Oligopolies and Innovation
During the twentieth century and into the present, new products and
production methods have followed each other in rapid succession,
leading to higher living standards and higher productivity. Many of these
innovations have been provided by firms in oligopolistic industries, such
as cars, agricultural machinery, petroleum refining, chemicals, electronics,
computing, and telecommunications. As long as oligopolists continue to
compete with one another, rather than cooperating to produce monopoly
profits, most economists see no need to regulate the prices at which
oligopolists sell their products and the conditions of entry into
oligopolistic industries.
“Capture” of Regulatory Bodies
Postwar government intervention in regulated industries did not prove as
successful as its supporters had predicted. Research by the University of
Chicago’s George Stigler (1911–1991) and others showed that in many
industries the regulatory bodies get “captured” by the very firms they are
supposed to be regulating, meaning that regulators impose policies that
are in the firm’s interest rather than the public interest. This capture is
unsurprising, because regulatory agencies, in an attempt to hire people
knowledgeable about the industry, often hire many former employees of
the regulated firms. These people naturally tend to be sympathetic to the
firms in the industry, and as a result, the regulatory agencies that are
meant to ensure competition often act to enforce monopoly practices that
would be illegal if instituted by the firms themselves. As a result, the
process of regulation, rather than protecting consumers from anti-