Chapter 1: The Economic Analysis of Market Dominance
I Monopoly and market dominance The immediate task of this opening chapter is to discuss some of the basic concepts that will be used throughout the book. We begin by setting out in simple terms the economic case against market dominance using the wellknown tools of static theory to highlight the inefficiencies that can arise from monopolized compared with competitive markets. The discussion also allows us to compare the ‘monopoly’ of economic theory with the looser notion of ‘market dominance’ which often finds its way into antitrust cases. Although the static analysis highlights the core of the problem, real markets do not remain frozen but are constantly undergoing change, even if the major participants try to resist. In Section II, therefore, we extend the preliminary analysis into the difficult area of dynamics and introduce a question which will recur at many subsequent points in our discussion: namely, if in many circumstances positions of dominance generate a faster rate of growth or can be eroded by pressures in the market, is ‘benign neglect’ a more efficient solution to the problem than direct intervention by antitrust action which may be costly, cumbersome or even wrong? In other words, we need to consider the question of how selective antitrust policy should be. In Section III we try to allay the suspicions of those who feel that antitrust action is unimportant because the losses it tries to correct and repair are trivial. There is now quite a lot of evidence that the costs, broadly...
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