A general equilibrium approach to the measurement of monopoly welfare loss

The paper presents a framework for the evaluation of monopoly welfare losses in a general equilibrium context which includes factors of production. It shows that aggregation of partial equilibrium estimates is likely to be seriously misleading as in indicator of aggregate welfare costs. However, simple approximations to aggregate losses can be derived even in general equilibrium in the case where there are no constraints on the exercise of monopoly power. These approximations suggest that welfare losses are potentially large. If empirically observed losses are small, the implication is not that allocative efficiency is unimportant but that real economies are competitive.