Vertical Antitrust Policy as a Problem of Inference

38 Pages Posted: 20 Jun 2005

See all articles by James C. Cooper

James C. Cooper

George Mason University - Antonin Scalia Law School, Faculty

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Daniel P. O'Brien

Compass Lexecon

Michael Vita

U.S. Federal Trade Commission - Bureau of Economics

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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 M. and O'Brien, Daniel P. and Vita, Michael, Vertical Antitrust Policy as a Problem of Inference. International Journal of Industrial Organization, Forthcoming. Available at SSRN: https://ssrn.com/abstract=702961

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 - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Daniel P. O'Brien

Compass Lexecon ( email )

555 12th Street NW
Washington, DC 20004
United States

Michael Vita

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

600 Pennsylvania Avenue, NW
Washington, DC 20580
United States

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