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Market Structure, Scale Economies and Industry Performance

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  • Rabah Amir

    (University of Southern Denmark)

Abstract

We provide an extensive and general investigation of the effects on industry performance (profits and social welfare) of exogenously changing the number of firms in a Cournot framework. This amounts to an in-depth exploration of the well-known trade-off between competition and production efficiency. We establish that under scale economies, welfare is maximized by a finite number of firms. Our results shed light on several theoretical issues and policy debates in industrial organization, including the relationship between the Herfindahl index and social welfare, free versus socially optimal entry, concentration and profitability, destructive competition and natural monopoly. Our analytical approach combines simplicity with generality.

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File URL: http://www.econ.ku.dk/cie/dp/dp_2000-2002/2000-03.pdf/
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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2000-03.

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Length: 30 pages
Date of creation:
Date of revision:
Handle: RePEc:kud:kuieci:2000-03

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Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
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Web page: http://www.econ.ku.dk/cie/
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Related research

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

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References

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  1. Ruffin, R J, 1971. "Cournot Oligopoly and Competitive Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 38(116), pages 493-502, October.
  2. de Meza, David, 1985. "A Stable Cournot-Nash Industry Need Not Be Quasi-competitive," Bulletin of Economic Research, Wiley Blackwell, vol. 37(2), pages 153-56, May.
  3. Javier M. López-Cuñat, 1999. "One-stage and two-stage entry Cournot equilibria," Investigaciones Economicas, Fundación SEPI, vol. 23(1), pages 115-128, January.
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  6. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
  7. 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.
  8. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. Valerie A. Ramey & Kenneth D. West, 1997. "Inventories," NBER Working Papers 6315, National Bureau of Economic Research, Inc.
    • Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923 Elsevier.
  10. Claude D’Aspremont & Rodolphe Dos Santos Ferreira & Louis-Andre Gerard-Varet, 2000. "Contestability and the Indeterminacy of Free-Entry Equilibria," The Japanese Economic Review, Japanese Economic Association, vol. 51(1), pages 72-83, 03.
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  12. ROBERTS, John, . "On the existence of Cournot equilibrium without concave profit functions," CORE Discussion Papers RP -260, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  17. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Cowles Foundation Discussion Papers 937, Cowles Foundation for Research in Economics, Yale University.
  18. AMIR, Rabah & LAMBSON, Val, 1999. "On the effects of entry in Cournot markets," CORE Discussion Papers 1999059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
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  22. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 157-67, January.
  23. Fauli-Oller, Ramon, 1997. "On merger profitability in a Cournot setting," Economics Letters, Elsevier, vol. 54(1), pages 75-79, January.
  24. Amir, Rabah, 1996. "Cournot Oligopoly and the Theory of Supermodular Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 132-148, August.
  25. 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.
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Citations

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Cited by:
  1. Paul Belleflamme & Eric Toulemonde, 2009. "Negative Intra-Group Externalities In Two-Sided Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 245-272, 02.
  2. Sara Amoroso & Peter M. Kort & Bertrand Melenberg & Joseph Plasmans & Mark Vancauteren, 2010. "Firm Level Productivity under Imperfect Competition in Output and Labor Markets," CESifo Working Paper Series 3082, CESifo Group Munich.
  3. Koski, Heli & Pajarinen, Mika, 2013. "Empirical Evaluation of the Effectiveness of Competition Policy," ETLA Working Papers 15, The Research Institute of the Finnish Economy.
  4. Rabah Amir & Natalia Lazzati, 2010. "Network Effects, Market Structure and Industry Performance," CREA Discussion Paper Series 10-16, Center for Research in Economic Analysis, University of Luxembourg.
  5. 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.
  6. 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.
  7. 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.
  8. Doan, Tinh & Stevens, Philip, 2012. "Evolution of competition in Vietnam industries over the recent economic transition," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(19), pages 1-24.
  9. Alexander Schiersch & Jens Schmidt-Ehmcke, 2011. "Is the Boone-Indicator Applicable? – Evidence from a Combined Data Set of German Manufacturing Enterprises," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(3), pages 336-357, June.

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