Q16

[tzyc]

So the monopoly power is the ability of a firm to raise prices, and antitrust laws do not prohibit this power. But does this means "it does not necessarily hurt consumer welfare"?
Does it say this just because it does not go against antitrust laws (L9)? But in L42 it says antitrust laws can also impair customers' welfare isn't it...?? So I thought even it does not go against it, it can hurt them...or is this the reason it says not necessarily?

And abuse of monopoly power hurt customers' welfare, because it excludes competition in the markets, right?
It can raise price without losing their customer so they can raise it as much as they want when they have large share in the market and this is "associated with a loss of consumers' welfare" (though supracompetitive prices may be just an example of the exclusion?) meaning it justifies E's latter part.
The things I'm not sure are...how it can force some cunsumers to buy a less alternative goods, and whether making consumer buy less alternative goods means "exclude competition" (I thought "some consumer" is not enough...and even it leads consumer to buy less, they still can...can't they??).
Or is it because the price is constrained by the availability of alternatives and the fact they can increase prices means they do not have rivals that much=they share large % of the market? But how do we know they used power to increased the share? And even they can raise prices, that does not mean there are no alternatives right...??

Thank you

[rinagoldfield]

Tricky passage!

The author distills the difference between monopoly power and the abuse of monopoly power in her fifth paragraph. The author argues that antitrust laws target the "abuse" of monopoly power rather than monopoly power in general because the "abuse" of such power doesn’t "promote consumers’ welfare," (lines 63-64). Thus the author distinguishes between monopoly power and the abuse of monopoly power according to whether or not it promotes consumers’ welfare.

(E) gives just the distinction between monopoly power and the abuse of monopoly power we’re looking for: the promotion of consumer welfare (again, see the last paragraph for support).

To your question about line 42, TZ: these lines actually support the point that antitrust laws only concern "abuses" of monopoly power that disempower consumers. The author argues here that antitrust laws PERMIT certain monopolies that nourish consumer welfare (such as monopolies that are so huge that they drive prices down for consumers). Such monopolies are "NOT in violation of the antitrust laws" (lines 46-47).

(A) is very tempting, since it uses language present in the passage. However, (A) is unsupported. Monopoly power in general is associated with both market share and market control. Such power is "abused" when it is used to "exclude competition in the monopolized market or related markets" and when it negatively impacts consumer welfare (lines 11-13). Answer choice (A) doesn’t get at this distinction; it describes monopoly power in general without identifying what makes the ABUSE of monopoly power unique.

(B) is out of scope. The ease of assessing monopoly power vs. the ease of assessing the abuse of monopoly power is not discussed.

(C) is too narrow. The author offers leverage"” "the use of power in one market to reduce competition in another""”as an EXAMPLE of the abuse of monopoly power, not as the DEFINITION of the abuse of monopoly power.

(D) is unsupported. The author argues that "supracompetitive prices do not themselves constitute an abuse of monopoly power" (lines 31-33). A firm may therefore charge supracompetitive prices without violating antitrust laws. This is not the distinction we’re looking for.

Hope that helps! Let me know if you have any other questions.

[olaizola.mariana]

While I agree with your explanation above, I think the passage contains deep contradictions with regard to the relationship between supracompetitive prices, monopoly power and consumer welfare --

Lines 28-30 state: "Supracompetitive prices are associated with a loss of consumers' welfare because such prices force some consumers to buy a less attractive mix of products…" The author seems to be saying that supracompetitive prices hurt consumer welfare.

The sentence that follows (lines 31-33) establishes that abusing monopoly power requires more than just charging supracompetitive prices. Meanwhile, on lines 2-4, the author defines monopoly power as "the ability of a firm to raise its prices above the competitive level," i.e. to charge supracompetitive prices.

From these segments, it seems that supracompetitive prices - which are associated with a loss of consumer welfare - are a feature of BOTH monopoly power and the abuse of such power. Thus, it cannot be said that the difference between monopoly power and its abuse is that only the latter hurts consumer welfare.

Could you help me understand how this does not rule out answer (E)?

[rinagoldfield]

As you note, the passage indicates that supracompetitive prices can be an example of an abuse of monopoly power, but that “supracompetitive prices…do not themselves constitute an abuse of monopoly power.” The key to understanding this distinction can be found in the first and second paragraphs. The author defines the abuse of monopoly power according to two criteria:

1. The firm has monopoly power.
2. The power was use to exclude competition.

Then, in the second paragraph, she goes onto describe a scenario of consumers turning elsewhere in response to a firm charging supracompetitve prices…. But wait! The consumers can’t turn away if the firm is a monopoly (lines 16-22).

Putting this altogether, I think the author would say that supracompetitive prices are an example of an abuse of monopoly power if and only if the firm has monopoly power!

We see this affirmed back in the lines you noted where the author defines monopoly power (lines 2-4). Note the follow up… “without driving away so many customers…’

[olaizola.mariana]

Thanks for your explanation, rinagoldfield. I still don't completely understand, though, how it is that the difference between monopoly power and the abuse of monopoly power lies in that only the latter hurts consumer welfare. The author says monopoly power is the ability to charge supracompetitive prices (lines 2-4) and that supracompetitive prices are associated with a loss of consumers' welfare (lines 28-30). I don't see how this rules out that monopoly power by itself (not its abuse) hurts consumer welfare. Is the key issue that the "association" alluded to is not well-founded?

[rinagoldfield]

Thanks for your post, olaizola.mariana.

In terms of the relationship between monopoly power and supracompetive prices:

1. A business can charge supracompetitve prices without being a monopoly (in this case, consumers would flee)
2. While monopolies are able to charge supracompetitive prices, they do not always do so. It is possible to abuse monopoly power without charging supracompetitive prices. For example, the author describes a monopoly using its leverage to require consumers to buy a product in a different market (paragraph 4).

Thus supracompetitve prices and monopolies are related, but not identical.

In terms of the author’s definition of the abuse of monopolies:

The author lays out his point of view in the final paragraph. There he says “The focus on the abuse of monopoly power, rather than on monopoly itself, follows from the primary purpose of the antitrust laws: to promote consumers’ welfare.” The author here essentially defines abuse of monopoly power as that which does not promote consumer welfare.

[olaizola.mariana]

Thank you so much. Your explanation makes sense, so thank you for unpacking it for me.

[MeenaV936]

Also, adding to this discussion, even if monopoly power DID hurt consumer welfare in some situations (e.g. supracompetitive prices), the correct answer choice says it doesn't necessarily have to, meaning it doesn't always hurt consumer welfare, right? Whereas abuse of monopoly power does always hurt consumer welfare?

[ohthatpatrick]

Correct.

And while it's possible to find parts of the passage showing that monopoly power doesn't necessarily hurt consumer welfare (lines 36-44 discuss a monopoly that provides super low prices due to its economy of scale), it's hard to find any line that sounds exactly like "abuse of monopoly power always hurts consumers".

However, (E) is still the best available answer.

As a concept, the legal idea of "ABUSE of monopoly power" necessarily involves harm to consumer welfare. Someone might be accused of abusing their monopoly power, even though they aren't harming consumer welfare. But the idea is that for someone to be CONVICTED of abuse of monopoly power, the prosecution would always be forced to demonstrate harm to consumer welfare.