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Welfare Losses Due to Market Power: Hicksian versus Marshallian Measurement
Author(s) -
Lavergne Pascal,
Réquillart Vincent,
Simioni Michel
Publication year - 2001
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/0002-9092.00144
Subject(s) - deadweight loss , economics , market power , welfare , microeconomics , power (physics) , econometrics , market economy , thermodynamics , physics , monopoly
This paper warns against the use of Marshallian welfare loss in applied analysis of market power. We show how to compute the Hicksian deadweight loss from an ordinary demand. Then, from an experiment using real data on twenty‐one sectors of the French food industry, we find that the Marshallian deadweight loss poorly approximates the exact Hicksian measure. Hence, it is advisable to use the latter in applied welfare analysis.