1 Legal Uncertainty and the Choice of Enforcement Procedures 1

We formalise for the first time the concept of Legal Uncertainty, identifying its different dimensions and analysing the implications for the design of enforcement procedures (type of legal standards and level of fines) used by regulatory / competition authorities. We show that there is no monotonic link between Legal Uncertainty and welfare, which can be higher when there is some degree of Legal Uncertainty than when there is none. Indeed, with endogenous penalties there is a clear welfare ranking of procedures: an Effects-Based (or, Rule-of-Reason) procedure with what we call Partial Legal Uncertainty dominates that where there is No Legal Uncertainty; which dominates that with what we call Complete Legal Uncertainty which in turn dominates Per Se. Further, we find that in situations with Partial Legal Uncertainty an authority will want to set a higher penalty than when there is No Legal Uncertainty. However under certain conditions where there is Complete Legal Uncertainty the penalty chosen by the authority should be zero, though in others it should be higher than with Partial Legal Uncertainty. Thus, our analysis offers important grounds for scepticism about arguments that Effects-Based procedures are les