Another approach to determining the degree of market power of a firm is based on the assumption that under conditions perfect competition the price coincides with the marginal cost, i.e. P=MS. Therefore, a significant part of researchers proceed from the fact that a firm has market power only when it has the ability to influence the establishment of a market price higher than marginal cost, i.e. above competitive market prices. This is the case where there is a monopoly. It is known that the monopoly chooses the volume of output (Q) that maximizes profit.

The Lerner coefficient (30s of the 20th century), used to determine the degree of market competitiveness, is free from the problems associated with calculating the rate of return. This indicator reflects how much the market price deviates from marginal cost:

L = –––––––– = –––– ,

where MC - marginal costs;

Ed is the direct price elasticity of demand.

The Lerner coefficient varies from zero (under perfect competition) to one (under perfect monopoly and zero marginal cost). Monopoly power is higher the higher the value of the Lerner coefficient, that is, the more prices exceed marginal costs.

By itself, monopoly power does not guarantee a high rate of profit, since profit depends on the ratio of price and average (rather than marginal) costs. A firm may have more monopoly power but earn less profit if its average cost is sufficiently higher.

In an oligopoly market, there is a complicated relationship between the Lerner index, the price elasticity of demand, and the degree of monopoly power. When considering a Cournot oligopoly, each oligopolist solves the problem of profit maximization, perceiving the output level of any competitor as constant.

Equating marginal revenue with marginal cost and substituting the corresponding value into the Lerner index formula, we obtain that for oligopoly markets, where n firms interact according to Cournot, the Lerner index for the firm will be in direct proportion to the firm's market share (the ratio of market sales to industry volume sales) and inversely from the elasticity of demand.

L = –––––––– = –––– , where Si is the firm's market share

Thus, the market power of an individual oligopolist depends not only on the level of price elasticity of demand, but also on its market share. A large share of industry market provides the firm with greater bargaining power.

The average Lerner index for the industry (when the weights are the shares of firms in the market) will be calculated by the formula L = HHI / Ed, where HHI is the Herfindahl-Hirschman concentration index.

In an oligopoly market, there is an exogenous relationship between concentration and monopoly power.

Clark, Davis and Waterson proposed the following interpretation of the Lerner index dependence on the level of concentration, taking into account the consistency pricing policy firms:

for a single company

for the industry

where β is an indicator of the consistency of the pricing policy of firms, taking a value from 0 (which corresponds to the interaction of firms according to Cournot) to 1 (which corresponds to the conclusion of a cartel agreement).

Tobin coefficient (q-Tobin)

There are several indicators that can be used to assess the size of the entry barrier to the industry. One such indicator is the Lerner index. (L):

L = (P- ATC LR ) / ATC LR ,

Where R- selling price of products;

ATClr is the average total cost of the firm in the long run.

The Lerner coefficient, as an indicator of the degree of market competitiveness, avoids the difficulties associated with calculating the rate of return. We know that under the condition of profit maximization, price and marginal cost are related to each other through price elasticity of demand:

where MC is marginal cost

Ed - price elasticity of demand.

The Lerner coefficient ranges from zero (in a perfectly competitive market) to one (for a pure monopoly with zero marginal cost). The higher the index value, the higher the monopoly power and the further the market is from the ideal state of perfect competition.

The complexity of calculating the Lerner coefficient is due to the fact that information on marginal costs is quite difficult to obtain. Empirical studies often use the following formula to determine marginal cost based on average variable cost data:

where AVC - average variable costs,

r is the normal rate of return,

d - depreciation rate

K - the value of capital assets

Q is the volume of output.

However, the direct use of average variable costs instead of marginal ones to determine the value of the Lerner coefficient leads to quite significant errors. The deviation of the value from the Lerner coefficient is higher, the higher the depreciation rate, normal profit and cost of capital used, and the lower the total revenue.

The value of the Lerner index can be directly related to the indicator of the concentration of sellers in the oligopoly market, assuming that it is described by the Cournot model. The Cournot model is based on the assumption that the firm setting the sales volume considers the sales volume of other firms to be unchanged. For oligopoly markets, where n firms interact according to Cournot, the Lerner indicator for the firm will be directly dependent on the firm's market share (the ratio of market sales to industry sales volume) and inversely on the demand elasticity index:

The average Lerner index for the industry (when the weights are the shares of firms in the market) will be calculated by the formula:

where HHI is the Herfindahl-Hirschman concentration index. Thus, we see that in the oligopoly market there is an exogenous relationship between the indicator of concentration and monopoly power.

Clarke, Davis, and Waterson proposed the following interpretation of the dependence of the Lerner index on the level of concentration, taking into account the consistency of the pricing policy of firms:

where is an indicator of the consistency of the pricing policy of firms, taking values ​​from 0 (which corresponds to the interaction of firms according to Cournot) to 1 (which corresponds to the conclusion of a cartel agreement). The higher the price policy consistency index, the less the dependence of the Lerner index for a firm on its market share, and for the industry as a whole, on the concentration of sellers. The collusive indicator itself was estimated by researchers based on the construction of a linear regression showing the dependence of the Lerner index for a firm on its market share.

With such non-cooperative behavior of sellers in the Cournot model, the value of the Lerner index linearly depends on the firm's market share (the index is equal to zero). On the contrary, within the framework of a cartel agreement, the Lerner index does not depend on the firm’s market share (recall that, according to the condition of cartel profit maximization, the marginal revenue in the market must be equal to the marginal costs of each firm included in the cartel, therefore, the marginal costs of cartel members are equal to each other) . In the 104 industries they studied, these researchers estimated that the price behavior consistency index ranged from 0.039 to 0.536, with the results supported by other data on the presence or absence of consistency in pricing and output determination by sellers.

The relationship between the concentration index (Herfindahl-Hirschman index) and the monopoly power index is the main advantage of the Lerner index from the point of view of economic theory. This property is widely used in empirical research.

The table shows the values ​​of the Lerner index for some US industries 2), 1981-1999.

As can be seen from the table, the Lerner index takes on different values ​​depending on the structure of the industry, which indicates different levels competition. Note that the regulation of the banking sector made it possible to reduce the degree of monopolization and increase the level of competition between large banks.

4. Tobin's coefficient- an indicator of market power that characterizes the relative assessment of the state of the firm by the market compared to the internal assessment of the firm itself. It relates the market value of a firm (measured by the market price of its shares) to the replacement value of its assets:

where P is the market value of the firm's assets;

C is the replacement cost of the firm's assets, equal to the sum of the costs required to acquire the firm's assets at current prices.

If the valuation of the firm's assets by the stock market exceeds their replacement value (the value of the Tobin coefficient is greater than 1), this can be regarded as evidence of a positive economic profit received or expected. The use of the Tobin index as information about a firm's position is based on the efficient financial market hypothesis. The advantage of using this indicator is that it avoids the problem of estimating the rate of return and marginal cost for the industry.

Numerous studies have found that the Tobin coefficient is, on average, quite stable over time, and firms with a high value of it usually have unique factors of production or produce unique goods, that is, these firms are characterized by the presence of monopoly rent. Firms with small values ​​operate in competitive or regulated industries.

The intrinsic value of a firm's assets measures the opportunity cost of replacing factors of production at a given moment for this method use of resources. For a competitive market, opportunity costs are equalized in all directions of resource use, so that the market (external) cost coincides with the replacement (internal) and q = 1. If the external cost of the firm exceeds the internal, and q > 1, this means that the level of profitability for the firm (or in a given industry) higher than is necessary to keep the firm in the industry, that is, in long term the firm earns a positive profit, therefore, has a certain market power. The larger q, the stronger the power of the firm. If q< 1, это означает неблагоприятные времена для фирмы, возможно, фирма находится на грани банкротства и близка к вытеснению с рынка.

Consider the values ​​of the Tobin index for a number of sectors of the US economy in the 1980s 3):

Note that the structure of these industries cannot be considered competitive, and the highest degree of monopolization is observed in the chemical industry. It should be noted that for Russia the definition of this indicator is associated with a number of difficulties, because due to the insufficient development of the market valuable papers it is practically impossible to obtain reliable values ​​for the valuation of a firm's assets by external investors, which, therefore, does not allow one to adequately express the market value of Russian firms.

4. Papandreou coefficient- coefficient of monopoly power - is based on the concept of cross-elasticity of residual demand for the firm's product. A necessary condition for exercising monopoly power is the low impact on the firm's sales of sellers' prices in related markets or segments of the same market.

However, the indicator of cross elasticity of residual demand by itself cannot serve as an indicator of monopoly power, since its value depends on two factors that have an opposite effect on monopoly power: on the number of firms in the market and on the level of substitution of the goods of the seller in question and the goods of other firms. firms in the market leads to a decrease in their interdependence and a corresponding decrease in the cross elasticity of residual demand. In a perfectly competitive market, the elasticity of residual demand for a firm's product tends to zero. The decrease in the substitutability of the firm's product and the goods of other sellers as a result of deepening product differentiation leads to a decrease in the elasticity of residual demand. But in exactly the same way, the departure of large sellers from the market where the firm under consideration operates will lead to a decrease in its dependence on the price decisions of other firms, to a decrease in the elasticity of residual demand. According to the definition of a pure monopoly, the firm should not have close substitutes, therefore, for a monopoly, the elasticity of residual demand (coinciding with market demand) will also tend to zero.

In addition, the impact of the pricing policy of other firms in the market on the volume of sales of the firm in question depends on the limited capacity of other firms, on how much they can actually increase their own sales and thereby reduce the market share of our firm.

To overcome this problem, Papandreou in 1949 proposed the so-called penetration coefficient, which shows how many percent a firm's sales will change if a competitor's price changes by one percent. The formula for the penetration rate (an indicator of Papandreou's monopoly power) looks like this:

where Qdi is the volume of demand for the goods of the firm with monopoly power,

Pj - price of a competitor (competitors),

Competitors' capacity constraint ratio, measured as the ratio of a potential increase in output to an increase in demand for their product due to a price decrease (ranges from 0 to 1).

The Papandreou index is practically not used in applied research, but it very curiously reflects two facets of monopoly power: the presence of substitute products in the market and the limited power of competitors (or the possibility of their penetration into the industry). Cross-elasticity of demand for the firm's product indicates the possibility of switching consumer demand to the product of competitors. Another factor characterizes, in turn, the ability of competitors to take advantage of the increase in demand for their products. The lower any of the factors, the higher the firm's monopoly power.

Thus, we see that the structure of the market is a more complex concept than it seems at first glance. The structure of the market has many facets, which is reflected in its various indicators. We reviewed the indicators of the concentration of sellers in the market and discussed their main properties. The value of the concentration of sellers in the market is extremely important for determining the market structure. However, the concentration of sellers in itself does not determine the level of monopoly power - the ability to influence the price.

Only with sufficiently high barriers to entry into the industry can the concentration of sellers be realized in monopoly power - the ability to set a price that provides a sufficiently high economic profit. We have characterized the main types of barriers to entry into the industry, mainly non-strategic barriers that do not depend on the conscious actions of firms.

Indices of monopoly power. Price discrimination.

For absolutely competitive enterprise price is equal to marginal cost, and for an enterprise with market power, the price higher marginal costs. Hence, the amount by which price exceeds marginal cost(), can serve as a measure of monopoly (market) power. The Lerner index is used to measure the price deviation from marginal cost.

Lerner index: two ways to calculate

The indicator of monopoly power, the Lerner index, is calculated by the formula:

P - monopoly price;

MC - marginal cost.

Since, under perfect competition, the ability of an individual firm to influence prices is zero (P = MC), the relative excess of price over marginal cost characterizes the presence of a particular firm market power.

Rice. 5.11. Ratio of P and MC under monopoly and perfect competition

With pure monopoly in the hypothetical model, the Lerner coefficient is equal to the maximum value L=1. The higher the value of this indicator, the higher the level of monopoly power.

This coefficient can also be expressed in terms of the elasticity coefficient using the universal pricing equation:

(P-MC)/P=-1/Ed.

We get the equation:

L=-1/Ed,

where Ed is the price elasticity of demand for the firm's products.

For example, if the elasticity of demand E=-5 coefficient of monopoly power L=0.2. We emphasize once again that high monopoly power in the market does not guarantee high economic profits for the firm. Firm A may have more monopoly power than the firm B, but earn less profit if it has a higher average total cost.

Sources of Monopoly Power

The sources of monopoly power of any imperfect competitor, as follows from the above formula, are associated with factors that determine the elasticity of demand for the firm's products. These include:

1. Elasticity of the market(industry) demand on the firm's products (in the case of a pure monopoly, the market demand and the demand for the firm's products are the same). The firm's elasticity of demand is usually greater than or equal to the elasticity of market demand.

Recall that among the main factors that determine elasticity demand at a price, allocate:

the presence and availability of substitute goods on the market (the more substitutes, the higher the elasticity; with a pure monopoly, there are no perfect substitutes for a product, and the risk of a decrease in demand due to the appearance of its analogues is minimal);

time factor (market demand, as a rule, is more elastic in the long run and less elastic in the short run. This is due to the time lag of the consumer's reaction to price changes and the high probability of the appearance of substitute goods over time);

the share of spending on goods in the consumer budget (the higher the level of spending on goods relative to consumer income, the higher the price elasticity of demand);

the degree of saturation of the market with the product in question (if the market is saturated with any product, then the elasticity will be rather low, and vice versa, if the market is not saturated, then a price decrease can cause a significant increase in demand, i.e. the market will be elastic);

a variety of possibilities for using a given product (the more different areas of use a product has, the more elastic the demand for it. This is due to the fact that a price increase reduces, and a price reduction expands the scope of economically justified use of this product. This explains the fact that the demand for universal equipment, as a rule, is more elastic than demand for specialized devices);

the importance of the product to the consumer (essential goods (toothpaste, soap, hairdressing services) are usually price inelastic; goods that are not so important to the consumer and the purchase of which can be delayed are more elastic).

2. Number of firms in the market. The fewer firms in the market, the other equal conditions more opportunity for an individual firm to influence prices. In this case, it is not just the total number of firms that matters, but the number of the most influential, with a significant market share, the so-called "major players". Therefore, it is obvious that if two large companies account for 90% of sales, and the remaining 20 - 10%, then the two large firms have a lot of monopoly power. This situation is called the concentration of the market (production).

3. Interaction between firms. The more closely interacting firms, the greater their monopoly power. Conversely, the more aggressively companies compete with each other, the weaker their ability to influence market prices. An extreme case, a price war, can push prices down to competitive levels. Under these conditions, the individual firm will be wary of raising its price lest it lose its market share, and thus will have minimal monopoly power.

Herfindahl-Hirschman index

To assess monopoly power, an indicator is also used that determines the degree of market concentration based on the Herfindahl-Hirschman index ( I HH) . When calculating it, data on the specific gravity of the company's products in the industry are used. It is assumed that the more specific gravity products of the enterprise in the industry, the greater the potential for the emergence of a monopoly. When calculating the index, all enterprises are ranked by share from the largest to the smallest:

I HH- Herfindahl-Hirschman index;

S 1 - share of the largest enterprise;

S 2 - share of the next largest enterprise;

S n- share of the smallest enterprise.

If only one enterprise operates in the industry, then S 1 \u003d 100%, and I HH \u003d 10,000. If there are 100 identical enterprises in the industry, then S \u003d 1%, and I HH \u003d 100.

An industry is considered highly monopolized if the Herfindahl-Hirschman index exceeds 1800.

A firm with monopoly power can use it to pursue a special pricing policy, the so-called price discrimination.

In this context, the concept of "discrimination" is a purely technical term (from Latin dicriminatio - difference) and does not have a negative meaning.

Price discrimination called setting different prices for different units of the same product for the same or different buyers. It is important to emphasize that price differences do not reflect differences in costs associated with providing the buyer with transport or other services. Therefore, the difference in prices can not always be considered price discrimination, and a single price indicates its absence. So, for example, not is price discrimination delivery of the same product at different prices to different regions, in different periods of time (seasonality), of different quality, etc. On the other hand, the supply of the same product to all dispersed buyers at the same price can be considered as price discrimination.

For price discrimination by a monopolist so that the direct elasticity of demand for a product at a price for different buyers is significantly different;

that these buyers are easily identifiable;

so that further resale of the goods by buyers is impossible.

As practice shows, the most favorable conditions for the implementation of price discrimination are in the market for services or in the market for material goods, provided that different markets are separated from each other by long distances or high tariff barriers.

The concept of price discrimination was first introduced into economic theory by the English economist Alfred Pigou (1920). He also proposed to distinguish three of its types, or degrees.

First degree price discrimination(or perfect price discrimination) occurs when each unit of a product is sold by the firm at the demand price, i.e. at the highest possible price that the buyer is willing to pay. Sometimes this policy is called price buyer income discrimination. Consider how it affects the firm's profits.

If the monopolist does not conduct price discrimination, i.e. establishes a single price P*, as can be seen from Fig. 5.12, with an output volume from 0 to Q * (at which the equality MC = MR is satisfied), the additional profit from the sale of each additional unit (marginal profit, Mp) is equal to the difference between marginal revenue and marginal cost

Mn=MR - MC.

Producing any amount above the optimum would reduce the economic profit of the monopolist, which can be calculated as the sum of the profits from each unit sold, which in the figure corresponds to the shaded area of ​​ACE. Consumer surplus, i.e. the difference between the amount the buyer was willing to pay and the market price P* is shown by the upper triangle AP*M.

If the monopolist conducts price discrimination, then all units of the good are sold at their demand price, and therefore, each additional unit sold increases total income by the amount at which it is sold, i.e.

This means that the demand curve also becomes a marginal revenue curve, as in a perfectly competitive model. However, in contrast to a competitive market, in which there is a single price, and therefore MR=AR, for a price discriminating monopoly, the prices of different units of production are different, i.e. MR≠AR.

The optimal output of a price discriminating monopolist expands to the optimum point Q** of a perfectly competitive market. Under these conditions, the monopolist's total profit (area AE"C) includes all consumer surplus.

Rice. 5.12. Perfect price discrimination

In practice, perfect price discrimination is almost impossible, since in order to implement it, the monopolist must know the demand prices of all possible consumers of its products. Some approximation to price discrimination of this type is possible when there are a small number of buyers, for example, in individual entrepreneurial activities (services of a doctor, lawyer, tailor, etc.), when each unit of goods is made to order.

Second degree price discrimination involves the appointment of different prices depending on the volume of purchase, so that the relationship between sales and the total income of the monopolist is non-linear (the so-called non-linear pricing).

Suppose that the monopolist sets two prices: with a volume from 0 to Q*, the price is P", with a volume from Q* to Q**, the price is P"".

If the monopolist were to set a single price, for example, P", then his total income would be equal to the product of the corresponding volume and price (TR \u003d P" Q *). In the implementation of non-linear pricing, income increases and becomes equal to the area of ​​\u200b\u200bthe figure 0P "ABCQ **.

Rice. 5.13 Second-degree price discrimination (non-linear pricing)

The more differentiated the price of products, the more this price discrimination approaches perfect.

In real life, second-degree price discrimination most often takes the form price discount(i.e. discounts). For example:

discounts on the volume of deliveries (the larger the volume of the order or delivery, the greater the discount to the price);

cumulative discounts (the price of a single ticket for a year, which is supposed to be introduced in the Moscow metro, is relatively lower than the price of a monthly ticket);

price discrimination over time (different prices for morning and evening cinema screenings, different markups in restaurants during the day and evening), etc.

This type of discrimination is sometimes referred to as self-selection. Having no real ability to determine the demand prices of all his customers (as in perfect price discrimination), the seller offers the same price structure to everyone, leaving the buyer to decide how much and, therefore, what market conditions he chooses.

Third degree price discrimination is carried out on the basis of market segmentation and the allocation of a certain number of groups of buyers (market segments), each of which the seller assigns its own prices.

Examples of such price discrimination are: tourist and first class air tickets; luxury spirits and other alcoholic products; discounts on tickets to museums and cinemas for children, military personnel, students, pensioners; subscription fees for specialized publications for organizations and individual subscribers (for the latter, it is usually lower); hotel rates and fees for visiting museums for foreigners and residents (in Russia), etc.

After the company divides its potential buyers into a number of segments, the question arises of setting its own prices for each segment. Let's see how this happens.

Let the monopolist single out two isolated market segments (the analysis can be used for a larger number of segments). Its goal, as before, is to maximize profits from the sale of products in both markets.

The main condition for profit maximization in the first market segment can be written as

Where MR1 - marginal revenue from implementation on the first segment.

Accordingly, the main condition for profit maximization in the second segment is:

Where MR2- marginal revenue from sales in the second segment of the market, that is

MC=MR1=MR2.

We know that the firm's marginal revenue is related to the elasticity of demand by the formula MR=P(1+1/Ed), so the equality MR1=MR2 can be imagined as

P1(1+1/Ed1)=P2(1+1/Ed2),

P1/P2=(1+1/Ed2)/(1+1/Ed1).

From this equality, it can be seen that the price discrimination of the third degree is based on difference in elasticity of demand for different market segments. The higher the elasticity of demand, the relatively lower prices. In practice, this means using price discounts for a category of consumers with elastic demand and charging higher prices for consumers with inelastic demand. In other words,

if |Ed1|>|Ed2|, then Р1

For example, if the elasticity of demand for the 1st segment is -2, and for the 2nd segment -4, then the price for the 1st segment should be 1.5 times higher than for the 2nd.

P1/P2=(1-1/4)/(1-1/2)=(3/4)/(1/2)=1.5

Obviously, if the elasticity of demand in all segments were the same, then price discrimination would be impossible.

For a perfectly competitive enterprise, the price is equal to marginal cost, and for an enterprise with market power, the price higher marginal costs. Hence, the amount by which price exceeds marginal cost(), can serve as a measure of monopoly (market) power. It is worth saying that the Lerner index is used to measure the deviation of price from marginal cost.

Lerner index: two ways to calculate

The indicator of monopoly power, the Lerner index, is calculated by the formula:

• P is the monopoly price;
• MC is marginal cost.

Since, under perfect competition, the ability of an individual firm to influence prices is zero (P = MC), the relative excess of price over marginal cost characterizes the presence of a particular firm market power.

With pure monopoly in the hypothetical model, the Lerner coefficient is equal to the maximum value L=1. The higher the value of this indicator, the higher the level of monopoly power.

This coefficient can also be expressed in terms of the elasticity coefficient using the universal pricing equation:

(P-MC)/P=-1/Ed.

We get the equation:

L=-1/Ed,

where Ed is the price elasticity of demand for the firm's products.

For example, with the elasticity of demand E=-5, the coefficient of monopoly power L=0.2. We emphasize once again that high monopoly power in the market does not guarantee high economic profits for the firm. Firm A may have more monopoly power than the firm B, but earn less profit if it has a higher average total cost.

Sources of Monopoly Power

The sources of monopoly power of any imperfect competitor, as follows from the above formula, are related to factors that determine the elasticity of demand for the firm's products. To them are ᴏᴛʜᴏϲᴙ:

1. Elasticity of the market(industry) demand on the firm's products (in the case of a pure monopoly, the market demand and the demand for the firm's products are the same) The elasticity of the firm's demand is usually greater than or equal to the elasticity of market demand.

Recall that among the main factors that determine elasticity demand at a price, allocate:

• the presence and availability of substitute goods on the market (the more substitutes, the higher the elasticity; with a pure monopoly, there are no perfect substitutes for a product, and the risk of a decrease in demand due to the appearance of its analogues is minimal);
• the time factor (market demand is traditionally more elastic in the long run and less elastic in the short run. This is due to the time lag of the consumer's reaction to price changes and the high probability of the appearance of substitute goods over time);
• the share of spending on goods in the consumer budget (the higher the level of spending on goods relative to consumer income, the higher the price elasticity of demand);
• the degree of saturation of the market with the product in question (if the market is saturated with any product, then the elasticity will be rather low, and vice versa, if the market is not saturated, then a price decrease can cause a significant increase in demand, i.e. the market will be elastic);
• a variety of possibilities for using a given product (the more different areas of use a product has, the more elastic the demand for it. This is due to the fact that a price increase reduces, and a price reduction expands the scope of economically justified use of this product. This explains the fact that the demand for universal equipment is traditionally more elastic than demand for specialized devices);
• the importance of the product for the consumer (essential goods (toothpaste, soap, hairdresser's services) are usually price inelastic; goods that are not so important to the consumer and the purchase of which can be delayed are characterized by greater elasticity)

2. Number of firms in the market. The fewer firms in the market, the greater the ability of an individual firm to influence prices, other things being equal. With ϶ᴛᴏm, it is not just the total number of firms that matters, but the number of the most influential, with a significant market share, the so-called "major players". Therefore, it is obvious that if two large companies accounts for 90% of sales, and the remaining 20 - 10%, then the two large firms have a large monopoly power. This situation is called the concentration of the market (production)

3. Interaction between firms. The more closely interacting firms, the greater their monopoly power. Conversely, the more aggressively companies compete with each other, the weaker their ability to influence market prices. An extreme case, a price war, can push prices down to competitive levels. Under these conditions, an individual firm will be afraid to raise its price ɥᴛᴏ in order not to lose its market share, and thus will have minimal monopoly power.