Competition on the Cost Frontier and Intertemporal Regular Linkages: Theoretical Implications of the Efficient Structure and Quiet-Life Hypotheses

This paper explores theoretical implications of the efficient structure and quiet-life hypotheses on the basis of the generalized user-revenue model constructed by Homma (2009, 2012). From the perspective of the extended generalized-Lerner index (EGLI) on the cost frontier, the following two points are noteworthy: 1) it is not always possible to justify anti-monopoly and anti-concentration policies using support for the quiet-life hypothesis; and 2) new industrial organization policies are required if support for the efficient structure hypothesis is undesirable. Furthermore, where intertemporal regular linkage of single-period EGLIs on the cost frontier exists, the appropriate industrial organization policies must be determined based on a long-term perspective. If this linkage shows an upward trend caused mainly by an upwardly trending intertemporal regular linkage of single-period Herfindahl indices, then anti-monopoly and anti-concentration policies are justified from a long-term perspective. If the upward trend of the intertemporal regular linkage of single-period EGLIs on the cost frontier is, however, caused mainly by the intertemporal regular linkage of single-period dynamic cost efficiencies or single-period optimal planned financial goods, then other policies are desirable because in this case anti-monopoly and anti-concentration policies cause unnecessary distortion in the economy.