Framework for Decision-Making
Framework for Decision-Making
This chapter presents a framework for assessing competition rules. An economic approach to limiting coordinated oligopolistic price elevation seeks to determine liability and apply sanctions based primarily on the deterrence benefits that result as well as any chilling of desirable behavior that may ensue, while also considering the expense of operating the regime. In assessing the cost of false positives, attention focuses on incidental negative behavioral effects, not on mistakes that are defined by reference to proxy legal standards and then given arbitrary weight. An example that will prove important involves imposing sanctions on firms that actually charged elevated oligopoly prices, the prospect of which deters such behavior. This outcome is favorable in terms of social welfare but under some legal standards would be deemed to be an undesirable error in cases in which the firms did not employ forbidden modes of communication.
Keywords: competition rules, liability, sanctions, deterrence benefits, negative behavioral effects, decision-making framework
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