Accounting Profits and Ricardian Rents: An Application to Antitrust Enforcement

Abstract

The SCP school prefers to use accounting data for the industry “average” profit rate to measure market power. This article emphasizes that over-reliance on average profit across all firms to infer excess profit might lead to incorrect inferences regarding market power. Based on the conventional insights of Mill, Fawcett, Hobson, and Friedman, this article recommends using the profit rate of the marginal firm (the least efficient firm) as an indicator to measure market power, rather than the industry average profit rate.

Citation

Ma, T.-C. (2012), "Accounting Profits and Ricardian Rents: An Application to Antitrust Enforcement", Zerbe, R.O. and Kirkwood, J.B. (Ed.) Research in Law and Economics (Research in Law and Economics, Vol. 25), Emerald Group Publishing Limited, Leeds, pp. 15-34. https://doi.org/10.1108/S0193-5895(2012)0000025005