Preliminary – Please Do Not Quote Without the Authors ’ Permission

This paper presents the first, to our knowledge, attempt at a systematic formal analysis of Per Se and Rule of Reason procedures in Competition Policy implementation, which takes into account both the direct and indirect implications of such procedures. It is motivated by the increasing emphasis that has been placed in recent years by academics and practitioners on the use of a more economics-based approach to improve the quality of Competition Authority decisions and the parallel emphasis by some eminent commentators on adopting a decision error-cost minimisation approach in selecting decision rules or standards. Our analysis of the choice of decision rules captures the effects of decision errors and also the important indirect effect of different rules in deterring firms to take specific actions. We also address the effects of the length of the litigation cycle, of implementation costs, of the possibility of fine-tuning antitrust penalties to decision rules and of asymmetries in the deterrent effects of these rules on firms taking benign and harmful actions. A number of interesting results and insights emerge: 1. Even if we do not take into account implementation costs, the fact that with the use of economic models we can discriminate more accurately between harmful and benign cases of specific actions in no way guarantees that Rule of Reason type procedures will be superior to Per Se rules. 2. When indirect effects and implementation costs are not taken into account an effectively discriminating Rule of Reason procedure is certainly better than Per Se rules on welfare grounds, though it may not be best on decision error cost minimisation grounds