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Successive Oligopolies and Decreasing Returns

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  • Zanaj Skerdilajda

    () (University of Luxembourg)

Abstract

In this paper, we analyze successive oligopolies where downstream firms share the same decreasing returns technology of the Cobb-Douglas type. We stress the differences between the conclusions obtained under this assumption and those resulting from the traditional literature in which output firms use a constant returns technology. It is shown that when firms use a decreasing returns technology, (i) the profit of a downstream firm can decrease when the upstream market is more competitive; (ii) the input price does not tend to the corresponding marginal cost when the number of firms in both markets tends to infinite; and (iii) double marginalization is lower. Finally, the effects of mergers are revisited to highlight the role played by the technology of output firms.

Suggested Citation

  • Zanaj Skerdilajda, 2010. "Successive Oligopolies and Decreasing Returns," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-26, November.
  • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:48
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    References listed on IDEAS

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    1. Riordan, Michael H, 1998. "Anticompetitive Vertical Integration by a Dominant Firm," American Economic Review, American Economic Association, pages 1232-1248.
    2. Jean J. Gabszewicz & Skerdilajda Zanaj, 2011. "Free entry in successive oligopolies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(2), pages 179-188, June.
    3. Hansen, Terje & Jaskold-Gabszewicz, Jean, 1972. "Collusion of factor owners and distribution of social output," Journal of Economic Theory, Elsevier, pages 1-18.
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