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| Author: | Davis, D. D. Wilson, B. J. |
| Title: | Firm-specific cost savings and market power |
| Journal: | Economic Theory
2000 : VOL. 16:3, p. 545-565 |
| Index terms: | MARKETS COSTS ANTITRUST |
| Language: | eng |
| Abstract: | The authors report a policy experiment that illustrates a potential problem of using historical pass-through rates as a means of predicting the competitive consequences of projected firm-specific cost savings in antitrust contexts, particularly in merger analysis. The effects of cost savings on welfare can vary vastly, depending on how the savings affect the industry supply schedule. In a capacity- constrained price-setting oligopoly, the authors observe that cost savings can overwhelm behaviourally salient market power incentives when the savings affect marginal (high cost) units. However, cost savings of the same magnitude on an infra-marginal unit leave market power unchanged. |
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