Competition, Monopoly and Corporate Governance

Competition, Monopoly and Corporate Governance

Essays in Honour of Keith Cowling

Edited by Michael Waterson

Competition, Monopoly and Corporate Governance covers three broad themes, each associated with a particular strand of Keith Cowling’s own writings in industrial economics and each represented by four specially commissioned papers.

Chapter 8: Oligopoly and Rent-seeking: Cowling and Mueller Revisited

Tim Hazledine

Subjects: economics and finance, competition policy, corporate governance, industrial economics


Tim Hazledine* 1. INTRODUCTION Keith Cowling and Dennis Mueller’s 1978 Economic Journal paper, ‘The Social Costs of Monopoly Power’, is a classic. It has been reprinted at least four times,1 and in a current Industrial Organisation text is cited, along with Harberger (1954), as one of the ‘two seminal articles on measuring economy-wide losses from market power’ (Church and Ware, 2000, p. 43). Nevertheless, despite dealing boldly with very large numbers, Cowling– Mueller has not provoked much further analysis and criticism: the present chapter is a contribution in that cause. To Harberger are attributed the eponymous triangles of allocative inefficiency due to ‘monopoly’ pushing price above marginal cost, so that consumer surplus greater than the resource cost of production is not generated. Perhaps most researchers when they discover something naturally want to make it out to be as big as possible, but Harberger was happy to claim that the triangles are really rather tiny, and so perhaps not worth worrying about, especially when doing anything about them through antitrust brings with it its own economic and political costs. Then Oliver Williamson (1968), in what is certainly another classic, at least of the partial equilibrium literature, pushed the laissez-faire point further by juxtaposing those tiny triangles against possibly larger ‘rectangles’ of foregone scale economy cost savings, should misguided antitrust prevent mergers on monopoly power grounds. Cowling–Mueller can be seen as a two-pronged counterattack on Harberger and Williamson: in essence, pumping up the triangles to a more impressive size,...

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