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The Social Cost of Monopoly Power

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Abstract

A general equilibrium analysis of monopoly power is proposed as an alternative to the partial equilibrium analyses of monopolization common to most antitrust texts. This analysis introduces the notion of a cost minimizing market equilibrium. The empirical implications of this equilibrium concept for antitrust policy is derived in terms of a family of equilibrium inequalities over market data from observations on a market economy with competitive factor markets. The social cost of monopoly power is measured using Debreu's coefficient of resource utilization. That is, we propose Pareto optimality as the ultimate objective of antitrust policy.

Suggested Citation

  • Donald J. Brown & G.A. Wood, 2004. "The Social Cost of Monopoly Power," Cowles Foundation Discussion Papers 1466, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1466
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d14/d1466.pdf
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    References listed on IDEAS

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    1. Dierker, Egbert & Grodal, Birgit, 1998. " Modelling Policy Issues in a World of Imperfect Competition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 153-179, March.
    2. Brown, Donald J & Heal, Geoffrey M, 1983. "Marginal vs. Average Cost Pricing in the Presence of a Public Monopoly," American Economic Review, American Economic Association, vol. 73(2), pages 189-193, May.
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    Cited by:

    1. Bertrand Crettez & Marie-Cécile Fagart, 2009. "Does entry improve welfare? A general equilibrium approach to competition policy," Journal of Economics, Springer, vol. 98(2), pages 97-118, November.

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    More about this item

    Keywords

    Monopoly power; Antitrust economics; Applied general equilibrium analysis;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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