Optimal Competition: A Benchmark for Competition Policy

43 Pages Posted: 26 Mar 2003

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

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Date Written: February 2003

Abstract

This Paper introduces optimal competition: the best form of competition in an industry that a competition authority can achieve (given the information constraint that it cannot observe firms' efficiency levels). We show that the optimal competition outcome in an industry becomes more competitive as more money is spent in the industry, as the competition authority puts less weight on producer surplus and more weight on employment. The relation between competition and entry costs is U-shaped. Finally conditions are derived under which Cournot competition is too competitive compared to the optimal competition outcome.

Keywords: Competition, competition policy, objectives of competition policy, liberalization versus regulation

JEL Classification: D40, L40, L50

Suggested Citation

Boone, Jan, Optimal Competition: A Benchmark for Competition Policy (February 2003). Available at SSRN: https://ssrn.com/abstract=390101

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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