Avoiding the Efficiency Trap

Abstract

For most of the last half century, economic concepts of efficiency have dominated antitrust law and competition policy. Debates have largely centered around how to apply these concepts to specific types of business conduct, for example, whether a particular merger is efficient or a particular action will exclude equally efficient competitors from the market, while concerns about market structure have largely receded into the background. Business scholarship and practice, however, have begun to place an increasing emphasis on sustainability. Sustainability not only challenges the basic assumption of efficiency analysis that firms rationally pursue profit maximization, sustainability also suggests that overreliance on efficiency may be a trap that renders markets less resilient and more prone to collapse in the face of abrupt changes. Growing concern about the fragility of supply chain networks provides a case in point. To avoid the efficiency trap requires consideration of both efficiency and resilience.