Competition, Consumer Welfare and Monopoly Power

Donald Brown () and G.A. Wood

No 1466R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

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.

Keywords: Monopoly power; Antitrust economics; Applied general equilibrium analysis (search for similar items in EconPapers)
JEL-codes: D42 D58 D61 L12 L41 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2004-05, Revised 2004-08
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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