Abstract
The premises and assumptions of the Chicago School were largely not products of the Chicago School but rather of neoclassical price theory. They are used by the Chicago School within the context of simple basic models of price theory (polypoly, monopoly) in order to deduce concrete policy recommendations. Therefore, these premises and assumptions underlying these models have to be discussed in order to evaluate the soundness of the policy implications. The following will deal with this.
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References
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On the consumer sovereignty, issue in welfare economies, see Scitovsky, Tibor, On the Principle of Consumer’s Sovereignty, 52 The American Economic Review 262 ff. (1962), and Scitovsky, Tibor, The Joyless Economy, New York 1976.
Cf. Williamson, Oliver E., Markets and Hierarchies: Analysis and Antitrust Implications, New York 1975, 21 f., and Ouchi, William G., Markets, Bureaucracies and Clans, 25 Administrative Science Quarterly 129 ff. (1980), 132f.
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An approach that tries to use the behavioral concept of rationality for antitrust theory is found in Zohlnhöfer, Werner, and Horst Greiffenberg, Neuere Entwicklungen in der Wettbewerbstheorie: Die Berücksichtigung organisationsstruktureller Aspekte, in: Cox, Helmut, Uwe Jens and Kurt Markert (eds.), Handbuch des Wettbewerbs, München 1981, pp. 79 ff.
On the controversy about the function of advertising in competition, cf. Hoppmann, Erich, Wettbewerb und Werbung, 33 Wirtschaft und Wettbewerb 776 ff. (1983), and the rejoinder by Kantzenbach, Erhard, Zur wirtschaftlichen Beurteilung der Werbung, 34 Wirtschaft und Wettbewerb 297 ff. (1984), 298 f. For the differentiation between informative and persuasive advertisement, cf. Greer, Douglas F., Industrial Organization and Public Policy, 2nd ed. New York 1984, 65 ff.
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Stigler mentions this extended condition for a perfect market in his “Theory of Price”, 3rd ed., New York 1965, 87f.; however, he does not mention it when he describes perfect market competition in his book “The Organization of Industry.” This might be the difference between neoclassics and the Chicago School in viewing perfect markets.
Cf. Knight, Frank H., Risk, Uncertainty and Profit, Boston, New York 1921, 76.
Cf., e.g., for this position Fink, Richard H., General and Partial Equilibrum Theory in Bork’s Antitrust Analysis, 3 Contemporary Policy Issues 12 ff. (1985).
Cf. Schmidt, Ingo, Markttransparenz als Voraussetzung für Wettbewerbsbeschränkungen, 13 Wirtschaft und Wettbewerb 97 ff. (1963), and the discussion that was carried out after the appearance of this contribution in the magazines Wirtschaft und Wettbewerb, Der Betrieb, Der Betriebsberater, and Wettbewerb in Recht und Praxis in 1963 until 1966. This perception has become adjudication in the Federal Republic of Germany and the EEC in the meantime.
Cf. Schmidt, Ingo, Wettbewerbspolitik und Kartellrecht, 2nd ed., Stuttgart 1987, 10.
For a survey on the causes of market failure cf., e.g., Scherer, Frederic M., Industrial market structure and economic performance, 2nd ed., Chicago 1980, 481 f.
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Cf. Posner, The Chicago School..., supra, 947; Demsetz, Harold, Economics as a Guide to Antitrust Regulation, 19 The Journal of Law and Economics 371 ff. (1976), 381 f.
Cf. Posner, The Chicago School..., supra, 945 f.; and Williamson, Oliver E., Book Review, 83 The Yale Law Journal 656 ff. (1974), 656: “The uncertainty of the new entrant’s prospects may force him to pay a higher risk premium to obtain capital than existing firms must pay.”
Cf. Bain, Joe S., Barriers to New Competition, Cambridge, Mass. 1956, who differentiates between three kinds of barriers to entry: (1) economies of large scale, (2) product differentiation advantages, and (3) absolute cost advantages.
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Schmidt, I.L.O., Rittaler, J.B. (1989). Premises and Assumptions of the Chicago School’s Concept of Competition. In: A Critical Evaluation of the Chicago School of Antitrust Analysis. Studies in Industrial Organization, vol 9. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-2567-0_2
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DOI: https://doi.org/10.1007/978-94-009-2567-0_2
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