Vertical antitrust policy as a problem of inference

The legality of nonprice vertical practices in the U.S. is determined by their likely competitive effects. An optimal enforcement rule combines evidence with theory to update prior beliefs, and specifies a decision that minimizes the expected loss. Because the welfare effects of vertical practices a...

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Bibliographic Details
Published in:International journal of industrial organization 2005-09, Vol.23 (7), p.639-664
Main Authors: Cooper, James C., Froeb, Luke M., O'Brien, Dan, Vita, Michael G.
Format: Article
Language:English
Subjects:
Anti-trust legislation
Antitrust laws
Competition
Economic analysis
Effects
Game theory
Industrial economics
Industrial organization
Industrial policy
Inference
Legal aspects
Loss
Optimal enforcement rule
Studies
Vertical antitrust policy
Vertical markets
Welfare
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Summary:The legality of nonprice vertical practices in the U.S. is determined by their likely competitive effects. An optimal enforcement rule combines evidence with theory to update prior beliefs, and specifies a decision that minimizes the expected loss. Because the welfare effects of vertical practices are theoretically ambiguous, optimal decisions depend heavily on prior beliefs, which should be guided by empirical evidence. Empirically, vertical restraints appear to reduce price and/or increase output. Thus, absent a good natural experiment to evaluate a particular restraint's effect, an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive.
ISSN:0167-7187
1873-7986
DOI:10.1016/j.ijindorg.2005.04.003