6

Competition policy with a Coasian prior?

Svend Hylleberg and Per Baltzer Overgaard


Introduction

In a recent report commissioned by the Norwegian government, a group of experts appointed by the Norwegian Competition Authority (NCA) have presented a new framework for Norwegian competition analysis and policy, see von der Fehr, Norman, Reve and Ryssdal (1998). In the following we shall briefly present and discuss some of the main elements of this framework. Being external (and foreign) observers of the Norwegian economy and competition policy, our comments will be of a fairly general nature and mainly relate to (roughly) the first half of the report. In this part of the report, a general and abstract framework for competition analysis is developed taking as its point of departure modern theory of industrial organization and theory of contracting and the firm. 1 In our view, the integration of the latter into competition policy thinking is the most interesting and distinctive feature of the report, and we shall emphasize this below.

A brief outline of the report is as follows. Chapter 1 discusses competition and efficiency (as understood by economists). Starting from the Coase Theorem, the basic point is forcefully made that competition in itself should not be the aim of competition policy; the promotion of competition is warranted only to the extent that competition improves the incentives of agents to use scarce resources efficiently. If monopoly power is exploited in a way that economizes on resources in both the short term and the long term, then supernormal profits or rents should go unchallenged. 2 However, the chapter also presents a series of reasons to suggest that an unrestricted exploitation of monopoly power may not work solely to economize on resources. Hence, active, though imperfect, competition may under a fairly broad set of circumstances provide ‘better’ incentives for economic agents (particularly, firms) to innovate, introduce new products, cut slack, and minimize costs. Thus, it is the incentives to economize attributed to a competitive environment that are important, rather than competition itself. But, in a market environment where those incentives are sufficient despite the existence of (what has traditionally been labelled) market power, then competition authorities should take a benign view of such market power (and economize by employing its scarce resources elsewhere).

-78-

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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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