What factors determine the market power of companies?

Aresearch project conducted by Pompeu Fabra University, funded by the Spanish Ministry of Science and Innovation, seeks to dig deeper into both the theoretical and the empirical aspects of industrial organization in order to answer unsolved questions and current issues related to market regulation, consumers and innovation.

The project, led by Albert Banal-Estanol, lecturer with the Department of Economics and Business at UPF, accompanied by Massimo Motta, ICREA-UPF research professor at the same department, both also linked to the Barcelona GSE, will analyse the following aspects, among others: the market power of firms, consumer protection, the problems of competition and the regulation of digital markets and the media, and the tools of industrial organization and innovation applied to finance and banking.
“We aim to build and estimate robust theoretical and econometric models and use the latest techniques to steer decision-making in enterprise”, they assert. According to the researchers, who have been conducting the project since June 2020, its ultimate goal is “to guide those responsible for public policies, especially in the areas of competition policy and regulation, as well as those responsible for decision-making in enterprise, especially in the areas of innovation and entrepreneurship and finance”.

The project, entitled “Mercados, política y estrategia” (MARPOST) with a duration of three years, received a grant of nearly 53,000 euros under the 2020 call for R&D&I Projects in the National Plan for Scientific Research and Technical and Innovation 2017-2020, promoted by the Spanish ministries of Science and Innovation, and Universities.

Market power and consumer protection

One of the project’s main research lines is to analyse whether direct and indirect links between rivals, as a result of mergers, business practices that violate the principle of competition in a market, or common ownership, increase market power.

To what extent do organizations exert market power? (i.e., how can they increase and maintain the price of their products or services above the level that would exist in a perfectly competitive market?); and which factors determine this market power? are two of the questions that researchers will attempt to answer.

Moreover, the project will evaluate some of the recent regulatory interventions in areas of consumer protection, required to protect them from abusive behaviour by companies; but it will go further, as it will also focus on product safety and consumer health.

Regulation of digital markets and the media and business innovation

The problems of competition and regulation in digital markets and in the media is another area of study: “The increased concentration and market power in the digital markets and in the media have attracted growing attention from the public authorities, governments and academics. This is another of our priorities”, the researchers assure.

A couple of subjects complete their field of study: first, analysing firms’ ability to introduce new processes, products or services, particularly the human capital determinants of innovation, the market for corporate control and the role of universities as generators of technology and innovation; and secondly, the use of tools and approaches developed in industrial organization and innovation to investigate problems traditionally considered in the areas of corporate finance and banking, which interaction “has received surprisingly little attention in the academic literature”, they conclude.

###