Regulation by Declaration: A Novel Regulatory Mechanism to Limit Abuse of Monopoly Power
26 Pages Posted: 10 May 2006
In most jurisdictions the legal inquiry into whether a firm enjoys a monopoly position is an integral part of an inquiry into whether a firm has abused its market power, and a positive answer to the first is a precondition for conducting the second. This combination creates some inefficiencies. Most notably, market participants, including the would-be monopolist, are uncertain of the monopolist's market position until its conduct is challenged before the courts. This paper explores a novel regulatory mechanism which seeks to separate the two stages of inquiry and to empower the antitrust authorities to declare a firm a monopoly even when it is not part of an inquiry into possible abusive conduct. As this article shows, the regulation by declaration mechanism has substantial benefits when applied to some categories of cases. It creates a red flag effect for the monopolist, which notifies it, in advance, of its legal position. It also creates a green flag effect that increases the incentives of market participants to monitor the conduct of the declared monopolist. As a result, the incentives of the declared monopolist to engage in anti-competitive conduct in the first place, are reduced. The declaratory mechanism also increases the level of coherency of law enforcement. At the same time, the declaratory mechanism comes with a significant price tag. Primarily, it requires the authority to spend significant resources on inquiring whether a firm holds a monopolistic position, despite the fact that it might never abuse its market power. Yet, as this article shows, in some categories of cases the benefits of the declaratory mechanism outweigh its costs. In such cases, the symbiosis that the proposed mechanism creates between government regulation and private orderings can increase the efficiency of regulatory tools designed to limit abusive conduct. The article, thus, further expands the literature on the restructuring of state regulation by mechanisms of self-control that operate in the shadow of the state.
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