Kim Them Do
Based on controversies over the Harvard School’s ‘structure-conduct performance’ paradigm and J. M. Clark’ s theory on workable competition, both Hoppmann and Kantzenback focus on the question of the objective of competition law.
Kantzenback holds that competition has various functions: the competitive market enables policymakers to shape policy for the redistribution of wealth appropriately; the power of consumers to decide their preferences leads producers to adjust their sale strategies and allocation of resources for production. Their efforts to innovate and freedom to compete compel producers to keep prices down and quality up.[1]
Bringing all of these objectives together, Kantzenback advocates that the intensity of the competition is an important feature to consider the market outcome. In illustrating his thesis, he distinguishes between potential and effective intensity. The former is not dangerous because its effects are not explicitly negative; however, the latter matters where the effects of restraint conducts have been seriously affected in the market.
Both situations are closely interrelated: the more effective the intensity, the less potential intensity the market has. The effective intensity of competition can be only realized on condition that the market structure can be dynamically improved, with freedom to compete and innovation pressure continuously strengthened. Here the main objective of competition law and policy is improving the form and structure of the market to the extent that the effective intensity is best realized. Consequently, competition law should support broad monopolies because they can produce most competition intensity.
Contrary to the conception of Kantzenback and in connection with Hayek’s view, Hoppmann argues that freedom of economic action is a value in itself and that not market structure but rather freedom to compete best serves the goal of competition law. By freedom to compete he means that market actors may enjoy the freedom to decide, act and exchange to the extent of their scope of autonomy.
The semantic of freedom is of relative importance because this action parameter should be within the limit of the existing legal order, the social market economy and liberal philosophy.
For Hoppmann, the market power of firms is not truly harmful because first, it is not easy for dominant firms to exclude their competitors from the market; and second, the future market is determined not by a political agenda but rather by an open-ended competition process. Finally, freedom of economic action becomes an ultimate objective of competition. Hoppmann argues that to date his assumption cannot be falsifised in practice.[2]
Some points of controversy between Kantzenback and Hoppmann are important: Kantzenbach focuses on the market outcome as the purpose of competitive market development and the market structure as the determinant of the function of competition law. Consequently the price theory model is a tool for the analysis of welfare development in the relevant market. By contrast, Hoppmann highlights freedom to compete within the liberalism, not only as a pure economic objective to pursue but rather as a basic value in human and liberal society.[3]
Kantzenbach considers competition only as means of reaching the economic objective, while Hoppmann qualifies it as a noneconomic justification for societal development. He argues that we can identify and promote it only through a process of discovery of dispersed knowledge. Two relevant consequences of his illustration are that the price theory model has no power to explain economic progress in the long term, and that there is no dilemma between the purpose of competition law and economic development.
In support of the workable competition approach, Kantzenbach points out that there is a link between intensity and function in competitive market development. In practice, empirical research tells us otherwise: his assumption can be seen as oversimplifying the complexity of economic reality with insufficient evidence to prove its causality.
Hoppmann provides us with a model for thinking of freedom in action and non-dilemma theory, but he fails to justify the need for intervention at a time of market turbulence. The current chaos teaches us that the leadership needs to identify the risks of the market in time to recover the power of market.
It is well known that German competition law was effective in supporting economic development processes in the 1960s.
Kantzenback’s concept has been accepted as the right approach at the right time for practitioners. There is a simple reason for this. Controlling harmful conduct and prohibiting concentration were at the top of the agenda of the leardership in the 1960s. Hoppmann’s insight appears to be unrealistic to put it in practice, although it is still referred to in the liberalist literature.[4]
Due to the dominant position of the Chicago School of thought at the time of privatization, German competition policy makers have extensively revisited Hoppmann’s liberal view in modeling a conceptual framework for the liberalization process for particular sectors. Finally, the theory of industrial economy has taken a leading place in German law discourse, The effect-based approach and consumer welfare standards have had greater roles in practice reviews.[5]
[1] Kantzenbach, Die Funktionsfähigkeit des Wettbewerbs, 1996; ‚Die Funktionsfähigkeit des Wettbewerbs. Bemerkungen zu Kantzenbachs Erwiderung‘, Jahrbücher für Nationalökonomie und Statistik 1967/1968 (181) 193.
[2] Hoppmann, Marktmacht und Wettbewerb 1977
[3] Eichof ‚Die Hoppmann-Kantzenbach Kontroverse: Darstellung, Vergleich und Bedeutung der beiden wettbewerbspolitischen Leitbilder, Diskussionsbeitrag Nr. 95, 2008, Universität Potsdam.
[4] Eichof(footnote 73) p. 21.
[5] Eichof footnote 73) p. 22-24.
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