The Role of Legal Principles in the Economic Analysis of Competition Policy

35 Pages Posted: 11 Jan 2014

See all articles by Harold Houba

Harold Houba

VU University Amsterdam, Department of Econometrics; VU University Amsterdam, Tinbergen Institute

Evgenia Motchenkova

VU University Amsterdam - Department of Economics; TILEC

Quan Wen

University of Washington

Date Written: January 2014

Abstract

We study the impact of legal principles on the design and the effectiveness of antitrust …fines. Modern antitrust enforcement obeys four basic legal principles: punishments should fit the crime, proportionality, bankruptcy considerations, and minimum fines. We integrate these principles into a Bertrand oligopoly model, where bankruptcy considerations ensure abnormal cartel pro…fits. We discuss the optimal legally-constrained …fine schedule that achieves maximal social welfare under these legal principles. This fine schedule induces collusion on a lower price by making it more attractive than collusion on higher prices. This fine structure depends on the characteristics of competition, legal restrictions, and market conditions and can be related to price-cap regulation implemented in several sectors, such as electricity and telecom. We analyze the welfare implications of limited liability restrictions and minimum …fines. We conclude that regulations aiming at either reducing legal ceilings or raising minimum …fines reduce social welfare and should better be avoided.

Keywords: Antitrust enforcement, Antitrust Law, Cartel, Oligopoly, Repeated game

JEL Classification: L4, K21, D43, C73

Suggested Citation

Houba, Harold E. D. and Houba, Harold E. D. and Motchenkova, Evgenia and Wen, Quan, The Role of Legal Principles in the Economic Analysis of Competition Policy (January 2014). TILEC Discussion Paper No. 2014-002, Available at SSRN: https://ssrn.com/abstract=2377315 or http://dx.doi.org/10.2139/ssrn.2377315

Harold E. D. Houba (Contact Author)

VU University Amsterdam, Department of Econometrics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

VU University Amsterdam, Tinbergen Institute ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

Evgenia Motchenkova

VU University Amsterdam - Department of Economics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Quan Wen

University of Washington ( email )

Seattle, WA 98195
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
277
Abstract Views
2,481
rank
154,948
PlumX Metrics