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Competition Policy and Market Leaders

  • Ilir Maçi
  • Kresimir Zigic

We study the potential loss in social welfare and changes in incentives to invest in R&D that result when the market leading firm is deprived of its position. We show that under plausible assumptions like free entry or repeated market interactions there is a social value of market leadership and its mechanical removal by means of competition policy is likely to be harmful for society.

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Paper provided by The Center for Economic Research and Graduate Education - Economics Institute, Prague in its series CERGE-EI Working Papers with number wp375.

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Date of creation: Nov 2008
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Handle: RePEc:cer:papers:wp375
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  1. Dirk Czarnitzki & Federico Etro & Kornelius Kraft, 2009. "The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence," Working Papers 163, University of Milano-Bicocca, Department of Economics, revised May 2009.
  2. Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
  3. Gilbert, Richard J & Katz, Michael, 2001. "An Economist's Guide to U.S. v. Microsoft," Department of Economics, Working Paper Series qt56f8p06q, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, Junio.
  5. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
  6. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521816632, Junio.
  7. van Damme, E.E.C. & Hurkens, J.P.M., 1999. "Endogenous Stackelberg leadership," Other publications TiSEM 83a05fd8-4285-48f3-84ef-3, Tilburg University, School of Economics and Management.
  8. Syropoulos, Constantinos, 1996. "Nontariff Trade Controls and Leader-Follower Relations in International Competition," Economica, London School of Economics and Political Science, vol. 63(252), pages 633-48, November.
  9. Rotemberg, Julio J & Saloner, Garth, 1990. "Collusive Price Leadership," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 93-111, September.
  10. Benjamin Klein, 2001. "The Microsoft Case: What Can a Dominant Firm Do to Defend Its Market Position?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 45-62, Spring.
  11. Boone, J., 2002. "'Be Nice Unless it Pays to Fight' : A New Theory of Price Determination with Implications for Competition Policy," Discussion Paper 2002-23, Tilburg University, Center for Economic Research.
  12. Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers 88-4, Florida - College of Business Administration.
  13. Deneckere, R. & Kovenock, D. & Lee, R.E., 1988. "A Model of Price Leadership Based on Consumer Loyalty," Purdue University Economics Working Papers 947, Purdue University, Department of Economics.
  14. John Vickers, 2010. "Competition Policy and Property Rights," Economic Journal, Royal Economic Society, vol. 120(544), pages 375-392, 05.
  15. Boone, Jan, 2004. "Balance of Power," CEPR Discussion Papers 4733, C.E.P.R. Discussion Papers.
  16. Michael D. Whinston, 2001. "Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 63-80, Spring.
  17. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
  18. Constantinos Syropoulos, 1994. "Endogenous Timing in Games of Commercial Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 847-64, November.
  19. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May.
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