Monopoly and Efficiency/Technology

[charles mueller <cmueller@metrolink.net>]

        The question has been posed as to whether/when monopolies and
cartels, instead of raising prices, reduce 'quality.'

        I'm surprised that no one has mentioned the FTC (and evidently
Justice) position on monopoly power and efficiency/innovation.  In its 1996
report, 'Anticipating the 21st Century:  Competition Policy in the New
High-Tech, Global Marketplace,' the Commission staff came out in support of
the view that mergers creating market power may very well (1) raise consumer
prices BUT are also apt to (2) enhance 'efficiency'--yield lower unit costs,
and (3) stimulate innovation, with (2) and (3) more than OFFSETTING (1), the
price-effect of such monopoly-building mergers.  For a critique of this FTC
report, see my journal, Antitrust Law & Economics Review, Vol. 27, No. 3,
pp. 23-68, and Vol. 27, No. 4, pp. 39-60.

        In other words, the FTC (and Justice) have been routinely approving
mergers to monopoly/duopoly for the past 2 decades on the theory that higher
levels of concentration--monopoly power--are SUPERIOR to
competitively-structured markets both in terms of industrial efficiency AND
as a stimulus to technological progress.

        If, as we're hearing here, monopolies and cartels are SUPPRESSORS of
technology, where did our 2 enforcement agencies go wrong?

        Charles Mueller, Editor
        ANTITRUST LAW & ECONOMICS REVIEW
        http://webpages.metrolink.net/~cmueller