The linear Cobb-Douglas example of (3.4) and (3.5) above yields an additional
comparative-statics result by parameterizing the degree of market power en-
joyed by an intermediate monopolist. Specifically, 1 - a is the Lerner (1934)
measure of monopoly power (price minus marginal cost divided by price),
(1 - a) -1 is the elasticity of demand faced by an intermediate monopolist, and
1 - a is the fraction of equilibrium revenue in the intermediate sector accruing
to the monopolist, wt/(wt + w
xt).
Thus, by all measures, the degree of market
power is measured inversely by the parameter a.