Monopolisation and Industry Structure
AbstractThe aim of this paper is to provide empirically testable predictions regarding the relationship between market size and concentration. In a model of endogenous horizontal mergers, it is shown that concentrated outcomes cannot be supported in a free entry equilibrium in large exogenous sunk cost industries: the upper bound to concentration tends to zero as market size (relative to setup costs) tends to infinity. In contrast, arbitrarily concentrated outcomes may be sustained in endogenous sunk costs industries, no matter how large the market, and even in the absence of mergers; that is, the upper bound to concentrated does not decrease with market size. Using an equilibrium concept defined in the space of observable outcomes, it is shown that these predictions to not depend on the details of the extensive form of the game, even allowing for side payments between firms and endogenous product choice. The results complement those of Sutton (1991) on the stability of fragmented outcomes.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2000-W27.
Date of creation: 01 Oct 2000
Date of revision:
Horizontal Mergers; Monopolization; Industry Concentration;
Other versions of this item:
- Volker Nocke, 2000. "Monopolisation and Industry Structure," Econometric Society World Congress 2000 Contributed Papers 0429, Econometric Society.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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PIER Working Paper Archive
05-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 29 Sep 2005.
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