Assessing Market Power: The Trade-off Between Market Concentration and Multi-Market Participation
This analysis reveals that traditional market power measures are biased under the conditions of multi-market participation and demand interdependence. Specifically, when complementary (substitutable) demands dominate, traditional market power measures are biased upward (downward). A similar bias carries over to the evaluation of mergers. To wit, mergers that simultaneously increase market concentration and multi-market participation can result in lower prices even in the absence of merger economies. It follows that merger guidelines that place undue emphasis on market concentration can lead policymakers to block (approve) mergers that enhance (diminish) consumer welfare.
* Professor of Economics, Kansas State University, Waters Hall, RM 246, Manhattan, KS 66506-4001, USA. E-mail: weisman{at}ksu.edu. The author is grateful to Michael Babcock, Philip Gayle, Alfred Kahn, Andrew Kleit, Dale Lehman, Michael Redisch, David Sappington and Kelley Weber for helpful discussions. The author is also grateful to the co-editor, J. Gregory Sidak, for constructive suggestions for revision. The usual caveat applies.