On September 22, the American Enterprise Institute will sponsor a lecture by the distinguished economist William Baumol on How Regulators Can Be Misled By Simplistic Theory. (Details here.)

The description of the event says:

[I]t is generally recognized that perfect competition is an artificial construct that rarely is approximated in reality. Yet it is sometimes treated as an appropriate guide to regulators, threatening to yield damaging rules. For example, since discriminatory pricing is incompatible with perfect competition, such prices are said to prove monopoly power. Yet many markets with discriminatory prices are very competitive. Baumol shows that effective competition does not impose uniform prices and demonstrates a stronger result: Where competitive pressures prevail, they can force all firms to adopt discriminatory prices if consumer arbitrage is difficult. This radically different picture of competitive markets helps to explain the near ubiquity of discriminatory pricing in reality and indicates limits to the use of discriminatory pricing as a justification for regulatory intervention.

We say, AMEN. Periodically, IPCentral.Info makes intemperate comments about the unfortunate propensity of both economists and lawyers to treat marginal cost pricing as a moral imperative and as a yardstick against which real markets should be measured, a penchant which has mischievous results for regulatory and antitrust policy.

Indeed, searching this Weblog for "marginal cost" produces 22 hits -- including here, here, here, here, here, here, here, here -- almost every one of them intemperate, and last year PFF helped the Competitive Enterprise Institute put on a day-long conference on Declining Marginal Cost Industries in the Global Information Age.

We will be in the front row at AEI.

posted by James DeLong @ 5:22 PM | Prices, Terms, and Licensing

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