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Legal Uncertainty

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  • Lang, Matthias

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.

Suggested Citation

  • Lang, Matthias, 2014. "Legal Uncertainty," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100328, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100328
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    More about this item

    JEL classification:

    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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