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Competition for scarce resources

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  • Péter Eső
  • Volker Nocke
  • Lucy White

Abstract

We model a downstream industry where firms compete to buy capacity in an upstream market which allocates capacity efficiently. Although downstream firms have symmetric production technologies, we show that industry structure is symmetric only if capacity is sufficiently scarce. Otherwise it is asymmetric, with one large, fat, capacity-hoarding firm and a fringe of smaller, lean, capacity-constrained firms. As demand varies, the industry switches between symmetric and asymmetric phases, generating predictions for firm size and costs across the business cycle. Surprisingly, increasing available capacity can cause a reduction in output and consumer surplus by resulting in such a switch. Copyright (c) 2010, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 41 (2010)
Issue (Month): 3 ()
Pages: 524-548

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Handle: RePEc:bla:randje:v:41:y:2010:i:3:p:524-548

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Cited by:
  1. Zenger, Hans, 2013. "Competition and collusion with fixed output," Economics Letters, Elsevier, vol. 120(2), pages 259-261.
  2. Noriaki Matsushima & Laixun Zhao, 2010. "Multimarket linkages, buyer power, and the productivity puzzle," ISER Discussion Paper 0797, Institute of Social and Economic Research, Osaka University.
  3. Nie, Pu-yan & Chen, You-hua, 2012. "Duopoly competitions with capacity constrained input," Economic Modelling, Elsevier, vol. 29(5), pages 1715-1721.
  4. M von der Fehr, Nils-Henrik, 2011. "Leader, Or Just Dominant? The Dominant-Firm Model Revisited," Memorandum 15/2010, Oslo University, Department of Economics.
  5. Bård Harstad, 2010. "Buy coal? Deposit markets prevent carbon leakage," NBER Working Papers 16119, National Bureau of Economic Research, Inc.
  6. Nicolas Gruyer & Kevin Guittet, 2008. "A model of airport slot allocation with posted prices," Economics Working Papers 05, LEEA (air transport economics laboratory), ENAC (french national civil aviation school).
  7. Huettel, Silke & Margarian, Anne & von Schlippenbach, Vanessa, 2010. "Regional asymmetries in farm size," 114th Seminar, April 15-16, 2010, Berlin, Germany 62046, European Association of Agricultural Economists.

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