Key Idea: Topic 2.11 explains how firms with market power can charge prices above marginal cost, creating allocative inefficiency and deadweight loss. It also covers competition policy as a response.
✅ Core definitions
📊 Why market power is a problem
🏛️ Policy responses
⚖️ Evaluation
✅ For intervention: Lower prices for consumers. Reduces deadweight loss. Prevents abuse of dominance.
❌ Against intervention: Information gaps (regulators know less than firms). Regulatory capture risk. May reduce innovation incentive (Schumpeter argument).
Schumpeter's counter-argument: market power can fund innovation through supernormal profits. Some monopoly power may actually be socially desirable.