Discussion Paper Details

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Title: Optimal Competition: A Benchmark for Competition Policy

Author(s): Jan Boone

Publication Date: February 2003

Keyword(s): competition, competition policy, liberalization versus regulation and objectives of competition policy

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Boone, J. 2003. 'Optimal Competition: A Benchmark for Competition Policy'. London, Centre for Economic Policy Research.