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This chapter proposes three different definitions for the market power in the antitrust case, such as dynamic monopoly power, static monopoly power and market power.

The chapter presents simple economic models to analyse which definition of the three market powers is consistent with predatory pricing or tying.

The prerequisite market power is simply market power in the predatory pricing case or static monopoly power in the tying case.

Dynamic monopoly power defined as the market power from an antitrust perspective by the Antitrust Modernization Commission should not be the prerequisite market power in the case of the abuse of dominance or the violation of Section 2 of the Sherman Act.

A possession of substantial market power or monopoly power is typically understood as a prerequisite in abuse of dominance in Korea and EU or violation of Section 2 of the Sherman Act in the United States. However, the antitrust law does not clearly indicate the meaning of market power or monopoly power. This chapter proposes three different definitions for the market power in the antitrust case and analyses which definition of the three market powers is consistent with predatory pricing or tying.

Major concern over monopolies and trusts was one of the distinguishing marks of the American Economic Association from its foundation and lasted well into the early 1900s (Coats, 1960). The failed merger attempt of the Northern Securities Company and the subsequent panic of 1902–1903, the 1907 financial crisis and its aftermath, as well as the ostensibly illegal financial practices of many conglomerates, all contributed to keep the trusts issue alive on academic circles. But it was only after the 1911 Court decisions that the debate on the trust problem and the necessary measures to amend the existing antitrust legislation acquired new vigor and incisiveness.³

In the discussion groups subjects will be taken up which are not dealt with in the lectures. The subjects to be taken up in the discussion groups of each week and the assignments relating thereto will be announced well in advance of the meetings.

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.

This is the first paper in a volume devoted exclusively to antitrust law and economics. It summarizes the other papers and addresses two issues. First, after showing that the federal courts generally view consumer welfare as the ultimate goal of antitrust law, it asks what they mean by that term. It concludes that recent decisions appear more likely to equate consumer welfare with the well-being of consumers in the relevant market than with economic efficiency. Second, it asks whether a buyer must possess monopsony power to induce a price discrimination that is not cost justified. It concludes that a buyer can often obtain an unjustified concession simply by wielding bargaining power, but the resulting concession may frequently – though not always – improve consumer welfare.

William Baumol is best-known as an academic. He was a prodigious researcher and publisher of texts on microeconomic theory, and a highly regarded educator with roles as head of the Department of Economics at Princeton University, director of the C.V. Starr Center for Applied Economics and director of the Berkley Center for Entrepreneurship and Innovation at New York University. Less well-known were his engagements as a corporate consultant, notably for the telecommunications monopoly AT&T. Baumol’s work as an advisor, expert witness and theorist for AT&T spanned three decades from 1966. His relationship with AT&T arguably forms the context within which we can better understand his work on contestability theory, which he developed with a team of economists working for AT&T’s Bell Telephone Laboratories in the 1970s. Contestability theory was later deployed as a policy tool to justify industry deregulation and even advocate for monopolies and oligopolies on the ground that they were optimally efficient industry structures if potential competitors faced low barriers of entry. Baumol’s intellectual contribution to contestability theory was arguably influenced by the Chicago school and by AT&T’s drive toward the technological integration of telecommunications. Contestability was a rebellion against economic orthodoxies concerning competition and government regulation, and the status quo within AT&T which opposed market competition on the ground that it threatened the technological integration of the Bell system. The outcome was a revolution in industrial organization that would pave the way for the emergence of platform business models incorporating multi-sided and two-sided markets as exemplified by Amazon and Uber.

Economists usually shy away from talking about power. They assume an economy comprised of many small and medium-sized firms, each competing for consumer dollars. This circumvents the problem of economic power. John Kenneth Galbraith, however, refused to ignore power. It stood at the center of his economics, and he saw it as a key reason the US economy thrived in the years following World War II (WWII). This chapter examines Galbraith’s changing views regarding economic power. American Capitalism explains how countervailing power, or power on the other side of the market, solves the problem of economic power. In The New Industrial State, scientists and educated managers within the firm (the technostructure) mitigate the negative consequences of economic power wielded by large firms. The Affluent Society and Economics and the Public Purpose look to the government as the main check on corporate power. It does this through labor legislation or programs such as the New Deal and Fair Deal. This chapter then evaluates the different solutions Galbraith proffered to the problem of economic power. It contends that Galbraith got three things right when analyzing economic power. First, we no longer live in a world of scarcity due to oligopolistic firms. Second, capitalism was different in the post-WWII era because the US economy thrived and gains were shared widely. Third, Galbraith understood that power was unequally distributed – both between the public and private sectors and within the private sector itself. On the other hand, Galbraith was overly optimistic in believing the market economy or the public sector could counter corporate power.

The concept of light-handed regulation, including light-handed approaches to the regulation of airport services, is discussed. The rationale for the economic regulation of airport services and the traditional approaches used for economic regulation of airport charges are summarized. The evolution of international practice of light-handed regulation is outlined, including the experience with minimal regulation across monopoly industries in New Zealand and the acceptance of “negotiated settlements” in utility industries in North America. General reasons for moving to light-handed regulation of airports include the disadvantages of the price cap approach in practice and the benefits of facilitating greater negotiation between airports and users. Comparisons are made between alternative approaches to light-handed regulation of airport services, including price and quality of service monitoring, information disclosure regulation and negotiate-arbitrate regulation, approaches that have been applied to airport services in Australia and New Zealand. The role and nature of the incentives under each approach are discussed. The chapter concludes that whether light-handed regulation provides a suitable alternative approach to direct regulation depends on the market circumstances and the design characteristics of the light-handed approach.