Competition Can Harm Consumers
AbstractDuopolists selling differentiated products can generate less consumer surplus than a monopoly selling one of the products. In a Hotelling-type model where a monopoly supplies more than half of potential consumers, but not all, entry by a rival leads to a duopoly price that is higher than the monopoly price. Consumers in aggregate will be made worse off by such entry when the effect of the price increase outweighs the benefit of extra variety. When consumers have continuous demand functions and firms use two-part tariffs, duopoly can also result in lower aggregate consumer surplus than monopoly. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd/University of Adelaide and Flinders University.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Australian Economic Papers.
Volume (Year): 47 (2008)
Issue (Month): 3 (09)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0004-900X
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- Eleftherios Zacharias, 2009.
"Firm entry, product repositioning and welfare,"
EERI Research Paper Series
EERI_RP_2009_17, Economics and Econometrics Research Institute (EERI), Brussels.
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