Competition, Consumer Welfare and Monopoly Power
CFDP Revision Date
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.
Brown, Donald J. and Wood, G. A., "Competition, Consumer Welfare and Monopoly Power" (2004). Cowles Foundation Discussion Papers. 1744.