2.2. Policy Implications

Believing in an unidirectional causal link from structure to conduct to performance and having a clear-cut reference of what the performance of a market should look like is the basis for far-reaching interventions into market structures as well as firm conduct. The Harvard approach would call for interventions in case the structure of a market is not likely to reach its mix of static and dynamic efficiency goals. Intervention into market structures can thus cut both ways: if the number of firms is deemed to be too small to reach the proclaimed performance indicators, divestiture might be the policy called for. The number of firms, can, however, also appear to be too large, e.g., if heavy investments into research and development seem to be necessary in order to speed up technological progress. In that case, representatives of the Harvard approach would call for merger-enhancing policies. Such policies have even played a certain role on the level of the European Union.

An alternative way of intervening into the market process is to monitor firm conduct. One could, e.g., tolerate a rather high market share but closely control conduct, e.g., by publishing maximum prices, etc. A variant of this approach is implemented in Art. 82 of the EEC Treaty, which prohibits any abuse of dominant market positions. Approaches to monitor and sanction firm conduct have often been evaluated as unsuccessful and have been used less and less over an extended time period.