Hazledine, Tim --- "Oligopoly and Rent-seeking: Cowling and Mueller Revisited" [2003] ELECD 87; in Waterson, Michael (ed), "Competition, Monopoly and Corporate Governance" (Edward Elgar Publishing, 2003)

Book Title: Competition, Monopoly and Corporate Governance

Editor(s): Waterson, Michael

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843760894

Section: Chapter 8

Section Title: Oligopoly and Rent-seeking: Cowling and Mueller Revisited

Author(s): Hazledine, Tim

Number of pages: 20

Extract:

8. Oligopoly and rent-seeking:
Cowling and Mueller revisited
Tim Hazledine*

1. INTRODUCTION

Keith Cowling and Dennis Mueller's 1978 Economic Journal paper, `The
Social Costs of Monopoly Power', is a classic. It has been reprinted at least
four times,1 and in a current Industrial Organisation text is cited, along
with Harberger (1954), as one of the `two seminal articles on measuring
economy-wide losses from market power' (Church and Ware, 2000, p. 43).
Nevertheless, despite dealing boldly with very large numbers, Cowling­
Mueller has not provoked much further analysis and criticism: the present
chapter is a contribution in that cause.
To Harberger are attributed the eponymous triangles of allocative inef-
ficiency due to `monopoly' pushing price above marginal cost, so that con-
sumer surplus greater than the resource cost of production is not generated.
Perhaps most researchers when they discover something naturally want to
make it out to be as big as possible, but Harberger was happy to claim that
the triangles are really rather tiny, and so perhaps not worth worrying
about, especially when doing anything about them through antitrust brings
with it its own economic and political costs.
Then Oliver Williamson (1968), in what is certainly another classic, at
least of the partial equilibrium literature, pushed the laissez-faire point
further by juxtaposing those tiny triangles against possibly larger `rec-
tangles' of foregone scale economy cost savings, should misguided antitrust
prevent mergers on monopoly power grounds.
Cowling­Mueller can be seen as a two-pronged counterattack ...