Legal Uncertainty, Penalties and the Limits to Effects-Based Standards

This Chapter reviews some recent literature on optimal Legal Standards and in particular on how the optimal standard to be chosen is affected by legal uncertainty and by the penalties imposed by the Competition Authority for violating Competition Law. It shows that, contrary to the claims of many legal scholars: effects-based standards do not necessarily entail legal uncertainty; decision errors are neither a necessary nor sufficient conditions for existence of legal uncertainty; if penalties can be set appropriately Effects-Based standards with some degree of legal uncertainty welfare dominate Effects-Based standards with no legal uncertainty which in turn welfare dominate Per Se Standards; penalties may be higher when there is some degree of legal uncertainty than when there is none.