The Degree of Monopoly

Abstract

If we introduce a measurement of the of it is already clear that we use the word monopoly in the modern (Chamberlinor Robinson-) sense, viz. meaning the absence of pure competition. Only if is taken in this wider sense is there any meaning in the term degree of monopoly. Now, to have a measurement of that of might have different advantages in analytical and practical problems. There are different ways in which the of might be measured, but before going into a discussion of their relative merits I want to introduce an index of power which is based on one of the diagrammatic devices used by Chamberlin in his Theory of Monopolistic Competition. The diagram I am going to use is introduced by Professor Chamberlin as an alternative demonstration of the equilibrium of the firm under conditions of product differentiation.' Here I reproduce only that part of the diagram which is relevant for my argument. In Fig. i, CC' is the familiar cost curve of a single firm. We assume now that the product2 of this firm is in some way differentiated from the products of other firms producing the same commodity. We then can draw two different demand curves for the firm's product, dd' and DD', each based on different assumptions. Assuming that at present the firm charges the price OP and sells the amount OM, dd' shows the various prices which could be obtained for different outputs, provided the competing firms do not change their price. DD' on the other hand shows which prices would be combined with various levels of output, if the other firms change their price (or output) in the same or some other predetermined way as the firm in question. Chamberlin makes the simplifying assumption that all firms charge the same price, OP, and that DD' represents the price-output relation