Janusz A. Ordover

Predation, Monopolization and Antitrust

Publisher Summary This chapter discusses a wide range of strategies that can be employed by incumbent firms either to protect or to extend their market shares against competitive attacks by actual and potential entrants. The hallmark of these strategies is that, invariably, they reduce the expected level of profits that incumbents rivals—present and future—can hope to earn. As such, they differ from those types of conduct whose aim is to implement and enforce collusive arrangements among market participants. Unlike many collusive strategies, these hostile and exclusionary strategies that include low prices, output expansions, introductions of new products, redesigns of the existing products, and promotions are difficult to distinguish from area part and parcel of market rivalry that economists find salutary for economic welfare, that policy-makers wish to promote, and that business leaders often deplore.

Antitrust for High-Technology Industries: Assessing Research Joint Ventures and Mergers

The purpose of this paper is to analyze if and how the standard methodology of antitrust analysis should be modified to reflect the importance of R and D and innovation as competitive forces and engines of economic progress. Focus is on such R and D - intensive business combinations as research joint ventures (RJVs) and horizontal mergers in high-technology industries. The authors do not propose a complete set of guidelines for the assessment of such combinations. They present an economic model of RJVs and high-technology mergers that might serve as an analytical underpinning for such guidelines. One conclusion of the analysis is that RJVs ought to be accorded special treatment under the antitrust laws. This special treatment should entail an explicit recognition that RJVs will be scrutinized under the rule of reason, according to guidelines specific to this purpose.

Use of Antitrust to Subvert Competition

T HERE is a specter that haunts our antitrust institutions. Its threat is that, far from serving as the bulwark of competition, these institutions will become the most powerful instrument in the hands of those who wish to subvert it. More than that, it threatens to draw great quantities of resources into the struggle to prevent effective competition, thereby more than offsetting the contributions to economic efficiency promised by antitrust activities. This is a specter that may well dwarf any other source of concern about the antitrust processes. We ignore it at our peril and would do well to take steps to exorcise it. The problem is not an easy one. In a sense it is inherent in the very nature of the antitrust process. There is no doubt, for example, that mergers can sometimes inhibit or undermine competition and that predatory pricing can sometimes serve as an instrument of monopolization. But then, because of that, a merger that promises to introduce efficiencies that make it necessary for other firms in the industry to try harder is vulnerable to challenge by those rivals, who will claim that it is anticompetitive. Similarly, a firm that by virtue of superior efficiency or economies of scale or scope is able to offer prices low enough to make its competitors uncomfortable is all too likely to find itself accused of predation. Such attempts

The concept of optimal taxation in the overlapping-generations model of capital and wealth

Abstract The optimal fiscal program of the present generation may be conceived as maximizing the social welfare of that generation subject to a capital-accumulation quota and a wealth-accumulation limit (the difference being the stock of public debt). The standard methods of optimal tax analysis are shown to be applicable to the multiperiod generation if (1) the capital-wealth target is Pareto efficient in the sense that no other target would permit a mutual welfare gain for the present generation and the next, and (2) the government ‘budget constraint’ specifies an algebraic budgetary deficit consistent with the attainment of the target. Important results on interest-income taxation are derived.

Entrepreneurship, access policy and economic development: Lessons from industrial organization

Abstract This paper explores some relationships between promotion of competition and economic development that arise from the impacts of entrepreneurial firms. In this respect, two sets of policies are critical for furthering economic development. First, to arrest the diversion of entrepreneurial talent towards non-productive activities, an increased emphasis on preserving rewards from productive innovation is needed – through the protection of commercial freedom, property rights and contracts. Second, given that essential local inputs are vulnerable to monopolization and foreclosure, fostering opportunities for grass-roots entrepreneurship becomes paramount – through a more activist supply-side competition policy emphasizing access to essential business services and other required local inputs. A key message is that the conventional sensitivity of policy concerns about the social welfare effects of foreclosure should be extended to a domain beyond the usual essential facilities of public utilities. It should include access to many other elements of the business infrastructure that are taken for granted in mature market economies, but that pose real barriers to productive entrepreneurship at the grass-roots level in the context of development. Additions to the incipient empirical work in this area could yield substantial policy dividends.

Distributive justice and optimal taxation of wages and interest in a growing economy

Abstract This paper studies the problem of the optimal mix of linear taxes on wages and on interest in a dynamic maximin economy in which workers differ according to their abilities and in which the distortionary impact of taxation falls on the quantity of investment in education. Conditions are derived for which the optimal interest tax is one hundred percent. It is shown that only in such economies is the taxable capacity with respect to both taxes utilized. Finally, the validity of the Golden Rule is reestablished.

Access and Bundling in High-Technology Markets

The raging antitrust debates surrounding Microsoft all include, and must face up to, one underlying question: whether antitrust should stay away from high-technology markets.1 There are serious arguments in the affirmative that are based on unique characteristics endemic to high-technology markets.

Advances in supervision technology and economic welfare: a general equilibrium analysis

Abstract We analyze the impact of improvements in the technology by which employers monitor their workers. It is unclear a priori whether workers should benefit or not from such advances. On the one hand, they decrease the total costs of hiring workers and stimulate labor demand. On the other hand, as supervision becomes less costly employers tend to substitute monitoring for wages as a means of motivating workers. We show how the impact on firms and workers of such technological progress depends on the nature of the labor market equilibrium (i.e. whether there is full employment or not) and the cost (technology) of monitoring. A distinct possibility is that unemployed workers welcome the changes in supervision because they promote employment, while employed workers resist such changes and the more intensive supervision they encourage.

Bank Mergers and the 1992 Merger Guidelines: The BankAmerica/Security Pacific Transaction

Bank mergers raise many important and challenging competition policy issues. These issues relate to all of the basic elements of merger review as delineated in the 1992 Agencies’ Horizontal Merger Guidelines. Of course, even prior to the release of the Guidelines, the Department had an extensive experience with reviewing bank mergers. Nonetheless, the release of the 1992 Merger Guidelines offered a new impetus for re-assessment of the economic models that were used to examine the likely competitive effects of bank mergers. 2