Compensation of third party victims, and liability sharing rules in oligopolistic markets

Accidents causing environmental damages and/or harm to several (third party) victims may result from the joint action of competing firms, in such a way that it may be too costly or impossible for Courts to disentangle the specific contribution of each firm (cf noise pollution by Orly airport 1988, Cass. 2e civ, No 86-12.543; abestos litigation in USA 1994, Becker v. Baron Bros). Courts in many jurisdictions have the opportunity in such contexts to conclude for firms liability in solidum, and to allocate the burden of damages between offenders thanks to alternative apportionment rules. In this paper, we analyze the impacts of such liability sharing arrangements (per capita vs market share rule) on output and care decisions in an oligopoly. For a symmetric oligopoly, we find that compared to the per capita rule, the market share rule leads to a lower output level but also to lower care expenditures at equilibrium. However as the net effect on the expected harm to victims is ambiguous, it is not clear that the market share rule is dominating the per capita rule. Moreover, we also show that no sharing arrangement induce the optimal levels of output and care expenditures. For an asymmetric oligopoly, we find that equilibrium market shares between low cost firms and high cost firms are more dispersed under the per capita rule than under the market share rule. This suggests the existence of strong ties between competition law and liability law, some liability regimes for joint offenders cases developing more anticompetitive effects than others. To the least, our analysis shows that the per capita rule (market share rule) provides (preserves) competitive advantages to the most (least) efficient firms. We also find that high costs firms produce more and invest more in care under the per capita rule than under the market share rule; in contrast, the comparison is undertermined for low costs firms, and thus for the industry.(This abstract was borrowed from another version of this item.)