Market Power

• Analyzing antitrust behavior centers around market power.
  • Market power is the ability a firm has to set prices above marginal cost while still being able to sell goods
  • Varies greatly between different industries
  • Varies greatly between products within the same industry
• We’ll develop a quantitative measure of market power.

Example 1

(Source: https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html)

Example 2

• Government funded a small firm, Newport Medical Instruments, to create an inexpensive ventilator
  • A big company, Covidien, produced more expensive ventilators
  • Fearing competition from the inexpensive ventilators, Covidien purchased Newport Medical Instruments and shut down the project
• “Firms have incentives to acquire innovative targets to discontinue the development of the targets’ innovation projects and preempt future competition” Cunningham, Ederer, and Ma (2019)
  • These types of acquisitions have been termed “killer acquisitions”
  • As a society, should we be concerned about these types of acquisitions?