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The Welfare Effects of Location and Quality in Oligopoly

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  • Luis C. Corchón
  • Galina Zudenkova

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Abstract

In this paper we argue that two important causes of welfare losses in oligopolistic markets have been neglected. We show that in models where location is endogenous, welfare losses arising from wrong locations or from lack of market coverage may be substantial despite firms competing in prices. In contrast, welfare losses arising from quality choice are modest but they might vary discontinuously with the size of the market.

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File URL: http://e-archivo.uc3m.es/bitstream/10016/8128/1/we102008.pdf
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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we102008.

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Date of creation: Sep 2010
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Handle: RePEc:cte:werepe:we102008

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Keywords: Welfare losses; Horizontal differentiation; Hotelling model; Salop model; Vertical differentiation;

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  1. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, Elsevier, vol. 20(3), pages 340-359, June.
  2. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  3. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  4. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, Elsevier, vol. 47(1), pages 178-194, February.
  5. Horowitz, John K., 2006. "The Becker-DeGroot-Marschak mechanism is not necessarily incentive compatible, even for non-random goods," Economics Letters, Elsevier, Elsevier, vol. 93(1), pages 6-11, October.
  6. McHardy, J.P., 2000. "Miscalculations of Monopoly and Oligopoly Welfare Losses with Linear Demand," Papers, Universite de Nantes - Economie Internationale et de l'Entreprise 274, Universite de Nantes - Economie Internationale et de l'Entreprise.
  7. Jaskold Gabszewicz, J. & Thisse, J. -F., 1980. "Entry (and exit) in a differentiated industry," Journal of Economic Theory, Elsevier, Elsevier, vol. 22(2), pages 327-338, April.
  8. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, Econometric Society, vol. 51(5), pages 1469-83, September.
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