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Competition, Consumer Welfare and Monopoly Power

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Abstract

An applied general equilibrium analysis of monopoly power is proposed as an alternative to the partial equilibrium analyses of monopoly pricing current in antitrust economics. This analysis introduces a new notion of market equilibrium where firms with monopoly power are cost-minimizing price-takers in competitive factor markets and make supracompetitive profits in equilibrium, i.e., the monopoly price exceeds the marginal cost of production. We assume that the primary goals of antitrust policy are the promotion of competition and the enhancement of consumer welfare. To that end, we use Debreu's coefficient of resource utilization to determine the counterfactual competitive price levels in monopolized markets and then impute the economic costs of monopolization.

Suggested Citation

  • Donald J. Brown & G.A. Wood, 2004. "Competition, Consumer Welfare and Monopoly Power," Cowles Foundation Discussion Papers 1466R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2004.
    • Handle: RePEc:cwl:cwldpp:1466r
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d14/d1466-r.pdf
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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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