A Synthesis of Recent Advances in the Economics of Entrepreneurship and Industrial Organisation from the Perspective of Competition Policy

Competition policy seeks to regulate markets in order to promote competition and economic welfare. In doing so it relies heavily on the economics of industrial organisation for guidance. However, within economics two fields of research have focused on the competitive process, namely the economics of industrial organisation and entrepreneurship. These differ at two important levels. In the first instance, the literature on entrepreneurship is almost exclusively concerned with dynamic competition whereas the vast bulk of industrial economics deals with static competition. Secondly, the economics of industrial organisation is mainly concerned with factors which affect the demand for enterprise while the literature on entrepreneurship mainly focuses on the suply of enterprise. This paper conducts a survey of these two literatures from the perspective of competition policy. It ilustrates how a consensus of opinion has gradually emerged from the evolution of these schools of thought. This facilitates a synthesis. On this basis the analysis concludes that competition policy would be enhanced in it broadened its scope to consider the role of the supply of enterprise, particularly in its use of the theory of constestable markets. In addition, the recognition of the trade-off between dynamic and static efficiency pose serious challenges for the formulation and practice of competition law. In particular, the empirical difficulties in arriving at unambiguous policy conclusions alongside the fact that most competition law was framed with static efficiency in mind, raises the likelihood that competition law may itself cause inefficiencies. The paper illustrates that the laissez faire versus regulation debate has been resolved at a conceptual level but that the difficulties associated with empirical analysis implies that in practice it will still be a source of contention in the execution of efficient competition policy.