1 Introduction: Starting From First Principles

Subject(s):

Monopoly — Basic principles of competition law — Economies of scale — Microeconomics — Perfect competition — Dynamic welfare analysis

This introductory chapter starts by setting out the main contributions of economics to competition law: from the original idea that competition is ‘good’ and monopoly is ‘bad’, through to an understanding and quantification of the effects of business practices on competition and consumers. The economics ‘toolkit’ is based on microeconomics, industrial organization (IO), finance, behavioural economics, and econometrics. The chapter then explains basic economic concepts such as demand, supply, substitution, economies of scale, and efficiency, in the way of the ‘economic naturalist’, trying to make the reader think like an economist and develop some economic intuition. The chapter ends with some health warnings on competition (what it can and cannot achieve), on competition policy (what competition authorities and courts can and cannot achieve), and on competition economists.