Innovation and Optimal Punishment, with Antitrust Applications

Forthcoming Journal of Competition Law & Economics

Boston Univ. School of Law Working Paper No. 08-33

41 Pages Posted: 21 Nov 2008 Last revised: 22 Feb 2015

Keith N. Hylton

Boston University - School of Law

Haizhen Lin

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: July 24, 2013

Abstract

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 In the models examined, the recommendation that the optimal penalty should internalize the marginal social harm is no longer valid as a general rule.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

Hylton, Keith N. and Lin, Haizhen, Innovation and Optimal Punishment, with Antitrust Applications (July 24, 2013). Forthcoming Journal of Competition Law & Economics; Boston Univ. School of Law Working Paper No. 08-33. Available at SSRN: https://ssrn.com/abstract=1305147 or http://dx.doi.org/10.2139/ssrn.1305147

Keith N. Hylton (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States
617-353-8959 (Phone)
617-353-3077 (Fax)

Haizhen Lin

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

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