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62 N.Y.U. L. Rev. 998 (1987)
Antitrust, Efficiency, and Progress

handle is hein.journals/nylr62 and id is 1014 raw text is: ANTITRUST, EFFICIENCY, AND PROGRESS F. M. SCHERER* INTRODUCTION How does antitrust affect the level of economic efficiency, construed from both narrow and broad perspectives? Is there a tradeoff among diverse efficiency achievements? Would efficiency be higher with more vigorous, or more relaxed antitrust policies? Can we identify specific pol- icies that have had clear, important efficiency-retarding impacts? These are the hopelessly difficult questions that I have been commissioned to address. I can offer only a modest answer: Although antitrust policy may have had some negative effect on efficiency (in the senses defined below), the efficiency losses are probably small and outweighed by effi- ciency gains in other, more difficult to measure, areas. I EFFICIENCY, STATIC AND DYNAMIC Economic efficiency is multifaceted. I will analyze three types: allo- cative efficiency, X-efficiency (sometimes called productive efficiency), and long-run technological efficiency (that is, the rate of technological progress). Figure 1 provides an opening wedge into the conceptual founda- tions. It imagines a well-defined industry, the demand for whose prod- uct(s) is revealed by the demand curve D'D. Production and distribution costs are assumed to be OC1 dollars per unit sold, and, because the indus- try's members have monopoly power, the price is at level OP1. The ele- vation of price above would-be consumers' valuations of the extra output units (read as the demand curve ordinates) over the range EF leads to a restriction of output by the amount XX2 units. This failure to satisfy marginal consumers' wants implies a deadweight loss amounting to the area of the shaded triangle EFG. From the standpoint of those who stress the desirability of allocative efficiency, triangle EFG is what anti- trust is all about. The maintenance of price above costs also redistributes wealth from consumers to producers by the rectangular area PIEGCI. In the standard analysis of efficiency, this redistribution is of no concern. It merely reflects a robbing of Peter (the consumer) to pay Paul (the pro- * Professor of Economics, Swarthmore College. A.B., 1954, University of Michigan; M.B.A., 1958, Ph.D., 1963, Harvard University. 998 Imaged with the Permission of N.Y.U. Law Review

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