ABSTRACT
Most economists are agreed upon the important role which competitive markets play in inducing enterprises to operate efficiently. The theory of competitive markets shows that both productive and allocative efficiency are achieved: allocative efficiency—supplying a range of goods and services which match consumers preferences at prices which reflect the costs of supply; and productive efficiency—supplying goods and services at minimum efficient cost. The economic constraints on the introduction of competition can usefully be divided into three types: the existence of natural monopoly; a divergence between the private interest which competitive markets achieve and the public good; a firm’s self-interest is best served by restricting competition. Anti-competitive action by incumbent firms is, as already noted, a policy concern common to many sectors of the industrial economy. The objective of regulating the possible abuse of monopoly can perhaps best be thought of as an attempt to mimic the outcome which would result were competition to be feasible.
