Regulation Misled by Misread Theory: Perfect Competition and Competition-Imposed Price Discrimination

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Over the past half century, distinguished economist William Baumol has dramatically influenced microeconomic theory. “Regulation Misled by Misread Theory” yet again changes how we think about economics.

Standard economics has long held that firms can price discriminate only when they have monopoly power. Antitrust authorities and other regulators are thus tempted to use the existence of price discrimination as one indicator that a firm should possibly be subject to government investigation. In this monograph, Baumol shows that price discrimination not only exists in competitive markets but sometimes is a crucial feature of them. He concludes by urging regulators to tread carefully when applying theory to policy.

William J. Baumol is professor of economics at New York University and professor emeritus and senior research economist at Princeton University. His honors and awards include 10 honorary degrees; presidency of the American Economic Association, the Association of Environmental and Resource Economists, the Eastern Economic Association, and the Atlantic Economic Society; and membership in the National Academy of Sciences. He has also served on many boards and committees. Baumol is the author of more than 30 books and over 500 articles published in professional journals.