Working Paper No. 03-17:
Cyclical Market Power

Author(s):

Amitai Aviram

Date Posted: 2003

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Abstract:

This paper examines temporal aspects of market power. It explores an industry - the Israeli PVC industry - in which the dominant firm's market power fluctuates cyclically, and identifies the conditions that result in such phenomena.

The existence of cyclical market power may lead the market participants to strategic behavior that is markedly different from that in markets with either steady market power or constantly declining market power. It is suggested that in markets characterized by cyclical market power, a dominant firm may find it both possible and profitable to combat the cyclical decline in its market power by "temporal leveraging" of its market power: policing a cartel in the downstream market in return for exclusivity in sales to the cartel members. Such a scheme may resist the criticism against the plausibility of most types of monopoly leveraging and exclusive dealing.