Investment Coordination and Demand Complementarities
AbstractThis paper analyzes the possibility of investment coordination leading to outcomes which dominate non-investment equilibria in the presence of monopolistic competition. We establish when complementarity leads to investment coordination failures and explore the welfare implications of coordinated investment. Our main results caution against demand complementarities as a motive for investment coordination. We find that: 1) generally, a strict notion of complementarity (Hicks) is necessary for the existence of an investment coordination problem and 2) that when the problem does exist, coordination often lowers social welfare.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 933.
Length: 22 pages
Date of creation: Oct 1996
Date of revision:
Other versions of this item:
- Jean-Marie Baland & Patrick Francois, 1999. "Investment coordination and demand complementarities," Economic Theory, Springer, vol. 13(2), pages 495-505.
- O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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- Baland, Jean-Marie & Francois, Patrick, 2000. "Rent-seeking and resource booms," Journal of Development Economics, Elsevier, vol. 61(2), pages 527-542, April.
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