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The Emergence of Intermediate Markets and Social Welfare

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  • Walter Elberfeld

Abstract

The paper examines the welfare effects of the development of an intermediate market. For this purpose I develop a model where such a market may arise endogenously. If integrated and unintegrated firms coexist in equilibrium, consumers do not benefit from the emergence of an intermediate market. Under free entry into the final-good market all additional surplus accrues to the intermediate-good suppliers as profits. However, if entry into the whole industry is free, profits are eroded and scale economies are destroyed. From a social standpoint, entry into the intermediate market is excessive.

Suggested Citation

  • Walter Elberfeld, 2003. "The Emergence of Intermediate Markets and Social Welfare," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(4), pages 627-653, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200312)159:4_627:teoima_2.0.tx_2-6
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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