Journal Articles

Innovation and Optimal Punishment, with Antitrust Applications

2014, Journal of Competition Law and Economics

Keith Hylton, Haizhen Lin

Abstract

This paper modifies the optimal penalty analysis by incorporating investment incentives with external benefits. In the models examined, the recommendation that the optimal penalty should internalize the marginal social harm is no longer valid as a general rule. We focus on antitrust applications. In light of the benefits from innovation, the optimal policy will punish monopolizing firms more leniently than suggested in the standard static model. It may be optimal not to punish the monopolizing firm at all, or to reward the firm rather than punish it. We examine the precise balance between penalty and reward in the optimal punishment scheme. 

Citation

Lin, Haizhen, and Keith Hylton (2014), "Innovation and Optimal Punishment, with Antitrust Applications," Journal of Competition Law and Economics, 10(1): 1-25

Keywords

optimal law enforcement, optimal antitrust penalty, monopolization, innovation, internalization, strict liability, static penalty