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Market structure, scale economies and industry performance

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Author Info
AMIR, Rabah

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Abstract

We provide an extensive and general investigation of the effecst on industry performance - profits, social welfare and price-cost margins - of exogenously changing the number of firms in Cournot markets. This includes an in-depth exploration of the well-known trade-off between competition and production efficiency. Most conventional beliefs actually require some qualifications to be valid. Under scale economies, welfare is maximized by a finite number of firms. Our results shed light on several policy debates in industrial organization, including the relationship between the Herfindahl index and social welfare, destructive competition and natural monopoly. Our analytical approach combines simplicity with generality.

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Publisher Info
Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003065.

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Date of creation: 01 Sep 2003
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Handle: RePEc:cor:louvco:2003065

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Related research
Keywords: Cournot oligopoly; returns to scale; entry; equilibrium comparative statics;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D60 - Microeconomics - - Welfare Economics - - - General
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November. [Downloadable!] (restricted)
  2. Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, vol. 80(1), pages 69-82, March.
  3. Rabah Amir, 2000. "On the Effects of Entry in Cournot Markets," Econometric Society World Congress 2000 Contributed Papers 1475, Econometric Society. [Downloadable!]
    Other versions:
  4. Dewey, Donald, 1976. "Industrial Concentration and the Rate of Profit: Some Neglected Theory," Journal of Law & Economics, University of Chicago Press, vol. 19(1), pages 67-78, April.
  5. Novshek, William, 1985. "On the Existence of Cournot Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 52(1), pages 85-98, January. [Downloadable!] (restricted)
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  6. Spence, Michael, 1983. "Contestable Markets and the Theory of Industry Structure: A Review Article," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 981-90, September. [Downloadable!] (restricted)
  7. Novshek, William, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Blackwell Publishing, vol. 47(3), pages 473-86, April. [Downloadable!] (restricted)
  8. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-54, June. [Downloadable!] (restricted)
  9. Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 187-223, February. [Downloadable!] (restricted)
  10. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June. [Downloadable!] (restricted)
  11. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 157-67, January. [Downloadable!] (restricted)
  12. Brock, William A, 1983. "Contestable Markets and the Theory of Industry Structure: A Review Article," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 1055-66, December. [Downloadable!] (restricted)
  13. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring. [Downloadable!] (restricted)
  14. Ann F. Friedlaender & Clifford Winston & Kung Wang, 1983. "Costs, Technology, and Productivity in the U.S. Automobile Industry," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 1-20, Spring. [Downloadable!] (restricted)
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  15. Amir, Rabah, 1996. "Cournot Oligopoly and the Theory of Supermodular Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 132-148, August. [Downloadable!] (restricted)
    Other versions:
  16. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January. [Downloadable!] (restricted)
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  17. Cox, James C. & Walker, Mark, 1998. "Learning to play Cournot duopoly strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 36(2), pages 141-161, August. [Downloadable!] (restricted)
  18. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January. [Downloadable!] (restricted)
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  19. Okuguchi, Koji, 1973. "Quasi-Competitiveness and Cournot Oligopoly," Review of Economic Studies, Blackwell Publishing, vol. 40(1), pages 145-48, January. [Downloadable!] (restricted)
  20. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March. [Downloadable!] (restricted)
  21. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-37, December. [Downloadable!] (restricted)
  22. Stephen W. Salant & Greg Shaffer, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June. [Downloadable!] (restricted)
  23. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March. [Downloadable!] (restricted)
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  24. Lambson, Val Eugene, 1987. "Is the Concentration-Profit Correlation Partly an Artifact of Lumpy Technology?," American Economic Review, American Economic Association, vol. 77(4), pages 731-33, September. [Downloadable!] (restricted)
  25. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer. [Downloadable!] (restricted)
  26. Perry, Martin K, 1984. "Scale Economies, Imperfect Competition, and Public Policy," Journal of Industrial Economics, Blackwell Publishing, vol. 32(3), pages 313-33, March. [Downloadable!] (restricted)
  27. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law & Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
  28. Fauli-Oller, Ramon, 1997. "On merger profitability in a Cournot setting," Economics Letters, Elsevier, vol. 54(1), pages 75-79, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Boone, J. & Ours, J.C. van & Wiel, H.P. van der, 2007. "How (Not) to Measure Competition," Discussion Paper 2007-32, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Lewis Evans and Patrick Hughes, 2003. "Competition Policy in Small Distant Open Economies: Some Lessons from the Economics Literature," Treasury Working Paper Series 03/31, New Zealand Treasury. [Downloadable!]
  3. Boone, J., 2004. "A new way to measure competition," Discussion Paper 31, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  4. Jedlicka, Lorenz & Jumah, Adusei, 2006. "The Austrian Insurance Industry: A Structure, Conduct and Performance Analysis," Economics Series 189, Institute for Advanced Studies. [Downloadable!]
  5. Michiel van Leuvensteijn, 2008. "The Boone-indicator: Identifying different regimes of competition for the American Sugar Refining Company 1890-1914," Working Papers 08-37, Utrecht School of Economics. [Downloadable!]
  6. Paul Belleflamme & Eric Toulemonde, 2007. "Negative Intra-Group Externalities in Two-Sided Markets," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Ben Zissimos, 2006. "The Structure and Performance of the World Market in a Cobb-Douglas Example," Working Papers 0623, Department of Economics, Vanderbilt University. [Downloadable!]
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