Implicit Beliefs and Normative Judgments in the Use of Concentration Indices
(1982) , 17 pages
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- Abstract
- (en) There appear to be two rather different types of index which industrial organization economists have used to signal market power. They are often distinguished as indicators of the actual exercise and indicators of the potential exercise of the power to raise market price. Measures of the actual exercise of power seek to reflect directly the distortion of prices from marginal costs which actually occurs; while not exact measures of consumers surplus (or better, equivalent variations}, the most popular of these - the Lerner index or price-cost margin (Lerner, 1934; Bain, 1941) - are related to such welfare indices, and are certainly easier to empirically observe. Measures of the potential exercise of market power are most frequently one of an almost endless variety of concentration measures. They are potential measures in that it is widely thought that more highly concentrated industries have a higher probability of collusion, which would create more welfare loss. The great virtue of such potential measures is that they are usually even easier to accurately observe than price-cost margins.
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Citations
Donsimoni, M.-P., Geroski, P. A., & Jacquemin, A. (1982). Implicit Beliefs and Normative Judgments in the Use of Concentration Indices (Working Papers Institut des sciences économiques 8214). https://hdl.handle.net/2078.5/279001