Remedies and the Institutional Design of Regulation in Network Industries

J. Gregory Sidak


In the United States, the topic of remedies in network industries cuts across antitrust law and sector-specific regulation, including telecommunications. The legal and economic understandings of a “remedy” are not synonymous in American usage. In law, a remedy is the corrective measure that a court orders following a finding of liability. With the exception of interlocutory relief, such as preliminary injunctions or temporary restraining orders (which might apply to a proposed merger, for example), legal remedies are retrospective in their orientation. They seek to right some past wrong. They may do so through the payment of money (whether that is characterized as the payment of damages, fines, disgorgement, or something else). Or they may seek to do so through a mandated change in market structure, as in the case of divestiture, or in the imposition of affirmative or negative duties, as in the case of “behavioral” injunctions. United States v. Microsoft Corp. presented the tradeoff between these various remedial alternatives.

Industry-specific regulation, such as regulation of the telecommunications industry by the Federal Communications Commission (FCC), is an alternative to reliance on liability rules. Therefore, it is not obvious what a “remedy” is in a traditional regulated network industry – at least if we are employing the standard American meaning of a legal remedy.

In contrast to these legal connotations of a remedy, the economic meaning of a remedy emphasizes market failure. The market failure may result from the unchecked exercise of market power, or from the uncompensated generation of an external cost or benefit, or from an insufficiency of information with which to make efficient choices concerning consumption, production, or investment. Whereas lawyers think of a remedy as what to do after a finding of liability, economists think of a remedy as what to do after a finding of market failure. The two approaches overlap perfectly if legislators and courts make liability rules that are triggered only after a finding of market failure. Of course, if legislators and courts actually did so, the Journal of Law & Economics would be a very slim volume that would have ceased publication years ago.

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