2

Competition law and policy *

Achievements and failures from an economic perspective

Frédéric Jenny

At the most basic level, micro-economic analysis tells us under which conditions a decentralized market mechanism would lead to Pareto efficiency in a static boundless and timeless world in which perfectly informed economic agents can be assumed to behave as if they maximized their resources and the utility they derive from these resources. What economic analysis suggests is that, barring externalities or market failures, competition will lead to efficiency. Applied micro-economic analysis (industrial organization) recognizes that market competition will not necessarily prevail spontaneously on all markets and tells us what both the structural and behavioral the determinants of competition are. Industrial organization thus provides us with useful information about how market structures and behaviors which could prevent competition should be monitored. Finally another branch of applied micro-economic theory, namely economic theory of crime, tells us something about the conditions which must be met to efficiently or optimally enforce laws, and something can be learned from this branch of economic analysis when one considers the enforcement of competition laws.

Competition law and policy have become widely used tools to monitor market mechanisms. More than a hundred countries now have a competition law, the deregulation movement has gathered momentum in a number of developed countries over the last fifteen years and has allowed competitive processes to emerge in many sectors which were previously monopolized or in which competitive forces were severely limited, the successive GATT negotiations have, over a period of fifty years, led to a lowering of tariff barriers allowing a greater level of international competition, etc. The multilateral community has also decided to take a look at the issue of trade and competition in the globalized markets.

At the outset, it must be emphasized that economists have played an important role in the above-mentioned developments. They have provided a strong rationale for market-oriented reforms and they tend to play an increasingly crucial role in the enforcement of competition policy as well as in the discussion and the establishement of rules in recently deregulated sectors.

It is fair to say that the populist view of competition policy which in many countries was the dominant view until the end of the 1970s has since given way to a generally more subtle interpretation of competition laws that is more in line with economic analysis.

-20-

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Competition Policy Analysis
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures ix
  • Tables x
  • List of Contributors xi
  • Preface xiii
  • Introduction 1
  • Notes 5
  • 1 - Towards a Competitive Society? 6
  • 2 - Competition Law and Policy 20
  • 3 - Competition Policy and Market Dynamics 35
  • 4 - Who Should Be Responsible for Competition Policy in Regulated Industries? 43
  • 5 - Implementation of Second-Best Solutions 65
  • 6 - Competition Policy with a Coasian Prior? 78
  • 7 - The Australian Competition Policy Reforms 87
  • 8 - Competition Policy in the Information Economy 109
  • Notes 130
  • 9 - Regulating Manufacturers and Their Exclusive Retailers 133
  • References 148
  • 10 - Deregulating Norwegian Airlines 150
  • 11 - Resource Allocation by a Competition Authority 165
  • 12 - European State Aid Policy 200
  • Index 239
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