Influential antitrust thinkers, such as Robert Bork, recommended
to revise the law to focus solely on consumer welfare.
These - and other insights - were incorporated in a theory of market
contestability. Contrary to classical economic thinking, monopolies and
oligopolies rarely raise prices for fear of attracting new competitors,
went the new school. This is especially true in a "contestable" market
- where entry is easy and cheap.
An Oligopolistic firm also fears the price-cutting reaction of its
rivals if it reduces prices, goes the Hall, Hitch, and Sweezy theory of
the Kinked Demand Curve. If it were to raise prices, its rivals may not
follow suit, thus undermining its market share. Stackleberg's
amendments to Cournot's Competition model, on the other hand,
demonstrate the advantages to a price setter of being a first mover.
In "Economic assessment of oligopolies under the Community Merger
Control Regulation, in European Competition law Review (Vol 4, Issue
3), Juan Briones Alonso writes:
"At first sight, it seems that ... oligopolists will sooner or later
find a way of avoiding competition among themselves, since they are
aware that their overall profits are maximized with this strategy.
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