Take my firm, for instance. Right now we could, and according to theory should, reduce the price of our product. But if we do, many or most of our smaller competitors would be driven out of business. This would increase our long-run control over the market and subject us to greater danger of prosecution by the Competition authorities.
If we don’t lower our prices, we make more profit, and government gets most of it through income taxes, our smaller competitors are satisfied and don’t write to the Competition authorities. What is the answer, from a social viewpoint and from my own firm’s best long-run interests? Frankly, I don’t know, and I don’t believe you will find the answer in any book on imperfect competition!"
