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Legal Uncertainty

Matthias Lang

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: This article considers legal uncertainty in competition law. Contrary to perceived wisdom, I show that the uncertainty itself might have positive welfare effects, if it is sufficiently small. Legal uncertainty functions as a screening device provided that the threshold of legality is uncertain. Then, near the threshold, firms decision whether to pursue controversial business practices varies with their type. This allows mitigating the policy restrictions, as the competition authority cannot perfectly observe the types of the firms. Such an effect might influence the trade-off between per-se rules and rules of reason in competition law. In an extension, I discuss the effects of introducing ambiguity about the fine. I prove that this ambiguity mitigates enforcement problems if auditing costs are sufficiently high.

JEL-codes: K20 K42 L51 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100328

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