Antitrust and Economic Efficiency by Charles K. Rowley

By Charles K. Rowley

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Where k= 1, dividing equation (9) by PI =k(ACI ) we obtain: 44 Ll (AC) _ ~ (LlP) 2(0 AC 2Y P . (10) This expression must be corrected, however, by a factor which depends upon the nature of the demand curve (De Prano and Nugent [24]). I(LlP)2(0 AC 2Y Q2 PI . e. where k= 1. However, where k)1 the expression overstates the welfare gain from cost savings, and therefore excessively weakens the case for antitrust intervention by neglecting part of the producers' surplus from pre-merger profits. The parallel test expression to the inequality in (11) now becomes: Ll(AC) _ [tk(LlP) +k-l]yLlP.

Data, suggested that there was a negative correlation between rate of innovation and size of firm, with medium-sized firms performing markedly better than the largest firms in petroleum, coal and steel. Scherer [61] analysed the patent behaviour of a sample of 448 firms selected from the Fortune list of the 500 largest industrial corporations in 1955, and concluded that 'the evidence does not support the hypothesis that corporate bigness is especially favourable to high inventive output'. These results are both consistent with the view that X-inefficiency tends to outweigh scale economies in the innovative activity of large firms.

Monopolistic competition retains the assumptions of many producers, free entry and perfect knowledge employed in the model of perfect competition, but introduces new assumptions of product differentiation and significant scale economies. Profit maximisation is retained as the generative assumption. In consequence, long-run market equilibrium implies a tangency solution in which only normal profit is earned but in which marginal cost is less than price, as is illustrated in Fig. 8. In Fig. 8, D represents the demand curve and MR the corresponding marginal revenue curve of the individual producer.

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