We accept the definition of competitiveness provided by the President's Commission
on Industrial Competitiveness, namely, "Competitiveness is the degree to which a
nation can, under free and fair market conditions, produce goods and services that
meet the test of international markets while simultaneously maintaining or expanding
the real incomes of its citizens" (President's Commission on Industrial Competitiveness, 1985, p. 6). We note, parenthetically, that this is almost identical to the definition supplied to the Commission by one of the editors and his Berkeley colleagues
( Cohen, Teece, Tyson, and Zysman, 1985, p. 2).
For an excellent exposition of static microeconomics as applied to antitrust analysis,
see Posner ( 1976).
This follows in part from the homogeneous goods assumption that underlies perfect
This ensures access to technological opportunities due to discoveries in basic science.
For a good survey of some of the relevant literature, see Dosi ( 1988).
Baumol and Ordover (Chapter 4) are also critical of a static form of antitrust analysis
and favor the adoption of contestable markets as the ideal structural result.
This section is based on Jorde and Teece ( 1988) and Hartman, Teece, Mitchell, and Jorde ( 1990). Our treatment here is preliminary.
See U.S. Department of Justice Merger Guidelines, June 14, 1984.
While frequently criticized, this approach is widely accepted by scholars and the
courts. For a critique, see Harris and Jorde ( 1983).
See Hartman and Teece ( 1990).
Section 3.411, the U.S. Department of Justice Merger Guidelines state that with
heterogeneous products "the problems facing a cartel become more complex.Instead
of a single price, it may be necessary to establish and enforce a complex schedule of
prices corresponding to gradations in actual or perceived quality attributes among
competing products.... Product variation is arguably relevant in all cases, but practical considerations dictate a more limited use of the factor." As a rule of thumb, if
the product is completely homogeneous (very heterogeneous), "the Department of
Justice is more (less) likely to challenge the merger."
As noted earlier, Schumpeter ( 1942) stressed that potential competition from new
products and processes is the most powerful form of competition, stating "in capitalist
reality, as distinguished from its textbook picture, it is not that kind [price] of competition that counts but the competition that comes from the new commodity, the new
technology, the new source of supply.... This kind of competition is as much more