Revitalizing Antitrust in Its Second Century: Essays on Legal, Economic, and Political Policy

By Harry First; Eleanor M. Fox et al. | Go to book overview

Chapter 5
Antitrust, Efficiency, and Progress

F. M. Scherer

How does antitrust affect the level of economic efficiency, construed from both narrow and broad perspectives? Is there a tradeoff among diverse efficiency achievements? Would efficiency be higher with more vigorous, or more relaxed antitrust policies? Can we identify specific policies that have had clear, important efficiency-retarding impacts? These are the hopelessly difficult questions that I have been commissioned to address. I can offer only a modest answer: Although antitrust policy may have had some negative effect on "efficiency" (in the senses defined below), the efficiency losses are probably small and outweighed by efficiency gains in other, more difficult to measure, areas.


I Efficiency, Static and Dynamic

Economic efficiency is multifaceted. I will analyze three types: allocative efficiency, X-efficiency (sometimes called productive efficiency), and long-run technological efficiency (that is, the rate of technological progress).

Figure 5.1 provides an opening wedge into the conceptual foundations. It imagines a well-defined industry, the demand for whose product(s) is revealed by the demand curve D'D. Production and distribution costs are assumed to be OC1 dollars per unit sold, and, because the industry's members have monopoly power, the price is at level OP1. The elevation of price above would-be consumers' valuations of the extra output units (read as the demand curve ordinates) over the range EF leads to a restriction of output by the amount X1X2 units. This failure to satisfy marginal consumers' wants implies a deadweight loss amounting to the area of the shaded triangle EFG. From the standpoint of those who stress the

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