*This article is an automatic translation of the original article, provided here for your convenience. Read the original article.
The book that is the subject of these few lines is a pure work of pedagogy in the field of competition economics. Its author, Emmanuel Combe, professor at SKEMA Business School and vice-president of the French Competition Authority, is renowned for his keen sense of clarity in the transmission of economic knowledge, both in his books and in his many television appearances. In his new essay, entitled La concurrence, he invites the reader to discover or rediscover the many facets of competition, but also its grey areas, which sometimes create legitimate confusion in the minds of consumers and citizens.
Intuitively, the book begins with the fundamentals of the pure and perfect competition model, which is based on a series of strict conditions such as the free entry and exit of economic operators, the homogeneity of products, the atomicity of the relevant market and the transparency of tariff and non-tariff information. A market that meets these criteria is a competitive space in which the firms operating in it not only do not exercise market power over their competitors, but also do not generate any profit in the long term. In this configuration, welfare is at its highest level. In contrast, in a monopoly situation, the market structure is quite different. A firm operates alone in the relevant market and is able to set its prices above marginal cost without fear of entry. Thus, the first chapter presents the economic profile of a monopoly and then goes on to describe its "trial", which reveals both its multiple origins and the harmful effects it has on market structure, innovation and welfare. Then, oligopoly and duopoly, the two most common market structures, are examined and examples are given of the criteria for their existence, as well as of the economic benefits they bring.
Is competition reduced to a simple question of the presence of a large number of players on the market? Emmanuel Combe answers in the negative by assuring that there can be fierce competition with two companies, or even one. In order to do so, he describes a number of theories that aim to shed light on the forces of competitive intensity. In this respect, he returns to the famous SCP (structure-behaviour-performance) model theorised by the Harvard School, which infers the degree of competitive intensity from variations in market structure (market share concentration) and the behaviour of economic operators (anti-competitive practices).
Although this vision is still supported by recent empirical work and is convincing, even up to the Federal Trade Commission with the appointment of Lina Khan as its head, there is another ideal, this time based on the dynamics of the competitive process perceived as a perpetual movement of renewal of firms in the market. The author then demonstrates the relevance of this thinking with two key theories, namely the "Bertrand duopoly" and the theory of contestable markets, which could at least mitigate, in some cases, the reader’s aversion to monopolies and market concentrations. Indeed, the latter are not intended to last as long as there are no technical, legal or entry and exit barriers to the renewal of firms in the market. Thus, according to this view, "competition is indeed a process in which several players compete at the start (large numbers) but only one crosses the finish line first in the end.
The most didactic chapter is the one devoted to the micro- and macro-economic effects of competition, firstly because its lessons are the most likely to be incorporated into the public and political debate and secondly because the author endeavours to dispel a whole range of prejudices about the opening up of a country or an economic sector to competition without concealing its side effects. Using the most recent economic studies, Emmanuel Combe sets out to explain the impact of a competition shock on one of the two main economic parameters, namely demand(via prices and quantities) and supply(via an analysis of the reaction of firms in the market, the level of productivity and innovation). The results are clearly positive in that competition would firstly stimulate the economy through increased productivity and innovation, a direct corollary of competitive markets where companies engage in free and intense competition. Secondly, and this is where the practical attractiveness of competition lies, the consumer (final or intermediate) undoubtedly comes out ahead insofar as the opening up to competition increases the quantities produced on the market and consequently lowers prices. Not only does the consumer see his purchasing power increase, but he is the main beneficiary of the quality and diversity of the products in circulation.
Competition, says Emmanuel Combe, is a frantic race for efficiency, in which only the most productive and innovative firms are likely to remain on the market to serve the consumer, thus leading the others to leave the market after a "cleaningeffect". However, the direct impact of this competitive dynamic, at least in the short term, is to lower wages and destroy jobs. The author makes no attempt to ignore these effects, but rather addresses them in an articulate manner by deconstructing the idea that these effects are an invincible inevitability.
However, competition is not a smooth river on which any firm can navigate without hindrance. The book identifies several barriers that impede the competitive process, namely technological barriers with the preeminent role of economies of scale and network effects in the competitive structure of a market, informational and behavioural barriers that impede effective consumer choice, and finally the strategic barriers of established or dominant firms that seek to stifle competition through a series of anti-competitive practices whose economic dialectics and harmfulness the author explains in chapter IV.
What can the state do to promote competition? Emmanuel Combe devotes the last chapter of his book to this thorny question. He reviews the various immediate levers that national authorities could use to unleash the dynamics of competition, while acknowledging the socio-economic environment in which competition policy is embedded. The temptations to withdraw into protectionism, which are currently very much in vogue on the international economic scene, are discussed, with supporting figures, in order to question its foundations and to reveal the true record of protectionism in terms of employment and consumer welfare. However, free and undistorted competition cannot be achieved and anchored in the economic landscape of a country without proactive intervention by competition authorities. Preventing and punishing abusive individual actions (abuse of dominant position) and anti-competitive collective practices (cartels), and monitoring market structure through merger control are the main means of action available to the State to protect its markets against the economic power of established companies and thus ensure that competition is a powerful engine of growth.
Professor Emmanuel Combe’s book has a twofold ambition: firstly, to provide citizens with the intelligible knowledge necessary to understand that the defence of their economic interests is the ultimate objective of competition policy; secondly, to place the subject at the heart of the national, European and international political debate, because competition is not only a societal project in that it impacts all of its actors, but also an economic order in permanent metamorphosis.
See also: La Concurrence, Emmanuel Combe