LFCE Concepts: Substantial Power & Market Efficiency

LFCE Criteria for Substantial Power Determination

The LFCE proposes several criteria for determining substantial market power:

• Market share and the ability to fix prices unilaterally without competitors being able to counter such power.
• The existence of barriers to entry.
• The existence and power of competitors.
• The possibilities for the Economic Agent(s) and their competitors to access input sources.

Efficiency Gains Under LFCE Article 55

Article 55 of the LFCE defines efficiency gains. Some examples include:

• The introduction of new goods or services.
• The utilization of residual lots, defective, or perishable products.
• Cost reductions resulting from creating new techniques and production processes, asset integration, increases in production scale, and the production of different goods or services using the same production factors.
• The introduction of technological advances that produce new or improved goods or services.

Vertical Integration: Definition & Competition Issues

What is vertical integration? It occurs when a single economic agent operates at multiple stages of the value chain.

Is it anti-competitive per se? No, vertical integration itself is not inherently anti-competitive. However, its abuse can be, particularly if it creates barriers for other economic agents.

Defining Inelastic Demand

This refers to a type of product whose demand is not necessarily modified significantly with price variations.

Term: Inelastic

Understanding Distributive Efficiency

This is the market condition that exists when resources are allocated optimally between goods and services without distortions, allowing consumers to obtain the highest possible benefit.

Term: Distributive Efficiency

Social Welfare Loss in Monopolies

This situation occurs in a monopolistic market when the monopolist can charge arbitrary prices to consumers. Consequently, consumers do not maximize their utility.

Term: Loss of Social Welfare

Efficient Natural Monopoly Condition

According to economic theory, under what assumption is the existence of a natural monopoly efficient?

It exists when a market is provided in the cheapest and most efficient way by a single company with decreasing costs.