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Welfare in differentiated oligopolies with more than two firms

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  • Schmidt, Robert C.

Abstract

Excessive differentiation in the quality or location dimension in order to soften price competition is a well-established conclusion concerning duopolistic markets. This has inspired authors to discuss policy measures that may improve welfare in a differentiated market. In the present paper, a general welfare analysis is conducted for a varying number of firms. It is shown that outcomes are almost optimal when three or more competitors are in the market. In light of this, a laissez-faire policy should be adopted. For a range of entry costs, market outcomes entail insufficient entry. Therefore, a subsidy to entry may improve welfare.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 4 (July)
Pages: 501-507

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Handle: RePEc:eee:indorg:v:27:y:2009:i:4:p:501-507
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

Keywords: Horizontal differentiation Vertical differentiation Quality Over differentiation Entry subsidy;

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Cited by:

  1. Petal Jean Hackett, 2012. "Cutting too Close? Design Protection and Innovation in Fashion Goods," CESifo Working Paper Series 3716, CESifo Group Munich.
  2. WAUTHY, Xavier Y., . "Market coverage and the nature of product differentiation: a note," CORE Discussion Papers RP -2212, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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