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  • Volker Nocke
  • Peter EsoLucy White

Abstract

We show that the efficient allocation of production capacity can turn a competitive industry and downstream market into an imperfectly competitive one. Even though downstream firms have symmetric production technologies, the downstream industry structure will be symmmetric only if capacity is sufficiently scarce. Otherwise it will be asymmetric, with one large fat capacity-hoarding firm and a fringe of smaller lean and fit firms, so that Tobin`s Q varies inversely with firm size. This is so even if the number of firms is infinitely large. As demand or input quantity varies, the industry may switch between symmetric and asymmetric phases, generating predictions for firm size and costs across the business cycle. Surprisingly, an increase in available capacity resulting in such a switch can cause a reduction in total output and consumer surplus.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 365.

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Date of creation: 01 Oct 2007
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Handle: RePEc:oxf:wpaper:365

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Keywords: Multiproduct Firms; Firm Size Distribution; Trade Liberalization; Size Discount; Firm Heterogeneity; Productivity;

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Citations

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Cited by:
  1. M von der Fehr, Nils-Henrik, 2011. "Leader, Or Just Dominant? The Dominant-Firm Model Revisited," Memorandum, Oslo University, Department of Economics 15/2010, Oslo University, Department of Economics.
  2. Huettel, Silke & Margarian, Anne & von Schlippenbach, Vanessa, 2010. "Regional asymmetries in farm size," 114th Seminar, April 15-16, 2010, Berlin, Germany, European Association of Agricultural Economists 62046, European Association of Agricultural Economists.
  3. Bård Harstad, 2010. "Buy Coal! Deposit Markets Prevent Carbon Leakage," CESifo Working Paper Series 2992, CESifo Group Munich.
  4. Nicolas Gruyer & Kevin Guittet, 2008. "A model of airport slot allocation with posted prices," Economics Working Papers, LEEA (air transport economics laboratory), ENAC (french national civil aviation school) 05, LEEA (air transport economics laboratory), ENAC (french national civil aviation school).
  5. Nie, Pu-yan & Chen, You-hua, 2012. "Duopoly competitions with capacity constrained input," Economic Modelling, Elsevier, Elsevier, vol. 29(5), pages 1715-1721.
  6. Noriaki Matsushima & Laixun Zhao, 2010. "Multimarket linkages, buyer power, and the productivity puzzle," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0797, Institute of Social and Economic Research, Osaka University.
  7. Pu-yan Nie, 2014. "Effects of capacity constraints on mixed duopoly," Journal of Economics, Springer, Springer, vol. 112(3), pages 283-294, July.
  8. Stefan Kersting & JProf. Silke Huettel & Prof. Martin Odening, 2013. "Structural change in agriculture – an equilibrium approach," EcoMod2013 5300, EcoMod.
  9. Zenger, Hans, 2013. "Competition and collusion with fixed output," Economics Letters, Elsevier, Elsevier, vol. 120(2), pages 259-261.

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