Innovation and Optimal Punishment, with Antitrust Applications
Keith N. Hylton
Boston University - School of Law
Indiana University - Kelley School of Business - Department of Business Economics & Public Policy
July 24, 2013
Forthcoming Journal of Competition Law & Economics
Boston Univ. School of Law Working Paper No. 08-33
This paper modifies the optimal penalty analysis by incorporating investment incentives with external benefits. In the models examined, the recommendation that the optimal penalty should internalize the marginal social harm is no longer valid as a general rule. We focus on antitrust applications. In light of the benefits from innovation, the optimal policy will punish monopolizing firms more leniently than suggested in the standard static model. It may be optimal not to punish the monopolizing firm at all, or to reward the firm rather than punish it. We examine the precise balance between penalty and reward in the optimal punishment scheme.
Number of Pages in PDF File: 41
Keywords: optimal law enforcement, optimal antitrust penalty, monopolization, innovation, internalization, strict liability, static penalty
JEL Classification: D42, K14, K21, K42, L41, L43Accepted Paper Series
Date posted: November 21, 2008 ; Last revised: February 22, 2015
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