COMPETITION INEUROPE HENKDEJONG PhotographbyWerryCrone,PhotoTrouw. WithkindpermissionofPerscombinatieAmsterdam. Competition in Europe Essays in Honour of Henk W. de Jong edited by Peter de Wolf Erasmus University, Rotterdam, The Netherlands SPRINGER SCIENCE+BUSINESS MEDIA, BV. Library of Congress Cataloging-in-Publication Data Competition in Europe essays ln honour of Henk de Jong I edited by Peter de Wolf. p. cm. -- (Studies ln lndustrial organization v. 14) Includes bibliographical references. ISBN 978-94-010-5469-0 ISBN 978-94-011-3326-5 (eBook) DOI 10.1007/978-94-011-3326-5 1. Industrial concentratlon--Europe. 2. Industrial organizat ion -Europe. 3. Competition--Europe. 1. Jong. H. W. de. II. Wolf. Peter de. III. Series. HD2844.C66 1990 338.S·048·094--dc20 90-20543 ISBN 978-94-010-5469-0 Printed on acid-free paper AII Rights Reserved © 1991 by Springer Science+Business Media Dordrecht Originally published byKluwer Academic Publishers in 1991 Softcover reprint of the hardcover lst edition 1991 No part of the material protected by this copyright notice may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the copyright owner. CONTENTS Preface vii I. Introduction - Growth without Bending Henk W. Lambers 2. Some Aspects of Dynamic Analysis and Industrial Change 9 William G. Shepherd 3. Modeling Economic Change and Restructuring - The Micro Foundations of Economic Expansion 33 Gunnar Eliasson 4. Growth of Large Enterprises and their Market Environments 61 Richard E. Caves 5. Industrial and Market Concentration in Europe 85 Remo Linda 6. Efficacy and Freedom of Mergers and Acquisitions 115 Pieter W. Moerland 7. The Contribution of Economists to the Origins of UK Competition Policy 135 Denys Gribbin 8. Public Ownership versus Privatisation 163 Ken George 9. Sociopolitical Competition or Harmonization in the European Community? Some Fundamental Reflections 187 Peter Oberender 10. Cooperation in Research & Development and European Competition Policy 209 Alexis Jacquemin II. Antitrust Treatment of Cooperative Research: How Reasonable is the Rule of Reason? 229 William James Adams 12. Competition and Combination in the European Market Economy 265 Henk W. de Jong Contributors 293 vii PREFACE Competition in Europe, which has been chosen as the title for the Essays in Honour of Henk W. de Jong, contains two key concepts, that characterize his scientific contribution to Industrial Organisation. Professor H.W. de Jong is in the first place an economist who is highly inspired by the dynamics of markets in general and the dynamics and conditions of compe tition in particular. In the second place, H.W. de Jong is a real European economist, not in the sense that his theoretical insights are limited to Europe, but in the sense that his ideas and policy suggestions - especially those concerning competition policy - reflect his sincere involvement in the European inte gration process and the economic conditions and perspectives of a Common Market for the European Community. In his many illustrations of the evolution of markets and the performance of enterprises in different business environments, H.W. de Jong also demonstrates his knowledge of historical and political aspects of different economies in Europe, often in comparison with the United States and Japan. I would like to express my gratitude to the authors, who all reacted spontaneously when the idea for this book was raised. They made this present for H.W. de Jong possible. Their contributions show a variety of aspects of competition or absence of competition, running from the theo retical foundations of dynamic market theories to the description of esti mated effects of the latest forms of harmonized regulations with regard to competition in the European Community. Besides being interesting reading, these essays will also indicate the authors' evaluation of the scientific con tribution of H.W. de Jong to Industrial Organization. Special thanks also goes out to Emeritus Professor H.W. Lambers, H.W. de Jong's promotor, for his personal introductory contribution. Because we realised that the proper place of H.W. de Jong is among his distinguished international academic friends, we asked him to be so kind as to write down his valedictory address, so that it could be included in Competition in Europe. We appreciate the joint decision of Mrs. Marie Stratta of Kluwer Academic Publishers and Professor W.G. Shepherd to include this volume in the Series 0/ Industrial Organization, of which H.W. de Jong is one of the initiators. viii I would also like to thank the Organising Committee of the Economic Faculty, especially professor J.G. Lambooy (Dean at that time) and dr. R.E.M. van den Brink, Paul Holle and Taco van Someren, for their confi dence by asking me as editor for this book, dedicated to H.W. de Jong, who was my promotor at the University of Amsterdam in 1987. Paul and Taco have done a lot of work, including inviting most of the authors. Finally we express our great admiration and gratitude to Mrs. Wil Sommeling of the Erasmus University in Rotterdam, who is responsible for the lay-out and the preparation of the total manuscript. Peter de Wolf Rotterdam, October 1990 1 INTRODUCTION GROWTH WITHOUT BENDING HENK W. LAMBERS Professor Hendrik Wouter de Jong, of the University of Amsterdam, is a pioneer in the dynamic theory of industrial organisation, or "market theory" as it is now mostly called in Continental Europe.! That approach to micro ecnomics focuses on the central institution of our economic order: the market. It opens a wide field of research. Adherents to market theory form a very loose union based on their common tendency to regard competition among firms as the core, and the relations in the triad: "structure-conduct performance" as the analytical framework.2 More loosely expressed, the common aim is to get a deeper insight into the currents and cross-currents that shape real markets. In the words of De Jong: "I will try to establish that dynamic industrial organisation theory may provide a solution to these apparent contradictions by focusing on the heart of the matter: the competitive market process".3 De long has, indeed, contributed much to our knowledge and under standing of the dynamics of markets. In the first place by a series of origi nal research projects which combine acumen and precision. In the second place by numerous publications based on critical and consistent theoretical analysis as well as a wide knowledge of international literature. In the third place as editor - or co-editor with Professor A.P. Jacquemin and Professor W.G. Shepherd - of a series of publications - monographs or well-pro grammed compilations of original essays - which have made a major impact on the international co-operation in this branch of economics. To single out one example: the two volumes of Mainstreams in Industrial Organisation (1986)4 have, by the intelligent distribution of themes among authors of different nationalities, set an example for a new kind of text book in a field which is becoming increasingly transnational as the deve lopment towards a mondial corporate economy proceeds. De long is a sturdy man, in body as well as in mind. His retirement in 1990 from the chair of theory of external organisation at the University of 2 Amsterdam is, luckily, due only to regulations on the professorial retiring age. There was spontaneous consensus among friends and colleagues of many nationalities that this was the opportune moment to show De Jong their deep appreciation of his steadfast efforts. The outcome of that consensus is this set of essays in his honour. They circle around the theme "Competition in Europe", one of the first - and lasting - fields of investigation of De Jong. The list of contributors in itself suffices to show that De Jong is an out standing international economist. That is why there is a book, and why, to really honour De Jong, it had to be about dynamic market theory and its potential for the understanding of European market developments. At the same time, De Jong has remained a genuine Dutchman with a Dutchman's deep interest in the working and steering of the Dutch economy, especially its markets, both on the corporate and on the govern ment side. His independency of mind is well known, as is his expertise.s His opinions are sought after and listened to. In economics that does not mean, of course, that they are always immediately accepted and acted upon. If not, De Jong re-enters the fray.6 In the Netherlands he has vitalised the dynamic approach to markets in theoretical economics. Therefore, the rest of this introduction will be an attempt to draw some lines from his deep roots in Dutch culture and Dutch academic economics to the autonomous body of thought he has built. H.W. de Jong was born (1925) and raised in Rotterdam. In 1944 he took his matriculation; he had to wait until the liberation of the Netherlands in May 1945 for the reopening of the Universities, when he enrolled as a stu dent of the Nederlandse Economische Hogeschool at Rotterdam. As he took his academic degrees, including his doctorate, at that institution, some lines on its conduct and performance, and its possible influence, may be func tional. The Netherlands, a nation dependent on international trade, has always had a deep respect for knowledge, integrated information. Not only to know how but at least as much to know why. In 1859 an entrepreneurial banker in Rotterdam stimulated his co-citizens to found an international library with the admonition: "Trade without knowledge means fortune by coin cidence".7 A few decades later, in this same Rotterdam some young 3 businessmen decided that the complexities of modern international business called for the theoretical education of merchants. In 1913 they founded the "Nederlandsche Handels-Hoogeschool", mostly known abroad as the "Rotter dam School of Economics".8 It was the first institution of higher learning in the Netherlands specifically directed at the study of economics. Professor F. de Vries (1913-1945) was the first professor of general that is, theoretical - economics. He set his analytic and learned mark on the curriculum. When Rotterdam had proved a success, Amsterdam followed in 1921 by adding a faculty of economics to its University (growth-cycle theory, no irony intended). Its architect was Professor Th. Limperg, a highly intelligent chartered accountant and a very dominating personality. Economics for him started with the internal organisation of the firm; that finished, one turned outward to its environment: "the theory of external organisation". The undergraduate curriculum at Rotterdam had as compulsory subjects economics, business economics, economic history, economic geography and law. De Jong is one of the very few of the thousands of students who suc cessfully passed through this curriculum who in his work has woven together all those themes into one balanced pattern. But, thanks to academic tradition, he still teaches "the theory of external organisation". Pride and prejudice exist in the groves of Academy. The pride of Rot terdam was that it was not prejudiced. The first advice was to observe and have an open mind. As a consequence there were centres of common interest but no "Schools" in Rotterdam. There was however a general style in the approach to economics. Shepherd's remarks on soft analysis as focusing on core ideas that are valid and testable9 would have been welcomed. "Plausibility" and "Relevance" were household words. When De Jong concludes his pioneering article "European Industrial Organization" with the remark: "It is a dubious gain to acquire greater scientific precision at the cost of relevancy"lO, one smiles at seeing a style kept alive. To this School, then, De Jong found his way in 1945. He must have been a very attentive student. He recollected, in 1981, how Lambers - micro economics - had told his students that supply and demand, of course, were zones.l1 Owing to their slopes they had to intersect somewhere; he called the meeting place the tolerance plane. "Tolerance" because within its limits