Thursday, February 12, 2009
Posted by D. Daniel Sokol
ABSTRACT: This paper presents a framework for evaluating whether a firm lacks dominance in a particular market despite manifesting relatively high market shares. We show that demand complementarities and high price–cost margins combine with multi-market participation to reduce the significance of market share in drawing inferences about dominance. We further show the equivalence between this multi-market measure of market power and the critical elasticity for the dominant firm. These findings suggest that the use of traditional (single-market) measures of market power commonly used to infer dominance can lead policymakers to maintain regulatory oversight when market forces are sufficient to provide the requisite degree of "competitive" discipline.