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Does entry improve welfare? A general equilibrium approach to competition policy

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  • Bertrand Crettez

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  • Marie-Cécile Fagart

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Abstract

We consider a general equilibrium model under imperfect competition. Firms have constantreturns, they are price taker in the input market and compete à la Cournot in theproduct market. We assume a representative consumer exists. We show that an increase inthe number of firms of a given market does not always improve welfare, challenging thecommon idea according to which mergers with no cost synergy are not desirable for theconsumer.
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Suggested Citation

  • Bertrand Crettez & Marie-Cécile Fagart, 2009. "Does entry improve welfare? A general equilibrium approach to competition policy," Journal of Economics, Springer, vol. 98(2), pages 97-118, November.
    • Handle: RePEc:kap:jeczfn:v:98:y:2009:i:2:p:97-118
    DOI: 10.1007/s00712-009-0082-y
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    References listed on IDEAS

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    1. J. Peter Neary, 2003. "Competitive versus Comparative Advantage," The World Economy, Wiley Blackwell, vol. 26(4), pages 457-470, April.
    2. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
    3. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
    4. Spear, Stephen E., 2003. "The electricity market game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 300-323, April.
    5. Joseph F. Francois & Henrik Horn, 1998. "Competition Policy in an Open Economy," Tinbergen Institute Discussion Papers 98-092/2, Tinbergen Institute.
    6. Victor Ginsburgh & Michiel Keyzer, 2002. "The Structure of Applied General Equilibrium Models," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262571579, May.
    7. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," Review of Economic Studies, Oxford University Press, vol. 24(1), pages 11-32.
    8. Bertrand Crettez & Marie-Cécile Fagart, 2005. "A Note on The Pareto Efficiency of General Oligopolistic Equilibria," Working Papers 2005-05, Center for Research in Economics and Statistics.
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    Citations

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    Cited by:

    1. Jacopo Zotti, 2015. "The Long Italian Stagnation and the Welfare Effects of Outsourcing," Working Papers 2015.105, Fondazione Eni Enrico Mattei.
    2. Marc Deschamps, 2013. "Pourquoi des politiques de concurrence ?," GREDEG Working Papers 2013-23, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    3. Illtae Ahn & Hyukseung Shin, 2012. "Domestic Welfare Effects Of The Entry Of A Foreign Firm," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(2), pages 35-57, June.
    4. Arijit Mukherjee & Udo Broll & Soma Mukherjee, 2009. "The welfare effects of entry: the role of the input market," Journal of Economics, Springer, vol. 98(3), pages 189-201, December.

    More about this item

    Keywords

    Cournot competition; Competition policy; General equilibrium and imperfect competition; Efficiency; D50; L13; L40;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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