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By Charles K. Rowley

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At least, with the existence of competition between many firms for a large number of products: If an economy were being built up from scratch and the benefits of competition were ignored, our estimates of economies of scale suggest that there should be a very high degree of concentration of production of many products ... ([53] p. 313). Pratten's conclusions, which are relatively unfavourable for antitrust policy, are not endorsed, however, by a close research associate, Silberston [66], in an interpretative essay based on the Pratten evidence.

Williamson argued that values of k in the neighbourhood of 1·00 would be typical and that values as high as 1·05 would obtain occasionally. On this basis, he estimated the percentage cost reductions sufficient to offset various percentage price increases for selected demand elasticities (assumed to be constant in the relevant range) for values of k= 1·00 and 1·05. The results are outlined in Table 1. It is evident from Table 1 that relatively small percentage cost reductions are sufficient to offset quite substantial percentage price increases in the Williamson trade-off model, especially where pre-merger (or post-antitrust) market power 45 PERCENTAGE COST REDUCTIONS Table 1 [(LlAC/AC1 ) X 100] (NET OF X-INEFFICIENCY) SUFFICIENT TO OFFSET PERCENTAGE PRICE INCREASES SELECTED VALUES OF LIP/PIx 100 5 10 20 30 Y AND k = 1·00 AND 1·05 y=2 k = 1·00 k = 1·05 0·26 1-05 4-40 10·35 0·78 2·15 6·82 14·28 y=l k=1·00 k=1·05 0·12 0·50 2·00 4·50 0·38 1·03 3·10 6·21 [LIP/PI X 100] FOR y=i k= 1·00 k= 1·05 0·06 0·24 0·95 2·10 0·19 0·50 1-48 2·90 Source: O.

Various solutions to this policy dilemma have been put forward in the invention literature. Arrow [2] has suggested that for optimal allocation to invention it might be necessary for the government or some other non-profit-motivated agency to finance research and invention. Whether or not public production should accompany public finance to extend the market in invention then remains as a contentious issue. By contrast, Demsetz [21] has argued forcibly that a private enterprise solution is entirely possible, with suitable support from patent legislation, since appropriability is largely a matter of legal arrangements and the enforcement of such arrangements.

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