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Welfare in differentiated oligopolies with more than two firms

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  • Schmidt, Robert C.
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    Abstract

    Excessive differentiation in the quality or location dimension in order to soften price competition is a well-established conclusion concerning duopolistic markets. This has inspired authors to discuss policy measures that may improve welfare in a differentiated market. In the present paper, a general welfare analysis is conducted for a varying number of firms. It is shown that outcomes are almost optimal when three or more competitors are in the market. In light of this, a laissez-faire policy should be adopted. For a range of entry costs, market outcomes entail insufficient entry. Therefore, a subsidy to entry may improve welfare.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 27 (2009)
    Issue (Month): 4 (July)
    Pages: 501-507

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    Handle: RePEc:eee:indorg:v:27:y:2009:i:4:p:501-507

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    Web page: http://www.elsevier.com/locate/inca/505551

    Related research

    Keywords: Horizontal differentiation Vertical differentiation Quality Over differentiation Entry subsidy;

    References

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
    2. Cremer, Helmuth & Thisse, Jacques-François, 1994. "Commodity Taxation in a Differentiated Oligopoly," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
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    Cited by:
    1. WAUTHY, Xavier, 2009. "Market coverage and the nature of product differentiation : a note," CORE Discussion Papers 2009081, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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