Prices and Profits in Dominant Firm Adjudication

Written for a conference at the University of Lisbon, this paper analyzes policies toward prices and profits in competition policy actions targeting dominant or monopolistic enterprises. Its motivation came from dilemmas posed by the European Commission's recent actions with respect to the Microsoft Corporation. The paper traces reasons why competition policy enforcers have been reluctant to assess the reasonableness of prices and profits and to prescribe changes in price levels. It identifies cases in which such oversight is essential for effective policy implementation. Drawing upon the Microsoft experience, it asks whether governmental intervention with respect to intellectual property licenses and the royalties they carry jeopardizes technological progress. An optimistic conclusion is reached.