Firm Specific Monopoly Power in Differentiated Oligopoly

T.V.S. Ramamohan Rao

Journal of Quantitative Economics, 2012, vol. 10, issue 1, 85-97

Abstract: In the context of differentiated oligopoly the monopoly power of any one firm is determined by its ability to develop non-price strategies while taking the reactions of the rivals into account. However, in current practice, estimates of firm level monopoly power account for only differences of prices over costs measured in different ways. Further, these differences are always attributed to the demand conditions and the associated elasticity of demand for the differentiated products. That is, it is presumed that firms maximize their profits based on margins rather than volumes or other aspects that shift their demand curves. By way of contrast, the present study acknowledges that the elasticity of demand per se may not be the only source of monopoly power. Hence, an attempt has been made to develop an empirical procedure to identify firm specific monopoly power incorporating non-price dimensions.

Date: 2012
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