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analysis five forces of framework
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This paper seeks to contribute thinking on how the intellectual foundations of
antitrust might be updated, based on a large body of theoretical and empirical research on
company strategy, competition, and economic development. The aim is to outline a new
direction for antitrust that can be incorporated into government policy and legal practice
and pursued in litigation and legislation, both in the United States and internationally.
This new thinking sets forth productivity growth as the basic goal of antitrust policy, and
employs tools like industry structure analysis and locational analysis to evaluate potential
impacts on competition. While there appears to be broad consensus on how to deal with
much anticompetitive behavior such as deceptive practices and cartel formation, the
current fault line in antitrust is the treatment of mergers. This paper therefore focuses on
the evaluation of mergers, though the same framework can be applied to evaluating joint
ventures, other combinations, and other competitive practices. Finally, it should be noted
that this paper is concerned principally with the content of antitrust, not the many
important issues involved in structuring antitrust agencies and designing processes of
enforcement.
Section II argues that the true benefits of healthy competition are not fully articulated
in much antitrust analysis. By linking competition to a nation’s standard of living
through productivity growth, it becomes apparent that far more is at stake in protecting
competition than short-term consumer welfare defined by price-cost margins. Empirical
evidence is provided to highlight the importance of protecting the vitality of competition.
Furthermore, it is argued that local competition within a nation is particularly crucial for
competitiveness, even in the era of globalization.
Section III proposes that productivity growth become the new standard for antitrust,
and reassesses the hierarchy of antitrust goals accordingly. Since healthy competition
will foster productivity growth, antitrust must be equipped with adequate tools and
frameworks for evaluating the health of competition. Yet frameworks broader than
current practices resting in relevant market definitions and ability to elevate price above
cost are required. So called “five forces” analysis is offered as a broader tool for
evaluating overall industry competition, while the diamond framework for locational
competitiveness is offered for evaluating the health of local competition.
In Section IV, we turn to the analysis of mergers, outlining a three-level merger
evaluation process that incorporates the productivity growth standard and the tools for
evaluating the health of competition mentioned above. Section V offers a short case
study of a merger evaluation, using the new procedure. Finally, Section VI addresses
some recent issues more specific to U.S. antitrust policy.
The essential role of competition and antitrust policy in competitiveness is evident in
recent research on industry competition and economic development. My conviction from
working both with companies and public policymakers in many countries is that open
competition, stimulated by strict antitrust enforcement, is essential not only to national
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prosperity, but to the health of companies themselves. Yet antitrust seems to be drifting.
Antitrust policy is being challenged by skeptics who are mounting attacks on the need for
antitrust under the guise of globalization or the requirements of the “new economy.”
Also, the theoretical and empirical literature on competition has moved beyond seller
concentration, price-cost margins, and other ideas central to current enforcement.1
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