Competition Policy with Optimally Differentiated Rules Instead of 'Per Se Rules vs. Rule of Reason'

Abstract

Both in US antitrust and EU competition policy a development to a broader application of rule of reason instead of per se rules can be observed. In the European discussion the attempt to base competition policy on a more economic approach is mainly seen as improving the economic analysis in the assessment of specific cases. In this paper it is shown from a general law and economics-perspective that the application of rules instead of focusing on case-by-case analyses can have many advantages (less regulation costs, rent seeking and knowledge problems), although an additional differentiation of rules through a deeper assessment can also have advantages in regard to the reduction of decision errors of type I and II. After introducing the notion of a continuum of more or less differentiated rules, we show - based upon law and economics literature upon the optimal complexity of rules - in a simple model that a competition rule is optimally differentiated, if the marginal reduction of the sum of error costs (as the marginal benefit of differentiation) equals the marginal costs of differentiation. This model also allows for a more detailed analysis of the most important determinants of the optimal degree of rule-differentiation. From this law and economics perspective, competition policy should consist mainly of (more or less differentiated) rules and should only rarely rely on case-by-case analysis. This result suggests that the main task of a more economic approach is to use economics for the formulation of appropriate competition rules.

Keywords: Competition Policy, European Competition Law, Rule of Reason

JEL Classification: K21, K40, L40