This article gives an overview of the economic principles underlying competition policy and antitrust analysis. The authors explain how an understanding of Industrial Organization (IO) economics is crucial to explaining market conduct and assessing the competitive implications. In addition, they emphasize the importance of integrating economic theory with the specific facts of the market at issue.

It has long been recognized that competition can lead to lower prices, enhanced product variety, greater innovation and downward pressure on costs. Indeed, companies who are often referred to as market leaders tend to be the firms who have been able to innovate and compete effectively. However, it is also possible for a firm to impede the competitive process to the detriment to consumers. This articles discusses three broad classes of conduct that potentially could impede the process of competition: exclusionary conduct, anticompetitive agreements and tacit coordination, and mergers.

In addition, the authors pay particular attention to the economic theories behind the unilateral effects doctrine in merger control. For example, they describe two commonly applied theories of oligopoly competition that have been used to assess whether a proposed merger is likely to lead to higher prices.

In their conclusion, the authors welcome the effects-based focus on economics in the emerging competition policy regimes in the Asia Pacific region.

This chapter is an extract from The 2004 Asia Pacific Antitrust Review, a Global Competition Review special report.