Over the past 50 years, William Baumol has made groundbreaking contributions to a wide range of economic fields, including antitrust, the study of productivity, and the nature of growth. Here are some of his best-known concepts:
INNOVATION MACHINE
Capitalism stimulates innovation because companies constantly tinker with their products to differentiate them and retain pricing power.
CONVERGENCE
Industrialized nations with low productivity can be expected over time to catch up with high-productivity countries as laggards learn from leaders.
CONTESTABILITY
Prices in an industry such as airlines can be held down by the possibility of rivals entering a market, even if there is no apparent competition today.
COST DISEASE
Productivity growth is typically slower in service industries such as health care and education because it's hard to reduce the use of labor.
BAUMOL-WILLIG RULE
Companies forced to share their facilities such as phone lines with competitors should be allowed to get the same profit as when they use the facilities themselves.
Data: BusinessWeek
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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