Two Contexts for Economics in Competition Law: Deterrence Effects and Competitive EffectsCompetitive effects

Abstract

Competition law accommodates two different contexts within which economics may be applied, each defined by a distinct type of cause-effect relationships. First, there are effects of competition law on business conduct (deterrenceDeterrence effects), embodying the fact that businesses take into account legal sanctions when planning their actions. The field studying these effects is Economic Analysis of Law. Second, there are effects of business conduct on competition (competitive effectsCompetitive effects), which occur through the influence of businesses with market powerMarketpower on behaviour of their customers, suppliers and competitors. This influence falls within the ambit of Industrial Organization. Awareness of the distinction makes it possible to appreciate certain aspects of the application of economics to competition law issues. For instance, within the discourse on this application, the context of competitive effectsCompetitive effects receives significantly more attention than the context of deterrenceDeterrence effects. Also the often voiced observation that economics and competition law are closely related regards predominantly the former context.