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Market Structure, Scale Economies and Industry Performance

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  • Rabah Amir

    (University of Copenhagen, Institute of Economics)

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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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 00-08.

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Length: 30 pages
Date of creation: May 2000
Date of revision:
Handle: RePEc:kud:kuiedp:0008

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Keywords: Cournot oligopoly; Returns to scale; Entry; Equilibrium comparative statics;

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References

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  1. d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, . "Contestability and the indeterminacy of free-entry equilibria," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1452, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, Econometric Society, vol. 48(2), pages 479-89, March.
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  7. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 585-604, June.
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  22. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(1), pages 157-67, January.
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Citations

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Cited by:
  1. Doan, Tinh, 2012. "Evolution of competition in Vietnam industries over the recent economic transition," Economics Discussion Papers 2012-12, Kiel Institute for the World Economy.
  2. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 245-272, 02.
  3. Rabah Amir & Natalia Lazzati, 2009. "Network Effects, Market Structure and Industry Performance," Working Papers, NET Institute 09-27, NET Institute.
  4. Boone, J. & Ours, J.C. van & Wiel, H.P. van der, 2007. "How (Not) to Measure Competition," Discussion Paper, Tilburg University, Center for Economic Research 2007-32, Tilburg University, Center for Economic Research.
  5. 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, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(3), pages 336-357, June.
  6. 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.
  7. Koski, Heli & Pajarinen, Mika, 2013. "Empirical Evaluation of the Effectiveness of Competition Policy," ETLA Working Papers, The Research Institute of the Finnish Economy 15, The Research Institute of the Finnish Economy.
  8. 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.
  9. Michiel van Leuvensteijn, 2008. "The Boone-indicator: Identifying different regimes of competition for the American Sugar Refining Company 1890-1914," Working Papers, Utrecht School of Economics 08-37, Utrecht School of Economics.

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