A conceptual framework to identify dynamic efficiency

Abstract:

Even though dynamic efficiency has a great potential to bring social welfare, it was not until recently that dynamic efficiency started impressing competition authorities in deciding the net effect of mergers, agreements and abuse of dominance practices on competition. The problem, however, is that there is a general confusion regarding the difference between static and dynamic efficiency. Also, there is no unanimously accepted holistic definition of dynamic efficiency. For the correct application of competition law it is, therefore, essential that competition law practitioners, both lawyers and economists, are able to correctly identify dynamic efficiency.

This paper, after analysing several definitions of dynamic efficiency, categorizes the definitions into four approaches and develops a conceptual framework. After ascertaining the limitations of each approach, a holistic definition is suggested.

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