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New Technology and Increasing Returns: The End of the Antitrust Century?

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  • Basu, Kaushik

    () (World Bank)

Abstract

The advance of digital technology is changing the nature of markets, enhancing the capacity of corporations to extract more consumers' surplus and lower the wages paid to workers. The rise of new technology has also diminished the efficacy of traditional laws to regulate firms and corporations. This is best illustrated by antitrust laws. With the new technology, there is greater returns to scale in production, and further, it is possible to have different components of the same final good be produced by different firms in faraway places. Unlike in earlier times the n firms in one industry, say the automobile industry, would all be producing cars, now the n firms in that industry produce n different parts of the product, thereby getting enormous returns to scale. Such markets are described as vertically serrated markets and their equilibria are characterized. Traditional antitrust law does not apply to these markets because the high returns to scale are natural and not artificially induced. This compels us to look for novel ways to regulate such markets. This paper discusses, in particular, laws that compel firms to have widely dispersed share holdings.

Suggested Citation

  • Basu, Kaushik, 2019. "New Technology and Increasing Returns: The End of the Antitrust Century?," IZA Policy Papers 146, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izapps:pp146
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    References listed on IDEAS

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    1. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    2. Rodrik, Dani, 2017. "Populism and the Economics of Globalization," CEPR Discussion Papers 12119, C.E.P.R. Discussion Papers.
    3. Alan B. Krueger & Orley Ashenfelter, 2017. "Theory and Evidence on Employer Collusion in the Franchise Sector," Working Papers 614, Princeton University, Department of Economics, Industrial Relations Section..
    4. Basu, Kaushik, 2016. "Globalization of labor markets and the growth prospects of nations," Journal of Policy Modeling, Elsevier, vol. 38(4), pages 656-669.
    5. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    6. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
    7. Jevons, William Stanley, 1871. "The Theory of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number jevons1871.
    8. repec:eee:jpolmo:v:40:y:2018:i:3:p:546-558 is not listed on IDEAS
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    More about this item

    Keywords

    antitrust law; share distribution; technological advance; labor demand;

    JEL classification:

    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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