Market Structure and the Firm's Market Power

Abstract

There exist many possible approaches to study the rational policy of the firm holding some degree of market power. One such general approach includes the numerous oligopoly models which view each firm within a given market structure as recognizing the interdependence between its own actions and the actions of its rivals. Within this line of attack, the theory of games has provided some useful insights, but little development has taken place beyond the twoperson situation. ' Application of the theory of the core of the economy2 has raised new hopes, yet this promising line of research remains in the very early stages of development. Our approach is less theoretical and deals with the industrial organisation outlook as developed by E. Mason,3 J. Bain,4 R. Caves 5 and others. We should like to propose first a static analysis of the firm's market power in its relation to market structure and, secondly, the corresponding dynamic analysis based on the Pontryagin Maximum Principle. Finally, our conclusions present some reflections on the connection between the market power and the wider socio-political power of the large firm.