Excessive prices: a new analytical approach

Abstract

ABSTRACT Proving the excessiveness of the dominant firm's prices constitutes a challenging task for young competition authorities, due to the difficulties in confronting economic theories with facts and the lack of analytical tools to carry out robust investigations. To handle these issues, this paper proposes a statistical algorithm centred on the analysis of the prices and mark-up of the dominant firm. An empirical study involving the use of real industrial data is carried out to show the implementation of the proposed statistical algorithm. The results reveal that the excessiveness of the dominant firm's prices is due to the excessiveness of its mark-up over the total cost. Our findings also show that the pricing behaviour of the dominant firm remains unpredictable in the absence of a large amount of data for the analysis of demand patterns, a direct measurement of the marginal cost, and a good knowledge of market functioning.