Rowley, Charles; Rathbone, Anne --- "Political Economy of Antitrust" [2004] ELECD 182; in Neumann, Manfred; Weigand, Jürgen (eds), "The International Handbook of Competition" (Edward Elgar Publishing, 2004)

Book Title: The International Handbook of Competition

Editor(s): Neumann, Manfred; Weigand, Jürgen

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843760542

Section: Chapter 6

Section Title: Political Economy of Antitrust

Author(s): Rowley, Charles; Rathbone, Anne

Number of pages: 37

Extract:

6 Political economy of antitrust
Charles Rowley and Anne Rathbone



1 Introduction
The concept of market power is of central importance to any discussion of
antitrust economics. In essence, market power exists when a specific firm,
or a group of firms acting in combination, has sufficient control over a
particular commodity to determine significantly the terms on which other
firms, or individual consumers, shall have access to it.
The polar models of perfect competition and pure monopoly provide
useful insights into the nature of market power, however unrepresentative
these models may seem to be of the real world. For these models provide a
level of generality that the intermediate models ­ monopolistic competition
and oligopoly ­ just cannot match.
Four principal assumptions form the basis for the perfectly competitive
model. The first assumption is that each firm is sufficiently small, relative
to the total market for the commodity, not to be able to influence price
by changes in its own rate of output. The second assumption is that
the commodity of any one firm is identical, from the perception of the
consumer, to that of any other firm supplying that market. The third
assumption implies that all resources are perfectly mobile, implying that
firms can move costlessly into and out of markets (perfect contestability) in
response to relevant economic signals. The fourth assumption is that both
consumers and producers are perfectly informed about the present market
situation. The model is motivated by the core behavioral assumption of
profit maximization.
If all relevant ...