Welfare Losses Due to Market Power: Hicksian versus Marshallian Measurement

This paper warns against the use of Marshallian welfare loss in applied analysis of market power. We show how to compute the Hicksian deadweight loss from an ordinary demand. Then, from an experiment using real data on twenty-one sectors of the French food industry, we find that the Marshallian deadweight loss poorly approximates the exact Hicksian measure. Hence, it is advisable to use the latter in applied welfare analysis. Copyright 2001, Oxford University Press.