A Generalized Measure of Market Power

A generalized measure of market power is derived that accounts for both supply expansion by the competitive fringe and multi-market participation by the dominant firm. Traditional market power measures are shown to be biased-upward (downward) in the case of complements (substitutes). Numerical simulations suggest that this bias can be pronounced. These findings have potentially important implications for antitrust in the new economy as there may be a natural tendency for certain markets to “tip” in favor of a dominant provider.