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Vertical Antitrust Policy as a Problem of Inference

39 Pages Posted: 6 Apr 2005  

James C. Cooper

George Mason University - Antonin Scalia Law School, Faculty

Luke Froeb

Vanderbilt University - Strategy and Business Economics

Daniel P. O'Brien

Bates White Economic Consulting

Michael Vita

U.S. Federal Trade Commission - Bureau of Economics

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Date Written: April 5, 2005

Abstract

The legality of nonprice vertical practices in the U.S. is determined by their likely competitive effects. An optimal enforcement rule combines evidence with theory to update prior beliefs, and specifies a decision that minimizes the expected loss. Because the welfare effects of vertical practices are theoretically ambiguous, optimal decisions depend heavily on prior beliefs, which should be guided by empirical evidence. Empirically, vertical restraints appear to reduce price and/or increase output. Thus, absent a good natural experiment to evaluate a particular restraint's effect, an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive.

Suggested Citation

Cooper, James C. and Froeb, Luke and O'Brien, Daniel P. and Vita, Michael, Vertical Antitrust Policy as a Problem of Inference (April 5, 2005). Vanderbilt Law and Economics Research Paper No. 05-12. Available at SSRN: https://ssrn.com/abstract=699601 or http://dx.doi.org/10.2139/ssrn.699601

James C. Cooper

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-9582 (Phone)

Luke M. Froeb (Contact Author)

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Daniel P. O'Brien

Bates White Economic Consulting ( email )

1300 I Street NW
Washington, DC 20005
United States

Michael Vita

U.S. Federal Trade Commission - Bureau of Economics ( email )

601 Pennsylvania Avenue, NW
Washington, DC 20580
United States

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