Can divestiture solve market power problems?
As explained by Binz & Frankena, “market power is the ability of a firm, alone or in concert with other firms, to profitably maintain the prices of a product above competitive levels & ” Market power comes in two types, vertical and horizontal. Vertical market power exists when a company uses its ownership of various parts of the production process to influence or control the price of the product when sold at retail. For example, electric utilities typically own facilities (or even separate subsidiaries) that generate, transmit, distribute, and sell electricity. The cost of each stage of production (generation, transmission, distribution, and retailing) can ultimately influence the cost of producing the final product. For example, if the cost of transmitting electricity becomes more expensive, the cost of electricity delivered to a person s home would likely increase as well. Consider a utility holding company that has four subsidiaries: one that owns all of the power plants, one that
