Antitrust and Economic Efficiency by Charles K. Rowley

By Charles K. Rowley

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This is indeed one of the most discussed issues in the economic theory of industrial organisation, and yet one in which a convincing a priori judgement is most elusive. A brief review of the more plausible theories is all that can be offered at this stage. The conventional wisdom at the present time, following Schumpeter [63], Galbraith [29] and others, supports the theory that large size and structural monopoly are most conducive to technical progress. To quote Galbraith: ... a benign Providence ...

4. X-inefficiency versus scale economies In Fig. l and at price OPl. The single-firm monopolist, by contrast, is assumed to benefit from scale economies but to suffer from X-inefficiency. l) and at price OP2()OPl ). The relevant Williamson-type trade-off is then between the area of effective cost savings Pl EGAC2 and the area of the Marshallian triangle CEACl • This trade-off must be less favourable to the monopolist than the strict Williamson welfare trade-off would be. l) and at price OPa()OPl ).

Where k = 1·00). The greater the value of k, the less attractive are scale economies as an antitrust defence, but even with k = 1·05, Williamson felt able to endorse his earlier conclusion that 'a merger which yields nontrivial real economies must produce substantial market power and result in relatively large price increases for net allocative effects to be negative'. This conclusion must be modified, of course, to take account of X-inefficiency considerations, since scale economies which are practically unavailable cannot feature as a cost of antitrust intervention in the welfare tradeoff.

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