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A note on the adverse effect of competition on consumers

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  • Dinda, Soumyananda
  • Mukherjee, Arijit

Abstract

It is usually believed that higher competition, implying more active firms, benefits consumers. We show that this may not be the case in an industry with asymmetric cost firms. A rise in the number of more cost inefficient firms makes the consumers worse-off in the presence of a welfare maximizing tax/subsidy policy. A rise in the number of more cost inefficient firms also reduces social welfare.

Suggested Citation

  • Dinda, Soumyananda & Mukherjee, Arijit, 2010. "A note on the adverse effect of competition on consumers," MPRA Paper 64063, University Library of Munich, Germany, revised Dec 2011.
    • Handle: RePEc:pra:mprapa:64063
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    References listed on IDEAS

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    Cited by:

    1. Kazuhiro Takauchi & Tomomichi Mizuno, 2022. "Endogenous transport price, R&D spillovers, and trade," The World Economy, Wiley Blackwell, vol. 45(5), pages 1477-1500, May.
    2. Kazuhiro Takauchi & Tomomichi Mizuno, 2019. "Is competition in the transport industry bad?A welfare analysis of R&D with inter-regional transportation," Discussion Papers 1910, Graduate School of Economics, Kobe University.
    3. Wang, Leonard F.S. & Zeng, Chenhang & Zhang, Qidi, 2019. "Indirect taxation and undesirable competition," Economics Letters, Elsevier, vol. 181(C), pages 104-106.
    4. Giuranno, Michele G. & Scrimitore, Marcella & Stamatopoulos, Giorgos, 2023. "Vertical integration under optimal taxation: A consumer surplus detrimental result," Economics Letters, Elsevier, vol. 222(C).
    5. Chung, Hoe Sang, 2023. "Entry and consumer welfare in a differentiated Cournot oligopoly," Economics Letters, Elsevier, vol. 231(C).
    6. Qidi Zhang & Leonard F. S. Wang, 2022. "Taxation, Network Externalities, Consumer Suffering, and Profit-Raising Entry: A Cautionary Note," Journal of Industry, Competition and Trade, Springer, vol. 22(2), pages 225-231, June.
    7. Wang, Leonard F.S. & Zeng, Chenhang & Zhang, Qidi, 2019. "Indirect taxation and consumer welfare in an asymmetric Stackelberg oligopoly," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    8. Giuranno, Michele G. & Scrimitore, Marcella & Stamatopoulos, Giorgos, 2020. "Subsidy policies and vertical integration in times of crisis: Can two virtues produce an evil?," MPRA Paper 104413, University Library of Munich, Germany.

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    More about this item

    Keywords

    Competition; Consumer welfare; Cost asymmetry; Tax;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • 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
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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