Innovation and Optimal Punishment, with Antitrust Applications
Forthcoming Journal of Competition Law & Economics
41 Pages Posted: 21 Nov 2008 Last revised: 22 Feb 2015
Date Written: July 24, 2013
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 In the models examined, the recommendation that the optimal penalty should internalize the marginal social harm is no longer valid as a general rule.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.
Keywords: optimal law enforcement, optimal antitrust penalty, monopolization, innovation, internalization, strict liability, static penalty
JEL Classification: D42, K14, K21, K42, L41, L43
Suggested Citation: Suggested Citation