3.3. Critique

The Chicago approach has been heavily criticised on various grounds. Some of the points are just mentioned here:

– The models are still built on the concept of perfect competition. More recent developments are not sufficiently taken into account;

– Some of the assumptions are not likely to lead to correct predictions (rationality, absence of barriers to entry);

– The models were wrong in some important details; Chicago, e.g., argued that monopoly positions could not be expanded upstream or downstream by way of vertical integration. In the meantime, it has been shown that this can be done (e.g., Riordan 1998)

The Chicago approach can only be understood as an answer to Harvard. What is fascinating about the two approaches is that both of them were inspired by traditional price theory and welfare economics. Comparing the two approaches shows that a very similar theoretical body can be used to develop completely diverging models and to draw radically different policy conclusions. Whereas Harvard always looked for a monopoly motivation of some action, Chicago tried to justify almost every action by first asking whether it could not enhance efficiencies. What was obviously lacking were more fine-grained approaches with a more elaborate theoretical basis and a lesser degree of ideological prejudices.