Neo-classical Economics and the Case for Antitrust

Abstract

The tradition of analysing the welfare effects of market power by reference to the concept of economic surplus as represented in the previously defined social welfare function is quite ancient, encompassing J. Dupuit (1844) and (certainly) Alfred Marshall. More recently this method has been used by Harberger [30], who was the first economist to use the concept of economic surplus to quantify the welfare effects of monopoly. The neo-classical approach to this issue, as outlined in Fig. 1, produced an unambiguous ‘deadweight’ loss of social welfare from market power and constituted a forceful case in favour of an antitrust policy.