Optimal Competition: A Benchmark for Competition Policy
CentER Discussion Paper No. 2003-03
Posted: 14 May 2004
Date Written: January 2003
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.
Keywords: Competition, competition policy, objectives of competition policy, liberalization vs. regulation
JEL Classification: D4, L4, L5
Suggested Citation: Suggested Citation