Firms' Market Power, Endogenous Preferences and the Focus of Competition Policy

Bibliographic Data

ID12229627
AuthorsDavid Young (0000-0002-4693-0663, corresponding author), D P T Young
Year2000
Volume12
Issue1
Pages73-87
Publication date2000-01-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueReview of Political Economy (JOURNAL)
Journal identifiersISSN: 0953-8259 • E-ISSN: 1465-3982
PublisherTaylor & Francis (PUBLISHER • GB)
DOI10.1080/095382500106821
OpenAlexW2077876108
LanguageEN
References cited30

Conventional neoclassical views of dominance are generally restricted to a concern for a firm's market power seen in terms of the ability to raise and maintain prices above their marginal costs of production. A prime example of this approach is the application of dominant firm price leadership models, which has led to a restricted theoretical perception of the nature of market power and to an incomplete view of the social costs of monopoly power. This paper argues that a broader conception of a firm's market power leads to a quite different perspective on its conduct. In particular, if we allow dominance to involve the ability to influence product demand patterns, then the theoretical analysis of firm behaviour changes significantly. Specifically, it implies the endogeneity of preferences which, it is argued, represents an important alternative to mainstream analysis. It is suggested that we need to consider a firm's dominance not so much in terms of its pricing in the context of a particular market structure but to focus on its ability to gain advantage over its rivals in terms of 'creating' an asymmetry in the demand for its products. This has important implications for competition policy, for it suggests a need to concentrate on the 'power' of firms and less on the effects of a change in market structure. Likewise, we need to reconsider the adequacy of defining markets in terms of product demand characteristics

Competition (biology · Context (archaeology · Cournot competition · Dominance (genetics · Econometrics · Economics · Endogeneity · Industrial organization · Market power · Market structure · Microeconomics · Monopolistic competition · Monopoly · Oligopoly · Product market · Economic theories and models · Economic Theory and Institutions · Merger and Competition Analysis

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