A Market Failure Interpretation of Dominance

The existence of dominant firms which, but for anticompetitive conduct, are apparently immune from the antitrust laws has several undesirable consequences. First, the existence of a dominant firm, whatever its origins, commonly results in resource misallocation — including, but not limited to monopolistic output restriction.11 Second, as Turner has cogently argued, the inability to

Government Intervention and Market Failure

1. The Problem of Equity and Economic Disincentive Even if it is conceded that market failures of the types described can lead to dominant firm outcomes which unassisted market forces are unlikely to erode, it might still be argued that government intervention through the antitrust laws is inappropriate in instances where dominance has been

Remedies for Structural Dominance

The objective of a remedial decree in cases of structural monopoly should be to induce the dominant firm that is found guilty of a section 2 violation to divide itself into competitive parts within some reasonably short period of time after the first finding by a court that a violation has occurred. Unless the

Application to the Structure-Conduct Controversy

Baldwin, in a recent survey of the structure versus conduct controversy, distinguishes strong from qualified structuralist positions and contrasts these with a conduct approach to enforcement. The strong structuralist position, which he associates with Bain, Caves, and Stigler, is that structure determines conduct, for the most part, and that tinkering with conduct is unlikely

Dominant Firms and the Organizational Failures Framework

The implicit reliance on the organizational failures framework in preceding sections of this chapter will be made explicit here. That chance event and default failures directly relate to the framework is reasonably obvious; the interpretation of business acumen, by contrast, is somewhat more involved. The conduct approach to the enforcement of section 2 of

Dominant firms and the monopoly problem: Conclusion

Although expanding section 2 enforcement to include dominance ac- quired by discontinued acumen, chance event, and default failure poses numerous difficulties,48 the approach proposed has the advantage over existing policy of addressing the issue of single-firm dominance in a direct and candid manner. Assigning residual responsibility to the government to intervene in a dominant

Oligopoly: Some Antecedents

1. Economic Antecedents 1.1. FELLNER ON QUALIFIED JOINT-PROFIT MAXIMIZATION Fellner contends that it is impossible to deduce determinate prices and outputs for oligopoly markets on the basis of demand and supply functions that are derived from technological data and utility functions ( 1949, pp. 9-11). Rather, fewness carries with it a range of indeterminacy.

Oligopoly Regarded as a Problem of Contracting

In order to focus attention on what I believe to be the critical issues. I will assume, initially, that oligopolistic agreements are lawful, so that there is no legal bar to collusion, but that oligopolists cannot appeal to the courts for assistance in enforcing the terms of an oligopolistic agreement. The oligopolists can, however,

Oligopoly: The Contracting Approach and Prior Treatments Contrasted

Like Fellner, the problem of oligopoly under the contracting approach is treated as one of interdependence recognized. Also, as Fellner does, the multidimensional nature of the interdependence issue is emphasized: price coordination is only a part of the problem, especially in differentiated product industries. But whereas Fellner attributes the problems of interdependence to the

Policy Implications: Dominant Firms versus Oligopolistic Interdependence

The monopolist (or dominant firm) enjoys an advantage over oligopolists in adaptational respects since he does not have to write a contract in which future contingencies are identified and appropriate adaptation thereto are devised. Rather, he can face the contingencies when they arise: each bridge can be crossed when it is reached, rather than

Toward a Transactional Paradigm

It is elementary that analysis influences the way the world is perceived, including the power to delude and misguide as well as to illuminate and instruct (Nelson, 1974, p. 3). It is also widely agreed that if mechanism B, not mechanism A, is thought to be generating the phenomena of interest, the intellectually respectable

The Organizational Failures Framework and Hierarchy

The organizational failures framework applies to the study of a variety of exchange relations that are not prima facie associated and applies symmet- rically to market and nonmarket forms of organization alike. It attempts to identify ultimate, as contrasted with immediate, sources of transactional friction. As compared with previous efforts to explain market and

Antitrust Implications

The policy implications of the argument that are of principal concern are those having to do with antitrust. Dewey has described the role of economists in antitrust as follows (1959, p. i) : The important issues in the control of monopoly are ‘’economic’’ in the sense that judges and administrators are compelled to make

Some Directions for Future Research

1. Theoretical A leading theoretical need is for additional work on the properties of hierarchy. The mathematical theory of hierarchical forms is not, unfortu-nately, well-developed (Varaiya, 1972, p. 497). Simon’s (1962) interdisciplinary review of the evolution of hierarchy and his heuristic discussion of its advantages provides useful background for such an effort. The economic

The Economic Institutions of Capitalism: Antecedents from the 1930s

1. Economics  A significant contribution to the study of economic organization that preceded the 1930s was Frank Knight’s (1965) classic treatment of Risk, Uncertainty, and Profit in 1922. Knight plainly anticipated Percy Bridgeman’s counsel to social, scientists that “the principal problem in understanding the actions of men is to understand how they think—how their

The Economic Institutions of Capitalism: The Next Thirty Years

Those were auspicious beginnings. A sound basis for further advances had plainly been laid. The comparative institutional analysis of economic organi- zation did not, however, flourish. Attention was concentrated elsewhere. The prevailing orientation toward economic organization in the thirty- year hiatus between 1940 and 1970 was that technological features of firm and market organization

The Economic Institutions of Capitalism: An Overview

The book successively sets out the rudiments of transaction cost economics, applies the basic arguments to a series of economic institutions over which there has been widespread disagreement or puzzlement, and develops public policy ramifications. Chapter 1 provides an overview of the transaction cost economics ap- proach to the study of economic organization. The

Transaction Costs

1. Frictionlessness  Kenneth Arrow has defined transaction costs as the “costs of running the economic system” (1969, p. 48). Such costs are to be distinguished from production costs, which is the cost category with which neoclassical analysis has been preoccupied. Transaction costs are the economic equivalent of friction in physical systems. The manifold successes

Transaction Cost Economics: A Cognitive Map of Contract

The field of specialization with which transaction cost economics is most closely associated is industrial organization. A number of the leading ap- proaches to the study of industrial organization and the relation that transaction cost economics bears to.them are examined here. Industrial organization examines contract in terms of the purposes served. What are the

Transaction Cost Economics: The World of Contract

The world of contract is variously described as one of (1) planning, (2) promise, (3) competition, and (4) governance (or private ordering). Which of these descriptions is most applicable depends on the behavioral assumptions that pertain to an exchange and on the economic attributes of the good or service in question. As developed more