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Computing welfare losses from data under imperfect competition with heterogeneous goods

  • Corchón, Luis C.
  • Zudenkova, Galina

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.

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

Volume (Year): 27 (2009)
Issue (Month): 6 (November)
Pages: 646-654

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Handle: RePEc:eee:indorg:v:27:y:2009:i:6:p:646-654
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  5. 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.
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