![]() How many electric power or cable providers do you have? In many places there is only one of each. The efficiency of having just one company that operates at scale makes consumers better off and in that case economists refer to that type of dominance as a “natural monopoly” but always call for regulation to make sure the company really is transferring the efficiency on to the customers. My guess is the classic example of a dominant firm can be seen no farther than your own city limits. That case makes the textbooks but it turns out that in easily hundreds of court cases, judges have made the determination that dominance is acceptable and the Microsoft case is recalled today probably more for its being the exception rather than the rule. Microsoft was nearly broken up in the early 2000s because it was deemed a monopoly for tying its web browser to its operating system and making other browsers incompatible. Microsoft agreed to a consent decree that kept it from being broken up. What I have just described generally is probably the broadly accepted view that answers your question, but things are starting to cause us to re-think these ideas. Further, in numerous court cases because of economies of scale (where costs drop as a firm gets larger) consumers can be made better off by larger firms. A lot of lawyers (especially a Reagan-era legal scholar and judge named Robert Bork) thought this argument made sense and over the years it began to carry a lot of weight in antitrust cases. ![]() If you find that there isn’t (much) market power from a dominant firm, then there really isn’t (much) consumer harm regardless how big that firm is. Many (not all) economists argued in that case that the size of the firm didn’t matter. An unregulated, profit-maximizing monopoly in a single market has the most market power and causes the biggest negative impact on consumers. Perfectly competitive firms where there is no dominance, cause the biggest positive impact on consumers. When considering the impact of dominance, for a long time economists made the argument that you should try to find ways of comparing prices that might exist in these two extremes (explaining how we do that would take another entry, but we do try). It becomes murkier still when one or two firms are very large and have a lot of reach into many industries though perhaps only dominate a single market where prices remain low.Įconomists have traditionally worried about market power: the ability of a seller to price above its marginal cost of production and marketing (or in the case of a buyer, the ability of a firm to set a price below its marginal cost of acquiring a product). Once you start talking about dominance in reference to simply “bigness” where one or two firms are very large or very present across several markets but there still may be an assortment of other small firms around, or where one or two firms are very large in various segments of the marketing chain, those theoretical harms get a little murkier. Monopoly (a single firm in an industry), duopoly (two firms), oligopoly (a handful of large firms) and even a “dominant firm facing a competitive fringe” are well defined and have very well-understood and theoretically measurable economic harm from market power (those “deadweight triangles” you might recall from an econ class). We are certain about particular industry structures. My long answer: You have actually hit on a question that is today a giant debate in the economic field of industrial organization. It is also a giant debate in the field of antitrust law. At the end of this answer, I will link you to a 2018 Yale Law Journal special issue titled “Unlocking Antitrust Enforcement” that has contributed papers from both lawyers and economists about the history of the law and economics surrounding the issue of what we in industrial organization simply refer to as “bigness.”ĭon’t look for “bigness” in scholarly journals, it’s really something we use among ourselves (at a recent conference I attended, “bigness” became a stand-in for any discussion of not well-defined dominance). My short answer from ten years ago: When consumers are made better off in the short and long run.
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