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Market share regulation?

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  • Konishi, Hideo
  • Yurtseven, Çaglar
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    Abstract

    In the 1950s and 60s, Japanese and US antitrust authorities occassionally used the degree of concentration to regulate industries. Does regulating firms based on their market shares make theoretical sense? We set up a simple duopoly model with stochastic R&D activities to evaluate market share regulation policy. On the one hand, market share regulation discourages the larger company's R&D investment and causes economic inefficiency. On the other hand, it facilitates the smaller company's survival, and prevents the larger company from monopolizing the market. We show that consumers tend to benefit from market share regulation. However, the social welfare including firms’ profits would be hurt if both firms are equally good at R&D innovation. Nonetheless, if the smaller firm can make innovations more efficiently, then protecting smaller firms through market share regulation can improve the social welfare. We relate our analysis to a case study of Asahi Brewery's introducing Asahi Super Dry to become the top market share company in the industry.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0922142513000595
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    Bibliographic Info

    Article provided by Elsevier in its journal Japan and the World Economy.

    Volume (Year): 29 (2014)
    Issue (Month): C ()
    Pages: 36-45

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    Handle: RePEc:eee:japwor:v:29:y:2014:i:c:p:36-45

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    Web page: http://www.elsevier.com/locate/inca/505557

    Related research

    Keywords: Market share regulation; R&D; Oligopoly; Predation;

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    1. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    2. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
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    4. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-21, January.
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    6. W. Kip Viscusi & Joseph E. Harrington & John M. Vernon, 2005. "Economics of Regulation and Antitrust, 4th Edition," MIT Press Books, The MIT Press, edition 4, volume 1, number 026222075x, December.
    7. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
    8. Mark Armstrong & David Sappington, 2005. "Regulation, Competition and Liberalization," Industrial Organization 0505011, EconWPA, revised 07 Oct 2005.
    9. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, 09.
    10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    11. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
    12. repec:cup:cbooks:9780521816632 is not listed on IDEAS
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