Competition for scarce resources
AbstractWe 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 InfoArticle provided by RAND Corporation in its journal The RAND Journal of Economics.
Volume (Year): 41 (2010)
Issue (Month): 3 ()
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- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F15 - International Economics - - Trade - - - Economic Integration
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
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