Antitrust, Innovation, and Competitiveness

By Thomas M. Jorde; David J. Teece | Go to book overview
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Antitrust Lenses and the Uses of Transaction Cost Economics Reasoning


Ronald Coase once advised that the "applied price theory" approach to industrial organization should be supplanted by a "direct approach to the problem" ( 1972, p. 73)--not least of all because the former had been responsible for errors of antitrust enforcement and misconceptions of business behavior. Although some of Coase's concerns have been relieved by reshaping applied price theory, a more direct approach to the problem has also been in progress. Both of these developments have had an impact on antitrust economics and antitrust enforcement.

This chapter emphasizes developments of the "direct approach" kind--where, by a (more) direct approach I make reference to transaction cost economics. The section "Alternative Lenses" identifies the main differences between an applied price theory and a transaction cost approach to the study of economic organization. Antitrust enforcement in the 1960s is briefly described in the section "Antitrust Through the Lens of Applied Price Theory" and some of the relief wrought by a reorientation of applied price theory is examined. The very same issues are then re-examined through the lens of transaction cost economics in the section "Transaction Cost Economics". Two antitrust cases in which off-the-shelf solutions--purportedly, forms of "economic analysis"--have been uncritically applied by the courts are the subject of the section "Two Recent Cases". Concluding remarks follow.


Milton Friedman has observed that "there is no inconsistency in regarding the firm as a perfect competitor for one problem, and a monopolist for another" ( 1953, p. 36). I concur and furthermore urge that there is no inconsistency in regarding the firm as a production function (which is the applied price theory concept) for one problem and as a governance structure (the transaction cost


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