Market Power in Dynamic Models of Natural Resource Markets: Theory, Empirics, and the Lerner Index


We review the theoretical and empirical literatures on market power in dynamic models of markets for renewable and non-renewable natural resources. As part of this chapter, we will integrate an analysis of the performance of the Lerner Index in these settings. Since Harberger (1954), economists have recognized that the empirically signif- icant impacts of market power regard the distribution of surplus rather than deadweight loss. However, measures used to represent market power have not evolved to reflect this recognition. Rather than looking at surplus measures, market power continues to be characterized in terms of markup. As part of our chapter we will propose alternative measures of dynamic market power and compare them to common existing measures, including deriving the responsiveness of the market power indices and consumer and producer surplus to changes in market structure and technology. The discussion of the performance of market power measures will provide context for linking empirical analyses to the predictions of the theoretical literature.

Invited Submission to The Annual Review of Resource Economics