Monopoly Politics: Price Competition, Learning, and the Evolution of Policy Regimes

abstract:In the long run, economic policy in advanced industrial states has historically alternated between favoring price competition and favoring the market power of domestic firms, across such disparate areas as antitrust, intellectual property, and trade. This article presents a theory of long-term policy change, based on the interaction of accumulating economic costs and staff turnover within the state, explaining multiple policy alternations during the twentieth century. Policy regimes of competition or market power endogenously generate diminishing returns, manifested as unintended economic costs intrinsic to competition or market power. And yet policy regimes endure because established cadres of government officials remain committed to existing policy approaches. Even as diminishing returns become apparent, it is only after the removal or circumvention of these established policymakers, through staff turnover and learning by uncommitted officials, that policy eventually changes course. The article supports this argument with extensive evidence from government archives in the United States and France.