Two Contexts for Economics in Competition Law: Deterrence Effects and Competitive Effects

Abstract

Competition law accommodates two different contexts within which economics may be applied, each defined by a distinct type of cause-effect relationships. First, there are effects of competition law on business conduct (deterrence effects), embodying the fact that businesses take into account legal sanctions when planning their actions. The field studying these effects is Economic Analysis of Law. Second, there are effects of business conduct on competition (competitive effects), standing for the influence of businesses with market power on behavior of their customers, suppliers and competitors. This influence is analysed by Industrial Organization. Awareness of the distinction makes it possible to appreciate certain aspects of the application of economics to competition law issues. For instance, within the discourse on this application, the context of competitive effects receives significantly more attention than the context of deterrence effects. Also the often voiced observation that economics and competition law are closely related regards predominantly the former context.

Keywords: antitrust economics, deterrence effects, competitive effects, Economic Analysis of Law, Industrial Organization, Law and Economics

JEL Classification: K00, K21, K42, L40