Antitrust and Economic Efficiency by Charles K. Rowley

By Charles K. Rowley

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Suppose, alternatively, that the firm was motivated to pursue some management utility function such as that specified by Williamson [83], subject to a minimum profit constraint and which incorporated staff and emolument arguments. Following Williamson, suppose further that staff and emolument expenditures were overhead costs unaffected by output rate, but that staff expenditures included an advertising component which shifted demand in a positive relationship. The equilibrium solution might well take the form outlined in Fig.

3, Comanor and Leibenstein assumed that a shift from monopoly to competition would reduce the monopoly rent per unit of output by a units, but that it would also reduce costs by x per unit from Cm to Ce. On this basis, they distinguished the various components of welfare loss resulting from monopoly. Wa was the perceived welfare loss which measured allocative inefficiency, and as usual it is illustrated by the Marshallian triangle ABC. However, the full measure of allocative inefficiency was given by Wax, since X-inefficiency affected the level of marginal cost, and this is measured by the triangle ADE.

Clearly, the welfare trade-off is more complex than Williamson was willing to allow, and reference to the available empirical evidence is now essential. 8 The Evidence A survey such as this cannot pretend to offer a comprehensive review of the evidence on the various welfare gains and losses attributable to antitrust intervention. Rather, a brief indication of the more significant findings is provided in this section with reference to allocative inefficiency and X-inefficiency as welfare gains and scale economies as welfare losses from antitrust intervention.

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