In theory, it is fairly straightforward to define market power. In practice, however, it is difficult to pin down the level and evolution of market power empirically. There are two reasons for this. First, markups are not directly observable. Second, there is no one-to-one mapping between firms’ market power and point-in-time markup estimates.
This decision lies squarely within the ECB’s tradition. In the past, the ECB has made use of separate instruments to target inflation and to preserve the functioning of the monetary policy transmission mechanism. Measures to preserve transmission could be used at any level of interest rates – so long as they were designed not to interfere with the monetary policy stance.