Transaction Cost Economics, Antitrust Rules and Remedies

Posted: 5 Dec 2001

See all articles by Paul L. Joskow

Paul L. Joskow

Alfred P. Sloan Foundation; Massachusetts Institute of Technology (MIT) - Department of Economics

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Abstract

This paper discusses the application of transaction cost economics (TCE) to the specification of antitrust legal rules and antitrust remedies and explains why the application of TCE analysis may lead to very different legal rules and remedies from approaches that ignore TCE considerations. Antitrust legal rules must be sensitive to the attributes of the institutions that we rely upon to enforce antitrust policies, the information and analytical capabilities these institutions possess, the uncertainties they must confront in the diagnosis and mitigation of anticompetitive behavior and market structures, and the associated costs of Type I and Type II errors implied by alternative legal rules and remedies. Modern imperfect competition theory which fails to take TCE principles into account is likely to lead to poor legal rules and remedies. These conclusions are supported by a discussion of the Kodak case and its progeny and of the proposed divestiture remedies approved by the District Court's decision in the Microsoft case.

Suggested Citation

Joskow, Paul L., Transaction Cost Economics, Antitrust Rules and Remedies. Journal of Law, Economics, and Organization, Vol. 18, No. 1, pp. 95-116, 2002, Available at SSRN: https://ssrn.com/abstract=291796

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