Elgar original reference
Edited by Manfred Neumann and Jürgen Weigand
Charles Rowley and Anne Rathbone 1 Introduction The concept of market power is of central importance to any discussion of antitrust economics. In essence, market power exists when a speciﬁc ﬁrm, or a group of ﬁrms acting in combination, has sufﬁcient control over a particular commodity to determine signiﬁcantly the terms on which other ﬁrms, or individual consumers, shall have access to it. The polar models of perfect competition and pure monopoly provide useful insights into the nature of market power, however unrepresentative these models may seem to be of the real world. For these models provide a level of generality that the intermediate models – monopolistic competition and oligopoly – just cannot match. Four principal assumptions form the basis for the perfectly competitive model. The ﬁrst assumption is that each ﬁrm is sufﬁciently small, relative to the total market for the commodity, not to be able to inﬂuence price by changes in its own rate of output. The second assumption is that the commodity of any one ﬁrm is identical, from the perception of the consumer, to that of any other ﬁrm supplying that market. The third assumption implies that all resources are perfectly mobile, implying that ﬁrms can move costlessly into and out of markets (perfect contestability) in response to relevant economic signals. The fourth assumption is that both consumers and producers are perfectly informed about the present market situation. The model is motivated by the core behavioral assumption of proﬁt maximization. If all...
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