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Computing welfare losses from data under imperfect competition with heterogeneous goods

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  • Corchón, Luis C.
  • Zudenkova, Galina

Abstract

We study the percentage of welfare losses (PWL) yielded by imperfect competition under product differentiation. When demand is linear, even if prices, outputs, costs and the number of firms can be observed, PWL is arbitrary in both Cournot and Bertrand equilibria. If in addition the elasticity of demand (resp. cross elasticity of demand) is known, we can calculate PWL in a Cournot (resp. Bertrand) equilibrium. When demand is isoelastic and there are many firms, PWL can be computed from prices, outputs, costs and the number of firms. We find that price-marginal cost margins and demand elasticities may influence PWL in a counterintuitive way. We also provide conditions under which PWL increases or decreases with concentration.

Suggested Citation

  • Corchón, Luis C. & Zudenkova, Galina, 2009. "Computing welfare losses from data under imperfect competition with heterogeneous goods," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 646-654, November.
  • Handle: RePEc:eee:indorg:v:27:y:2009:i:6:p:646-654
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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
    2. Corchón, Luis C. & Zudenkova, Galina, 2009. "Computing welfare losses from data under imperfect competition with heterogeneous goods," International Journal of Industrial Organization, Elsevier, pages 646-654.
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    Cited by:

    1. Robert A. Ritz, 2014. "On Welfare Losses Due to Imperfect Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 62(1), pages 167-190, March.
    2. Ritz, Robert, 2016. "Oligopolistic competition and welfare," Cambridge Working Papers in Economics 1680, Faculty of Economics, University of Cambridge.
    3. Simai He & Xiaoguo Wang & Shuzhong Zhang, 2013. "On a generalized Cournot oligopolistic competition game," Journal of Global Optimization, Springer, vol. 56(4), pages 1335-1345, August.
    4. Jens Jurgan, 2009. "Cost Variations in a Differentiated Good Oligopoly," Working Papers 069, Bavarian Graduate Program in Economics (BGPE).
    5. Corchón Luis Carlos & Zudenkova Galina, 2013. "The Welfare Effects of Location and Quality in Oligopoly," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1143-1178.
    6. Corchón, Luis C. & Zudenkova, Galina, 2009. "Computing welfare losses from data under imperfect competition with heterogeneous goods," International Journal of Industrial Organization, Elsevier, pages 646-654.

    More about this item

    Keywords

    Welfare losses Product differentiation Cournot equilibrium Bertrand equilibrium Spence model;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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