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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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    Cited by:
    1. Xavier Y Wauthy, 2010. "Market coverage and the nature of product differentiation: a note," Economics Bulletin, AccessEcon, vol. 30(2), pages 1129-1136.

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