Question

Looking at the industries listed in Table below, what factors give rise to the varying levels of market power?

industry lerner index markup factor

food 0.26 1.35

tobacco 0.76 4.17

Textile 0.21 1.27

apparel 0.24 1.32

paper 0.58 2.38

printing 0.31 1.45

chemicals 0.67 3.03

petroleum 0.59 2.44

rubber 0.43 1.75

leather 0.43 1.75

Answer 1

Market power is said to be more if the Lerner index is closer to one. Market power can be present for any firm for following reasons:

1. Nature of end product: if it is specialised we can say firm will have a market power in that product.

2. Elasticity of demands: inelatic goods give a higher market power to the firm.

3. Ability to raise prices with out affecting the output that much.

4. Barriers to enter into the market also gives market power to the firm.