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Seller liability versus platform liability: optimal liability rule and law enforcement in the platform economy

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  • Jeong-Yoo Kim

    (Kyung Hee University)

Abstract

In this paper, we examine whether the platform as well as the sellers violating the intellectual property right (IPR) should be liable. We first show that platform liability is socially better if the number of potential victims is very large. This is mainly due to the general enforcement effect of the platform’s monitoring activity. In the case of specific enforcement in which each patent or trademark holder selling legitimate products tries to detect only the IP violations of its own brand, the monitoring activity of each seller has no spill-over effect, so that the deterrence effect of its monitoring activity remains the same regardless of the number of patent holders. However, in the case of general enforcement in which the platform monitors the possibility of any IP infringement including all legitimate products on the platform, the deterrence effect of its monitoring activity exceeds the monitoring cost if the number of patent holders is large. Then, in a simple model of two sellers without general enforcement effect, we show that under seller liability, awarding punitive damages with punitive multiplier equal to the reciprocal of the enforcement probability induces social optimum in which infringing entry occurs if and only if it is efficient, while platform liability may not induce social optimum.

Suggested Citation

  • Jeong-Yoo Kim, 2024. "Seller liability versus platform liability: optimal liability rule and law enforcement in the platform economy," European Journal of Law and Economics, Springer, vol. 58(1), pages 119-148, August.
    • Handle: RePEc:kap:ejlwec:v:58:y:2024:i:1:d:10.1007_s10657-024-09813-z
    DOI: 10.1007/s10657-024-09813-z
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    References listed on IDEAS

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    1. Yassine Lefouili & Leonardo Madio, 2022. "The economics of platform liability," European Journal of Law and Economics, Springer, vol. 53(3), pages 319-351, June.
    2. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    3. Gomes, Renato & Mantovani, Andrea, 2020. "Regulating Platform Fees under Price Parity," CEPR Discussion Papers 15048, C.E.P.R. Discussion Papers.
    4. Polinsky, A. Mitchell & Shavell, Steven, 1984. "The optimal use of fines and imprisonment," Journal of Public Economics, Elsevier, vol. 24(1), pages 89-99, June.
    5. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    6. Shavell, Steven, 1991. "Specific versus General Enforcement of Law," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1088-1108, October.
    7. Alessandro De Chiara & Juan José Ganuza & Fernando Gómez & Ester Manna & Adrián Segura, 2023. "Platform liability with reputational sanctions," Economics Working Papers 1868, Department of Economics and Business, Universitat Pompeu Fabra.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Infringement of intellectual property right; Joint and several liability; Liability rule; Property rule; Platform liability; Seller liability; Trademark;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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