Monopoly welfare loss in the Canadian economy, 1970-1981
Date
1986
Authors
Shortill, Cynthia
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Abstract
According to microeconomic theory, monopoly involves resource misallocation and therefore significant welfare losses. In this study, aggregate, inter-industry, and intertemporal welfare loss are quantified for a sample of 172 industries representative of the Canadian economy over the period 1970-1981. Particular emphasis is placed upon welfare loss in the 87-industry manufacturing sector. Four variations of the welfare loss model are estimated. Initially, the basic Harberger (1954) model is used to quantify the loss. The Harberger model is then expanded to include the impact of the foreign sector upon resource misallocation. Finally, the model is modified to include losses due to "monopoly" wages and "selling costs".
The official rationale for Canadian anticombines policy lies in the promotion of economic efficiency through competition. Therefore, an important part of this study is to examine the welfare loss figures in light of Canadian competition policy. In particular, the relevance of resource misallocation in the determination of the objectives, administration, and enforcement of the Combines Investigation Act is critically analyzed.