Definition of Market Power

The definition of market power is often critical to antitrust analysis,
but the term has been used differently by economists and courts
depending on the circumstances presented. This Chapter sets a
framework for the rest of the Handbook by describing the definition
generally used by economists, as well as the varying formulations used in
antitrust law. The Chapter then considers how antitrust law differentiates
between two terms often used interchangeably—“market power” and
“monopoly power.”
A. Economic Concept of Market Power
“Market power” exists when an industry’s behavior “deviates from
perfect competition.” 1 Economists often define market power as the
ability of a firm or group of firms within a market2 to profitably charge
prices 3 above the competitive level for a sustained period of time.
1. See, e.g., Dennis W. Carlton, Market Definition: Use and Abuse, COMP.
POLY INTL, Spring 2007, at 3, 5.
2. Economists and antitrust lawyers alike typically have analyzed market
power in the context of well-defined markets. In antitrust law, these are
referred to as “relevant markets.” Chapter IV provides a discussion of the
definition of relevant markets. The 2010 revisions to the Merger
Guidelines suggest that the agencies may be moving away from defining
relevant markets in all cases. See U.S. DEPT OF JUSTICE & FED. TRADE
COMMN, HORIZONTAL MERGER GUIDELINES § 4 (2010), available at [hereinafter
MERGER GUIDELINES]. Courts, on the other hand, may not be amenable to
divorcing market power from market definition. See, e.g., City of New
York v. Group Health, No. 06 Civ. 13122, 2010 WL 2132246, at *2
(S.D.N.Y. 2010) (“To state claims under any of the statutes identified
above, Plaintiffs must identify the product market in which competition
will be impaired.”).
3. Although the economic definition of market power typically does not
mention reductions in product or service quality, economists generally
would expand the meaning of price to include the increases in real price

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