Optimal Competition: A Benchmark for Competition Policy

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Abstract

This paper introduces optimal competition: the best form of competition in an industry that a competition authority can achieve under the information constraint that it cannot observe firms' effciency 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.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages41
Volume2003-3
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-3

Keywords

  • competition
  • trade policy
  • trade liberalization
  • regulations
  • benchmark

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