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Optimal Competition: A Benchmark for Competition Policy

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  • Boone, Jan

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.

Suggested Citation

  • Boone, Jan, 2003. "Optimal Competition: A Benchmark for Competition Policy," CEPR Discussion Papers 3766, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3766
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    References listed on IDEAS

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    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
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    6. Boone, Jan, 2000. "Competition," CEPR Discussion Papers 2636, C.E.P.R. Discussion Papers.
    7. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-1090, October.
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    Cited by:

    1. Boone, J. & van Ours, J.C. & van der Wiel, H.P., 2007. "How (Not) to Measure Competition," Discussion Paper 2007-32, Tilburg University, Center for Economic Research.
    2. Juan Luis Jiménez & Javier Campos, 2004. "Efectos de la descentralización de la política de defensa de la competencia," Documentos de trabajo conjunto ULL-ULPGC 2004-09, Facultad de Ciencias Económicas de la ULPGC.

    More about this item

    Keywords

    competition; competition policy; liberalization versus regulation; objectives of competition policy;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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