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Firm Specific Monopoly Power in Differentiated Oligopoly

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  • T.V.S. Ramamohan Rao
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    Abstract

    In the context of differentiated oligopoly the monopoly power of any one firm is determined by its ability to develop non-price strategies while taking the reactions of the rivals into account. However, in current practice, estimates of firm level monopoly power account for only differences of prices over costs measured in different ways. Further, these differences are always attributed to the demand conditions and the associated elasticity of demand for the differentiated products. That is, it is presumed that firms maximize their profits based on margins rather than volumes or other aspects that shift their demand curves. By way of contrast, the present study acknowledges that the elasticity of demand per se may not be the only source of monopoly power. Hence, an attempt has been made to develop an empirical procedure to identify firm specific monopoly power incorporating non-price dimensions.

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    Article provided by The Indian Econometric Society in its journal Journal of Quantitative Economics.

    Volume (Year): 10 (2012)
    Issue (Month): 1 (January)
    Pages: 85-97

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    Handle: RePEc:jqe:jqenew:v:10:y:2012:i:1:p:85-97

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    1. Lijesen, Mark G., 2004. "Adjusting the Herfindahl index for close substitutes: an application to pricing in civil aviation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(2), pages 123-134, March.
    2. Delis, Manthos D. & Tsionas, Efthymios G., 2009. "The joint estimation of bank-level market power and efficiency," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1842-1850, October.
    3. Kenneth G. Elzinga & David E. Mills, 2011. "The Lerner Index of Monopoly Power: Origins and Uses," American Economic Review, American Economic Association, vol. 101(3), pages 558-64, May.
    4. Zimmerman, Paul R. & Carlson, Julie A., 2010. "Competition and cost pass-through in differentiated oligopolies," MPRA Paper 25931, University Library of Munich, Germany.
    5. Morgenroth, Edgar, 2008. "Exploring the Economic Geography of Ireland," Papers WP271, Economic and Social Research Institute (ESRI).
    6. Coccorese, Paolo, 2009. "Market power in local banking monopolies," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1196-1210, July.
    7. Kozo Kiyota & Takanobu Nakajima & Kiyohiko G. Nishimura, 2009. "Measurement of the market power of firms: the Japanese case in the 1990s," Industrial and Corporate Change, Oxford University Press, vol. 18(3), pages 381-414, June.
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