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 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?