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Effective Market Power and Welfare Loss

Author

Listed:
  • Zhongqi Deng
  • Yue Luo
  • Cailin Yang
  • Xuecheng Fan

Abstract

This paper introduces a straightforward and effective estimation methodology for quantifying firm‐level welfare losses attributable to market power in monopolistic competition markets. Our analysis underscores that welfare losses are primarily contingent on effective market power, expressed as the product of the Lerner index and market share. Furthermore, our study demonstrates that welfare loss computed using the Hicksian measurement is smaller than that obtained through the Marshallian measurement. Finally, we apply this methodology to estimate firm‐level market power and welfare losses in the Chinese carbonated beverage industry.

Suggested Citation

  • Zhongqi Deng & Yue Luo & Cailin Yang & Xuecheng Fan, 2025. "Effective Market Power and Welfare Loss," Australian Economic Papers, Wiley Blackwell, vol. 64(2), pages 279-287, June.
    • Handle: RePEc:bla:ausecp:v:64:y:2025:i:2:p:279-287
    DOI: 10.1111/1467-8454.12386
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    References listed on IDEAS

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