e., high) prices - the only way to compete is
through product differentiation. This is achieved by constant
innovation - and by incessant advertising.
Baumol maintains that oligopolies are the real engines of growth and
higher living standards and urges antitrust authorities to leave them
be. Lower regulatory costs, economies of scale and of scope, excess
profits due to the ability to set prices in a less competitive market -
allow firms in an oligopoly to invest heavily in research and
development. A new drug costs c. $800 million to develop and get
approved, according to Joseph DiMasi of Tufts University's Center for
the Study of Drug Development, quoted in The wall Street Journal.
In a paper titled "If Cartels Were Legal, Would Firms Fix Prices",
implausibly published by the Antitrust Division of the US Department of
Justice in 1997, Andrew Dick demonstrated, counterintuitively, that
cartels are more likely to form in industries and sectors with many
producers. The more concentrated the industry - i.e., the more
oligopolistic it is - the less likely were cartels to emerge.
Cartels are conceived in order to cut members' costs of sales. Small
firms are motivated to pool their purchasing and thus secure discounts.
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