MARKET DEFINITION AND MARKET POWER IN COMPETITION ANALYSIS The Economic and Social Review, Vol. 31, No. 4, October, 2000, pp. 309-328 309 Market Definition and Market Power in Competition Analysis: Some Practical Issues PATRICK MASSEY* Competition Authority Abstract: Market definition plays a key role in competition analysis and has often proved controversial. However, it is merely a means to an end, the real issue being to establish whether or not firms have significant market power, i.e. the power to increase prices. This objective is rather different to the traditional neo-classical economic view of a market. The introduction of the SSNIP test in the US Department of Justice 1982 Merger Guidelines resulted in the development …show more content…
2. Times-Picayune Publishing Co. v. United States, 345 US 594 (1952). 3. United States v. E.I. du Pont de Nemours & Co., 353 US 586 (1957). MARKET DEFINITION AND MARKET POWER IN COMPETITION ANALYSIS 311 Although Du Pont produced 85 per cent of all cellophane wrapping, the Court determined that other packaging materials were substitutes for cellophane at prevailing market prices and concluded that the relevant product market was wider than cellophane. Many commentators argued that the majority judgment made a serious error, in what has come to be referred to as the cellophane trap. A profit-maximising monopolist will generally raise price to the point where other products become close substitutes. Looking at the degree of product substitution at prevailing prices involves considering the position after the firm or firms have already raised prices. In those circumstances cross elasticities establish that the firm or firms lack the power to raise the price any further. In abuse of dominance cases, it is the cross price elasticities at the competitive price rather than at the prevailing price level that must be used to define the market. However, competitive prices cannot be observed and must be inferred. In Philadelphia National Bank the Court defined the relevant market as the four-county Philadelphia metropolitan
The following case study is in regards of economic market structure. In the world of economics all businesses or companies rather, are categorized in certain market structures such as monopoly, oligopoly, or perfect competition, for instance, the market structure for restaurants. Most restaurants are considered monopolistic competition. Being that they all sell and serve food. They have to have instances that vary such as price, logos, servers, locations, décor, types of food, and hospitality.
Assume that the manufacturers of this product lobby the government’s lawmakers, in terms of this product being essential for college students but they are considering halting production due to the lack of profits. The lawmaker’s agree and now set a price floor at $150. What would happen in this market?
national-level market. The concept of a market is one that Meredith L. McGill tactfully delves
In this essay I will discuss a few terms and how their relationships apply between regulation and market structures, as well as how regulation policies affect the market.
There are many models of market structure in the field of economics. They include perfect competition on one end, monopoly on the other end, and competitive monopoly and oligopoly somewhere in the middle. In this paper, we will focus on the oligopoly structure because it is one of the strongest influences in the United States market. Although oligopolies can also be global, we will focus strictly on the United States here. We will define oligopoly, give key characteristics important to the oligopoly structure, explain why oligopolies form, then give an example of an oligopoly in today’s economy. Finally, we will discuss the benefits and costs in this type of market structure.
Michigan has an abundant supply of fresh water. However, an economist would consider it a scarce resource because
Practice Questions and Answers from Lesson III-3: Monopoly Practice Questions and Answers from Lesson III-3: Monopoly The following questions practice these skills: Explain the sources of market power. Apply the quantity and price affects on revenue of any movement along a demand curve. Find the profit maximizing quantity and price of a single-price monopolist. Compute deadweight loss from a single-price monopolist. Compute marginal revenue. Define the efficiency of P = MC. Find the profit-maximizing quantity and price of a perfect-price-discriminating monopolist. Find the profit-maximizing quantity and price of an imperfect-price-discriminating monopolist. Question: Each of the following firms possesses market power.
Markets differ in a variety of ways including the degree of concentration and competitiveness, a fact which is reflected in the concept of ‘market structure’. Economists’ models link the structural characteristics of a market to the behaviour of firms in that market and subsequently to their performance. A key question therefore is how far a firm’s strategic decisions are shaped by the structure of the market in which it operates.
1.New York Times Co. vs. The United States, 1971. (403 US 713, 91 SCT. 2140).
Porter, M. E. CompetitiveS trategy. (1980): Techniques for Analyzing Industries and Competitors. New York: Free Press.
Perfect competition is an idealised market structure theory used in economics to show the market under a high degree of competition given certain conditions. This essay aims to outline the assumptions and distinctive features that form the perfectly competitive model and how this model can be used to explain short term and long term behaviour of a perfectly competitive firm aiming to maximise profits and the implications of enhancing these profits further.
The kind of competition market described previously is an example of a Red Ocean Strategy. The market is oversaturated with companies
Based on eq.5, we can make several observations of the properties of Cournot competition. First, given positive market share, firms in Cournot market have the market power to price higher than their marginal costs. Second, the market power of a firm is limited by the market elasticity of demand. The more elastic demand,
Elasticity of demand represented as “Ed” is defined as a “measure of the response of a consumer to a change in price on the quantity demanded of a good” (McConnell, 2012). Determinants for elasticity of demand would include the substitutability of a good, proportion of a consumer 's income spent on a good, the nature of the necessity of a good and the time a purchase is under consideration by the consumer. Furthermore, elasticity of demand is calculated with this formula:
Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.