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The SCP school advocates for using industry average profit rates to assess market power, but this article warns that such an approach may lead to inaccurate conclusions about excess profit. It suggests that the profit rate of the marginal firm, or the least efficient firm, should be used instead as a more reliable indicator of market power. This recommendation is grounded in the traditional insights of economists like Mill, Fawcett, Hobson, and Friedman.

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Ahmed Tarek
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28 views1 page

1

The SCP school advocates for using industry average profit rates to assess market power, but this article warns that such an approach may lead to inaccurate conclusions about excess profit. It suggests that the profit rate of the marginal firm, or the least efficient firm, should be used instead as a more reliable indicator of market power. This recommendation is grounded in the traditional insights of economists like Mill, Fawcett, Hobson, and Friedman.

Uploaded by

Ahmed Tarek
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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The SCP school prefers to use accounting data for the industry ‘‘average’’

profit rate to measure market power. This article emphasizes that


overreliance on average profit across all firms to infer excess profit might
lead to incorrect inferences regarding market power. Based on the
conventional insights of Mill, Fawcett, Hobson, and Friedman, this article
recommends using the profit rate of the marginal firm (the least efficient
firm) as an indicator to measure market power, rather than the industry
average profit rate.

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