The International Handbook of Competition
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The International Handbook of Competition

  • Elgar original reference

Edited by Manfred Neumann and Jürgen Weigand

This indispensable Handbook examines both economic and legal aspects of competition policy and industrial organization. It provides a scholarly review of the state of the art regarding economic theory, empirical evidence and standards of legal evaluation. The book aims primarily at furthering our understanding of the interplay between economic reasoning and legal expertise by concentrating on the fundamental issues and principles underlying competition policy.
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Chapter 6: Political Economy of Antitrust

Charles Rowley and Anne Rathbone

Extract

6 Political economy of antitrust Charles Rowley and Anne Rathbone 1 Introduction The concept of market power is of central importance to any discussion of antitrust economics. In essence, market power exists when a specific firm, or a group of firms acting in combination, has sufficient control over a particular commodity to determine significantly the terms on which other firms, or individual consumers, shall have access to it. The polar models of perfect competition and pure monopoly provide useful insights into the nature of market power, however unrepresentative these models may seem to be of the real world. For these models provide a level of generality that the intermediate models – monopolistic competition and oligopoly – just cannot match. Four principal assumptions form the basis for the perfectly competitive model. The first assumption is that each firm is sufficiently small, relative to the total market for the commodity, not to be able to influence price by changes in its own rate of output. The second assumption is that the commodity of any one firm is identical, from the perception of the consumer, to that of any other firm supplying that market. The third assumption implies that all resources are perfectly mobile, implying that firms can move costlessly into and out of markets (perfect contestability) in response to relevant economic signals. The fourth assumption is that both consumers and producers are perfectly informed about the present market situation. The model is motivated by the core behavioral assumption of...

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