Friday, January 7, 2011
Posted by D. Daniel Sokol
Richard B. McKenzie University of California, Irvine - Paul Merage School of Business has a provacative piece In Defense of Monopoly.
ABSTRACT: Standard economic analysis of monopoly asserts that if prices are above marginal costs, then market power exists and antitrust enforcers should step in to protect consumers. This thinking underlies recent antitrust actions in both the United States and Europe. This article argues that such thinking is flawed; markets with prices near marginal cost experience little innovation or entry by producers, to the detriment of consumers. Instead, markets with prices above marginal costs incentivize entry and finance innovation, to the considerable benefit of consumers.