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Competition Advocacy Studies

Market Power and Social Welfare

Published: 20 july, 2018

Food industry
Transport Sector
Pharmaceutical sector
Construction Sector

Document type:
Competition Advocay Studies
Estudio de Promoción de la Competencia

Produced by:
Dr. Andrés Aradillas López,
Mtra. Alejandra Palacios Prieto
Mtro. José Nery Pérez Trujillo.


Summary

Economic theory identifies market power as the persistence of price levels above competitive levels dictated by cost considerations, and predicts an inverse relationship between such a discrepancy and the elasticity of demand for the market in question. This study seeks to identify the presence of market power in the spending categories and selected markets and to quantify its impact on the loss of well-being of Mexican households. The results suggest that the presence of market power in the selected spending categories resulted in the payment of an average premium of 98.2%. This represented a welfare loss in Mexican households of 15.7% of their income on average, with regressive effects, by reducing the budget of the poorest households by 30.9% – that is, 4.42 times more than what households lose in welfare. with higher income. The results show a greater impact in the geographic regions of the country with lower incomes. This increases inequality between households, and acts as a drag on economic growth.

Keywords: Corn tortilla, corn flour, beef, chicken, egg, milk, juices, water, beer, medicine production and distribution, spending, demand, consumer, market, Andrés Aradillas, Aradillas, household, elasticity, power, decile , loss, welfare, Carlos, Carlos Urzúa, Urzúa


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