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analysis five forces of framework
the danger in arguments about the creation of “national champions” in an
industry in the home country in order to gain the scale to compete internationally. Unless
a firm is forced to compete at home, it will usually quickly lose its competitiveness
abroad. Local competition matters for productivity and productivity growth, even in
industries whose geographic scope is global.14
Note that no mention has been made of the ownership of the locally based firms.
This is because ownership has much less importance for externalities than the nature of
the activities undertaken in a given location. All firms in a given location must be
considered part of the cluster, not merely the domestic ones. Special weight for
competition derives from locally based entities that have significant development,
production, and other activities located in a nation. These offer far greater potential for
externalities than does competition from imports. Trade is not a full substitute for local
competition.
14 See, e.g., The Global Competitiveness Report 1998 (various authors) (Geneva: World Economic
Forum, 1998); The Global Competitiveness Report 1999 (various authors) (Geneva: World Economic
Forum, 1999); The Global Competitiveness Report 2000 (various authors) (Geneva: World Economic
Forum, 2000).
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III - THE GOALS AND TOOLS OF ANTITRUST POLICY
III.1. New Standard for Antitrust: Productivity Growth
Since the role of competition is to increase a nation’s standard of living and long-term
consumer welfare via rising productivity growth, the new standard for antitrust should be
productivity growth, rather than price/cost margins or profitability. All combinations or
practices scrutinized in antitrust should be subjected to the following question: how will
they affect productivity growth? If a merger, joint venture, or other arrangement will
significantly enhance productivity growth, it is probably good for society and for
consumers (as well as the firms involved). Transactions with dubious benefits for
productivity growth, or those that offer only a one-time productivity benefit, are likely to
be net negatives for society if they pose any risk to the overall health of competition.
This is because competition is a primary determinant of future long-term productivity
growth.
How would the productivity growth standard affect antitrust? The current explicit and
implicit goals of U.S. antitrust policy fall roughly into the following hierarchy (see figure
5). Drawing on Welfare theory, the primary focus in U.S. antitrust for the last twenty
years has been on limiting price/cost margins or firm profitability (allocative inefficiency)
as the most important outcome for consumers. Market power is seen as giving firms the
ability to elevate prices and sustain high margins. Hence, limiting market power is the
major focus of attention.
Figure 5 Goals of Antitrust Policy
Traditional View Alternative View
Profitability / Price-Cost Margins
(allocative efficiency)
Cost reduction
(static efficiency)
Cost
(static efficiency)
Innovation
(dynamic efficiency)
Innovation
(dynamic efficiency)
Value improvement
(static productivity)
Profitability / Price-cost margin
standard
Productivity growth standard
Profitability / Price-Cost Margins
(allocative efficiency)
Second in importance in antitrust evaluations has been cost or technical efficiency.
The efficiency justification can be used to offset a finding of market power to elevate
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margins. At the bottom of the current hierarchy is innovativeness, or the rate of dynamic
improvement. The effect of mergers or competitive practices on the overall rate of
innovation is usually only paid lip service.
If these three goals are tested against the productivity growth standard, it becomes
clear that the traditional hierarchy of goals [next page]