Working Paper: CEPR ID: DP3766
Authors: Jan Boone
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; liberalization versus regulation; objectives of competition policy
JEL Codes: D40; L40; L50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| resource allocation (H61) | competition intensity (L13) |
| competition authority's focus on employment (L49) | market outcome (D41) |
| entry costs (L11) | competition (L13) |
| regulatory intensity (L51) | market competitiveness (L11) |
| Cournot competition (C72) | optimal competition outcome (D41) |