Competition, consumer welfare, and the social cost of monopoly

Yoon Ho Alex Lee, Donald J. Brown

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Conventional deadweight loss measures of the social cost of monopoly ignore, among other things, the social cost of inducing competition and thus cannot accurately capture the loss in social welfare. In this Article, we suggest an alternative method of measuring the social cost of monopoly. Using elements of general equilibrium theory, we propose a social cost metric where the benchmark is the Pareto optimal state of the economy that uses the least amount of resources, consistent with consumers utility levels in the monopolized state. If the primary goal of antitrust policy is the enhancement of consumer welfare, then the proper benchmark is Pareto optimality, not simply competitive markets. We discuss the implications of our approach for antitrust law as well as how our methodology can be used in practice for allegations of monopoly power given a history of price-demand observations.

Original languageEnglish (US)
Title of host publicationComputational Aspects of General Equilibrium Theory
Subtitle of host publicationRefutable Theories of Value
Pages47-68
Number of pages22
DOIs
StatePublished - 2008

Publication series

NameLecture Notes in Economics and Mathematical Systems
Volume604
ISSN (Print)0075-8442

Keywords

  • Antitrust economics
  • Applied general equilibrium
  • Monopoly power

ASJC Scopus subject areas

  • Mathematics (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)

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