested Citation

Cooper, James C. and Froeb, Luke M. and O'Brien, Daniel P. and Vita, Michael, Vertical Antitrust Policy as a Problem of Inference (April 5, 2005). Vanderbilt Law and Economics Research Paper No. 05-12, Available at SSRN: https://ssrn.com/abstract=699601 or http://dx.doi.org/10.2139/ssrn.699601

James C. Cooper

George Mason University - Antonin Scalia Law School ( email )

3301 Fairfax Drive
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Luke M. Froeb (Contact Author)

Vanderbilt University - Owen Graduate School of Management ( email )

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615-322-9057 (Phone)
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Daniel P. O'Brien

Microfoundations ( email )

14250 Hansel Ave
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United States

Michael Vita

U.S. Federal Trade Commission - Bureau of Economics ( email )

600 Pennsylvania Avenue, NW
Washington, DC 20580
United States

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