Optimal substantive standards for competition authorities

Yannis Katsoulacos, Eleni Metsiou, David Tregear Ulph

    Research output: Contribution to journalArticlepeer-review

    3 Citations (Scopus)

    Abstract

    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.
    Original languageEnglish
    Pages (from-to)273-295
    Number of pages23
    JournalJournal of Industry, Competition and Trade
    Volume16
    Issue number3
    Early online date30 Jan 2016
    DOIs
    Publication statusPublished - Sept 2016

    Keywords

    • Antitrust enforcement
    • Antitrust law
    • Consumer Surplus Standard
    • Substantive Standards
    • Total Welfare Standard

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