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John Kay (1993), particularly Chapter 20, gives an interesting discussion of competition policy as it relates to business strategy. Rigorous (but somewhat economic theory-oriented) analyses of the welfare economics basis of economics are found in two articles, by Bator and Chipman, re-printed in Townsend (1971). Beauchamp and Bowie (1988) contains a good selection of readings on matters related to business ethics. Parkin and King (1995) contains a comprehensive and very readable account of market failure and public choice (Chapter 19) and industry policy (Chapter 20).

Contestability

An important recent development in the analysis of business economics has been the theory of contestable markets, developed by W. J. Baumol, an American business economist and consultant. A market is contestable if firms are able to enter or leave the market freely. Baumol (1982) argues that this condition alone is sufficient to bring about all the desirable properties of perfectly competitive markets. The importance of this claim is clear; whereas it is virtually impossible to achieve all the conditions of perfect competition except in very unusual circumstances, making market entry or exit free is a more easily achieved goal. If this theory is correct, policy should concentrate on increasing the mobility of firms across markets, rather than attempting to control the pricing (and other) behaviour of firms.

Environmental Regulation

A more extensive analysis of all aspects of environmental economics, firmly grounded in economic theory can be found in Perman, Ma and McGilvray (1996). Pollution control policy is analysed in Chapters 8 and 9 of that reference. A briefer account is found in the survey article by Cropper and Oates (1992). Coase’s classic article (1960) on bargaining repays careful reading.