Optimal substantive standards for competition authorities
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Recent years have witnessed a significant resurgence in the debate concerning the optimal substantive standard to be used in the enforcement of competition law. One of the arguments proposed for using a Consumer Surplus standard, is that, when firms can choose from a number of mutually exclusive actions, it may induce firms to adopt actions that lead to a higher level of total welfare than would a Total Welfare standard. This important basic insight, initially due to Lyons (2002), has been discussed and extended in the recent literature always in the context of mergers. In this paper we generalise and re-examine this argument for any potentially anti-competitive action – we have in particular in mind actions often challenged as attempted monopolisation (abuse of dominance) or vertical restraints, taken by firms in different environments. We show that in the absence of any efficiencies the two standards lead to exactly the same outcomes but a choice between them becomes important in the presence of efficiencies. With positive marginal-cost reducing efficiencies we confirm the presence of what we term a Lyons-effect in our more general setting. We then examine how the choice of standard depends on a number of relevant parameters. Most important in terms of their policy implications are the results that the Consumer Surplus standard will be the optimal choice, when the extant market power is significant, when the size of marginal cost-reducing efficiency effects is large and when the difference in the market power raising effects of mutually exclusive actions is large. These results are important since they suggest that in all cases where significant extant market power is a prerequisite for the enforcement of Competition Law it is best to use a Consumer Surplus standard.
Katsoulacos , Y , Metsiou , E & Ulph , D T 2016 , ' Optimal substantive standards for competition authorities ' Journal of Industry, Competition and Trade , vol 16 , no. 3 , pp. 273-295 . DOI: 10.1007/s10842-015-0214-8
Journal of Industry, Competition and Trade
© Springer Science+Business Media New York 2016 This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://dx.doi.org/10.1007/s10842-015-0214-8
DescriptionInitial research was funded by an ESRC grant RES-052-23-221I “Optimal Enforcement and Decision Structures for Competition Policy” and subsequently it has been co-financed by the European Union (European Social Fund – ESF) and Greek National funds through the Operational Program “Education and Lifelong Learning” of the National Strategic reference Framework (NSRF) – Research funding program: ARISTEIA – Competition, Law Enforcement and Growth.
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