Models of Market Behaviour and Competition Law: Exclusive Dealing

The paper arose out of the authors\u27 belief that economic principles should, and probably will, play a larger role in the decisions of the new Competition Tribunal. The objective of the paper is to clarify some of the underlying assumptions and choices implicit in the regulation of competitive behaviour by examining the literature on economic analysis of market behaviour written by both economists and lawyers. The authors are especially concerned with the recent emphasis on strategic behaviour and its contrast to the Chicago school approach which recommends less interference with market behaviour. They examine the differences between the assumptions of both models and then consider the implications for the regulation of exclusive dealing. In particular, the authors examine the requirement that competition must be substantially lessened, by developing two different approaches to a rule-of-reason test

Models of Market Behaviour and Competition Law: Exclusive Dealing

The paper arose out of the authors\u27 belief that economic principles should, and probably will, play a larger role in the decisions of the new Competition Tribunal. The objective of the paper is to clarify some of the underlying assumptions and choices implicit in the regulation of competitive behaviour by examining the literature on economic analysis of market behaviour written by both economists and lawyers. The authors are especially concerned with the recent emphasis on strategic behaviour and its contrast to the Chicago school approach which recommends less interference with market behaviour. They examine the differences between the assumptions of both models and then consider the implications for the regulation of exclusive dealing. In particular, the authors examine the requirement that competition must be substantially lessened, by developing two different approaches to a rule-of-reason test

Three Essays in Law and Economics

This thesis consists of three essays, which are concerned with policies for economic situations characterized by informationally weak buyers. The first and third are in related areas. They examine how the equilibrium distribution of market prices is affected when consumers are uninformed about various aspects of the market. The classical explanation of how competitive equilibrium can persist relies heavily on all consumers being perfectly informed about the prices offered in the market. The first essay generalizes the model due to Wilde and Schwartz (1979) which introduced the notion that a sufficient proportion of consumers need to be comparing prices in order that a competitive equilibrium obtains. They showed this under strong assumptions about cost and demand functions. Here, the result is generalized to allow downward sloping demand and U-shaped cost curves. Some comparative statistics are developed. The second essay uses the simple techniques of optimization to assess how well the remedies of lost profits, market damages and specific performance compensate the seller when a buyer breaches a contract. The conclusion is that in general lost profits overcompensates, and market damages undercompensates; while specific performance always compensates exactly. The merits of these remedies on the basis of economic efficiency and implementation costs are also discussed. The final essay explores how heterogeneous product markets behave when consumers are imperfectly informed about quality. Three models are introduced with varying assumptions about the nature of the lack of information about quality among consumers. If consumers can gain information about quality as they shop, then a large enough proportion of shoppers is sufficient to guarantee a competitive outcome. The critical proportion required is less when a larger proportion of consumers is naturally informed. Lastly, if the state of information does not improve with shopping, competitive outcomes can be generated only by educating the consumers.</p

Ideal Reactive Equilibrium

Refinements of the Nash equilibrium have followed the strategy of extending the idea of subgame perfection to incomplete information games. This has been achieved by appropriately restricting beliefs at unreached information sets. Each new refinement gives stricter and more mathematically-complicated limitations on permitted beliefs. A simpler approach is taken here, where the whole idea of beliefs is dispensed with, and a new equilibrium concept, called the ideal reactive equilibrium, that builds on some pioneering work by Amershi, Sadanand and Sadanand on thought process dynamics, is developed

Lost Profits, Market Damages, and Specific Performance: An Economic Analysis of Buyer's Breach.

Suppose a buyer enters into a contract with a seller and subsequently wishes not to perform. This paper examines a formal model of three standard remedies-lost profits, market damages, and specific performance-to assess how well each compensates the seller. By defin ition, specific performance compensates exactly, since effectively th e buyer must perform. The extent to which the other remedies compensa te accurately depends upon the ease with which the buyer could otherw ise resell the unwanted goods. The lost-profits remedy compensates we ll when the buyer is unable to resell and otherwise overcompensates; the opposite holds for the market-damages remedy.

Protection of Seller's Interests under Buyer's Breach.

This note concerns the selection of objectives to be held when compensating sellers for buyer's breach. Our legal system employs the objective of the protection of expectation interest, which holds that the seller should be made as well off as he or she would have been had the contract not been broken. Remedies resulting from this objective are very useful as a practical matter, since they indicate to the courts how to achieve the goal they desire. Another possible objective, which would be of academic interest mostly, is economic efficiency. In evaluating the economic efficiency of existing remedies, it is important to consider the effect on the entire market, since the welfare implications of the remedies are often not limited to the two parties to the contract.

Probationary Contracts in Agencies with Bilateral Asymmetric Information.

This paper examines a two-period principal and agent model where the agent's ability level is not observable to the principal and revealed to the agent only after the contract is signed. The value of the agent's output to the principal is affected by the agent's collegiality, which is unknown to the agent, but is observed by the principal. In these circumstances, with risk-neutral agents, the principal prefers a "probationary scheme" with second-period rehiring based on satisfactory first-period performance. Multiple equilibria results from this problem. However, the refinements literature provides a resolution to the multiplicity. Under certain conditions, the agent is rehired for sufficiently high first-period output; the superior agent will work harder in the first period than under recontracting, and the inferior-type agent will work less hard. The probationary scheme is shown to be Pareto superior to standard recontracting.