Competition, Consumer Welfare and Monopoly Power
16 Pages Posted: 2 Sep 2004
Date Written: August 2004
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.
Keywords: Monopoly power, Antitrust economics, Applied general equilibrium analysis
JEL Classification: D42, D58, D61, L21, L41
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