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The Lawful Acquisition and Exercise of Monopoly Power and its Implications for the Objectives of Antitrust


David S. Evans


University of Chicago Law School; University College London; Global Economics Group

Keith N. Hylton


William Fairfield Warren Distinguished Professor, Boston University; Professor of Law, Boston University School of Law

September 26, 2008

Competition Policy International, Vol. 4, No. 2, p. 203, 2008

Abstract:     
The antitrust laws of the United States have, from their inception, allowed firms to acquire significant market power, to charge prices that reflect that market power, and to enjoy supra-competitive returns. This article shows that this policy, which was established by the U.S. Congress and affirmed repeatedly by the U.S. courts, reflects a tradeoff between the dynamic benefits that society realizes from allowing firms to secure significant rewards, including monopoly profits, from making risky investments and engaging in innovation; and the static costs that society incurs when firms with significant market power raise price and curtail output. That tradeoff results in antitrust laws that allow competition in the market and for the market, even if that rivalry results in a single firm emerging as a monopoly, but that prevent firms from engaging in practices that go out of bounds. The antitrust laws ultimately regulate the "boundaries" of the "game of competition." Three implications follow. First, the antitrust laws and intellectual property laws are based on similar policy tradeoffs between static and dynamic effects. Second, the antitrust rules have, all along, been based on this tradeoff and not on the effects of business practices on static consumer welfare in relevant antitrust markets. Third, one unintended consequence of the increased role of economics in antitrust analysis is to overemphasize static considerations which the almost the sole focus of the economics literature that courts and competition authorities consider.

Number of Pages in PDF File: 47

Keywords: Antitust law, monopoly power, competition

JEL Classification: K21, L40

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Date posted: September 30, 2008 ; Last revised: May 17, 2009

Suggested Citation

Evans, David S. and Hylton, Keith N., The Lawful Acquisition and Exercise of Monopoly Power and its Implications for the Objectives of Antitrust (September 26, 2008). Competition Policy International, Vol. 4, No. 2, p. 203, 2008. Available at SSRN: http://ssrn.com/abstract=1275431

Contact Information

David S. Evans (Contact Author)
University of Chicago Law School ( email )
1111 E. 60th St.
Chicago, IL 60637
United States
University College London ( email )
London WC1E OEG
United Kingdom
Global Economics Group ( email )
1400 S. Dearborn, Suite 400
Chicago, IL 60603
United States
Keith N. Hylton
William Fairfield Warren Distinguished Professor, Boston University ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-8959 (Phone)
Professor of Law, Boston University School of Law ( email )
765 Commonwealth Avenue
Boston, MA 02215
United States
617-353-8959 (Phone)
617-353-3077 (Fax)
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