Neo-classical synthesis Competition law

paul samuelson, author of 20th century s successful economics text, combined mathematical models , keynesian macroeconomic intervention. advocated general success of market backed american government s antitrust policies.

after mill, there shift in economic theory, emphasized more precise , theoretical model of competition. simple neo-classical model of free markets holds production , distribution of goods , services in competitive free markets maximizes social welfare. model assumes new firms can freely enter markets , compete existing firms, or use legal language, there no barriers entry. term economists mean specific, competitive free markets deliver allocative, productive , dynamic efficiency. allocative efficiency known pareto efficiency after italian economist vilfredo pareto , means resources in economy on long run go precisely willing , able pay them. because rational producers keep producing , selling, , buyers keep buying last marginal unit of possible output – or alternatively rational producers reduce output margin @ buyers buy same amount produced – there no waste, greatest number wants of greatest number of people become satisfied , utility perfected because resources can no longer reallocated make better off without making else worse off; society has achieved allocative efficiency. productive efficiency means society making as can. free markets meant reward work hard, , therefore put society s resources towards frontier of possible production. dynamic efficiency refers idea business competes must research, create , innovate keep share of consumers. traces austrian-american political scientist joseph schumpeter s notion perennial gale of creative destruction ever sweeping through capitalist economies, driving enterprise @ market s mercy. led schumpeter argue monopolies did not need broken (as standard oil) because next gale of economic innovation same.

contrasting allocatively, productively , dynamically efficient market model monopolies, oligopolies, , cartels. when 1 or few firms exist in market, , there no credible threat of entry of competing firms, prices rise above competitive level, either monopolistic or oligopolistic equilibrium price. production decreased, further decreasing social welfare creating deadweight loss. sources of market power said include existence of externalities, barriers entry of market, , free rider problem. markets may fail efficient variety of reasons, exception of competition law s intervention rule of laissez faire justified if government failure can avoided. orthodox economists acknowledge perfect competition seldom observed in real world, , aim called workable competition. follows theory if 1 cannot achieve ideal, go second best option using law tame market operation can.