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Product Differentiation and Oligopoly: A Network Approach

Author

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  • Bruno Pellegrino

Abstract

I present a new theory of oligopoly and markups in general equilibrium, based on an innovative, scalable hedonic demand system, which I take to the data for the universe of US public firms. In my model, firms compete in a network of product market rivalries that emerge endogenously out of the characteristics of the products they supply. I estimate that consumer surplus is almost three times as large as profits; decompose firm-level markups into metrics of quality-adjusted productivity and market centrality; and analyze the extent, evolution, and drivers of monopoly power in the United States between 1995 and 2021.

Suggested Citation

  • Bruno Pellegrino, 2025. "Product Differentiation and Oligopoly: A Network Approach," American Economic Review, American Economic Association, vol. 115(4), pages 1170-1225, April.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:4:p:1170-1225
    DOI: 10.1257/aer.20201425
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    Citations

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    Cited by:

    1. Masaki Miyashita, 2026. "Characteristics Design: A Hedonic Approach to Optimal Product Differentiation," Papers 2601.21573, arXiv.org, revised Feb 2026.
    2. Ha, Sangeun & Ma, Fangyuan & Žaldokas, Alminas, 2024. "Motivating collusion," Journal of Financial Economics, Elsevier, vol. 154(C).
    3. Afonso Rodrigues, 2025. "Consumer Choice Over Shopping Baskets," Papers 2511.11846, arXiv.org, revised May 2026.
    4. Vanessa Alviarez & Michele Fioretti & Ken Kikkawa & Monica Morlacco, 2025. "Concentration and Markups in International Trade," CESifo Working Paper Series 12046, CESifo.
    5. Cao, Zhigang & Li, Guopeng & Shen, Sixian & Zhu, Feng, 2025. "Potentials in quadratic Cournot cross-holding games," Journal of Mathematical Economics, Elsevier, vol. 119(C).
    6. Matteo Bizzarri, 2026. "Multilateral Market Power in Input-Output Networks," Papers 2603.21932, arXiv.org.
    7. Huiyu Li & Chen Lian & Yueran Ma & Emily Martell, 2025. "Borrowing Constraints, Markups, and Misallocation," Working Papers 25-75, Center for Economic Studies, U.S. Census Bureau.
    8. Afonso Rodrigues, 2026. "Endogenous Product Design: A Linear Demand Approach," Papers 2602.02833, arXiv.org, revised Apr 2026.
    9. Christian Fons-Rosen & Pau Roldan-Blanco & Tom Schmitz, 2022. "The Effects of Startup Acquisitions on Innovation and Economic Growth," Working Papers 944, Queen Mary University of London, School of Economics and Finance.
    10. Matteo Bizzarri & Fernando Vega-Redondo, 2025. "The effect of Common Ownership and Input-Output networks: the case of the Spanish Economy," Working Papers 25-05, NET Institute.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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