IDEAS home Printed from https://ideas.repec.org/a/ecj/econjl/v114y2004i498p800-824.html
   My bibliography  Save this article

On the welfare effects and political economy of competition-enhancing policies

Author

Listed:
  • Philippe Aghion
  • Mark Schankerman

Abstract

We analyse the welfare effects of policies that intensify product market competition, and the channels through which they operate. Using a circular model of horizontal product differentiation with asymmetric costs, we study the effects of increased price competition on market selection among incumbent firms, cost reduction effort, and entry of new firms. The model also generates an endogenous demand for competition-enhancing or retarding policies arising from cost heterogeneity, and we demonstrate the possibility of a 'low-competition' political economy trap. Simulations of the model illustrate that the selection effects we analyse, which traditional cost-benefit analysis is unlikely to capture, can be large. Copyright 2004 Royal Economic Society.

Suggested Citation

  • Philippe Aghion & Mark Schankerman, 2004. "On the welfare effects and political economy of competition-enhancing policies," Economic Journal, Royal Economic Society, vol. 114(498), pages 800-824, October.
  • Handle: RePEc:ecj:econjl:v:114:y:2004:i:498:p:800-824
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=ecoj&volume=114&issue=498&year=2004&part=null
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fafchamps, Marcel & Udry, Christopher & Czukas, Katherine, 1998. "Drought and saving in West Africa: are livestock a buffer stock?," Journal of Development Economics, Elsevier, vol. 55(2), pages 273-305, April.
    2. Upton, Martin, 1986. "Production policies for pastoralists: The Borana case," Agricultural Systems, Elsevier, vol. 20(1), pages 17-35.
    3. Carter, Michael R. & Zimmerman, Frederick J., 2000. "The dynamic cost and persistence of asset inequality in an agrarian economy," Journal of Development Economics, Elsevier, pages 265-302.
    4. Sieff, Daniela F., 1999. "The effects of wealth on livestock dynamics among the Datoga pastoralists of Tanzania," Agricultural Systems, Elsevier, vol. 59(1), pages 1-25, January.
    5. Banerjee, Abhijit V & Newman, Andrew F, 1994. "Poverty, Incentives, and Development," American Economic Review, American Economic Association, vol. 84(2), pages 211-215, May.
    6. Dercon, Stefan, 1998. "Wealth, risk and activity choice: cattle in Western Tanzania," Journal of Development Economics, Elsevier, pages 1-42.
    7. John G. McPeak & Christopher B. Barrett, 2001. "Differential Risk Exposure and Stochastic Poverty Traps Among East African Pastoralists," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 674-679.
    8. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-1034, December.
    9. Cossins, Noel J. & Upton, Martin, 1987. "The Borana pastoral system of Southern Ethiopia," Agricultural Systems, Elsevier, vol. 25(3), pages 199-218.
    10. Binswanger, Hans P & McIntire, John, 1987. "Behavioral and Material Determinants of Production Relations in Land-Abundant Tropical Agriculture," Economic Development and Cultural Change, University of Chicago Press, vol. 36(1), pages 73-99, October.
    11. Fafchamps, Marcel & Gavian, Sarah, 1996. "The Spatial Integration of Livestock Markets in Niger," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 5(3), pages 366-405, October.
    12. Huysentruyt, Marieke & Barrett, Christopher B. & McPeak, John G., 2002. "Social Identity And Manipulative Interhousehold Transfers Among East African Pastoralists," Working Papers 14746, Cornell University, Department of Applied Economics and Management.
    13. Fafchamps, Marcel, 1998. "The Tragedy of the Commons, Livestock Cycles and Sustainability," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 7(3), pages 384-423, October.
    14. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tishler, Asher & Milstein, Irena, 2009. "R&D wars and the effects of innovation on the success and survivability of firms in oligopoly markets," International Journal of Industrial Organization, Elsevier, vol. 27(4), pages 519-531, July.
    2. Ela Glowicka, 2005. "Bailouts in a Common Market: A Strategic Approach," CIG Working Papers SP II 2005-20, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    3. Renaud Bourlès & Gilbert Cette & Jimmy Lopez & Jacques Mairesse & Giuseppe Nicoletti, 2013. "Do Product Market Regulations In Upstream Sectors Curb Productivity Growth? Panel Data Evidence For OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1750-1768, December.
    4. Ghosh, Arghya & Kato, Takao & Morita, Hodaka, 2017. "Incremental innovation and competitive pressure in the presence of discrete innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 1-14.
    5. Tomaso Duso & Jo Seldeslachts & Florian Szücs, 2017. "The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets," Discussion Papers of DIW Berlin 1674, DIW Berlin, German Institute for Economic Research.
    6. Bruno De Borger & Antonio Russo, 2015. "The Political Economy of Pricing Car Access to Downtown Commercial Districts," CESifo Working Paper Series 5294, CESifo Group Munich.
    7. Gu, Yiquan & Wenzel, Tobias, 2012. "Transparency, entry, and productivity," Economics Letters, Elsevier, vol. 115(1), pages 7-10.
    8. Papaioannou, Sotiris K., 2017. "Regulations and productivity: Long run effects and nonlinear influences," Economic Modelling, Elsevier, vol. 60(C), pages 244-252.
    9. Arghya Ghosh & Kieron Meagher, 2011. "The Political Economy of Infrastructure Investment: Competition, Collusion and Uncertainty," ANU Working Papers in Economics and Econometrics 2011-556, Australian National University, College of Business and Economics, School of Economics.
    10. Qiang Gong & Qihong Liu & Yi Zhang, 2016. "Optimal product differentiation in a circular model," Journal of Economics, Springer, vol. 119(3), pages 219-252, November.
    11. Andersson, Matts & Dehlin, Fredrik & Jörgensen, Peter & Pädam, Sirje, 2015. "Wider economic impacts of accessibility: a literature survey," Working papers in Transport Economics 2015:14, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    12. Arghya Ghosh & Kieron Meagher, 2014. "Voting on Infrastructure Investment: The Role of Product Market Competition," ANU Working Papers in Economics and Econometrics 2014-618, Australian National University, College of Business and Economics, School of Economics.
    13. Ghosh, Arghya & Meagher, Kieron, 2015. "The politics of infrastructure investment: The role of product market competition," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 308-329.
    14. De Borger, Bruno & Russo, Antonio, 2017. "The political economy of pricing car access to downtown commercial districts," Transportation Research Part B: Methodological, Elsevier, vol. 98(C), pages 76-93.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecj:econjl:v:114:y:2004:i:498:p:800-824. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/resssea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.