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How Many Firms Should Be Leaders? Beneficial Concentration Revisited

Author

Listed:
  • Hiroaki Ino

    () (Kwansei Gakuin University)

  • Toshihiro Matsumura

    () (University of Tokyo)

Abstract

We investigate the relationship between the Herfindahl-Hirschman Index (HHI) and welfare. First, we discuss the model wherein m leaders and N - m followers compete. Daughety (1990) finds that under linear demand and constant marginal cost, the Stackelberg model yields larger welfare and HHI than the Cournot model. Thus, he demonstrates that beneficial concentration occurs. We find that this always occurs under general cost and demand functions when m is sufficiently large, but does not always occur when m is small. Next, we consider the free entry of followers, and find that beneficial concentration always occurs regardless of m. In particular, the more persistent the leadership, the more likely it is to be beneficial.

Suggested Citation

  • Hiroaki Ino & Toshihiro Matsumura, 2009. "How Many Firms Should Be Leaders? Beneficial Concentration Revisited," Discussion Paper Series 48, School of Economics, Kwansei Gakuin University, revised Oct 2009.
  • Handle: RePEc:kgu:wpaper:48
    as

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    References listed on IDEAS

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    1. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
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    Citations

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    Cited by:

    1. Etro, Federico, 2013. "Advertising and search engines. A model of leadership in search advertising," Research in Economics, Elsevier, vol. 67(1), pages 25-38.
    2. repec:kap:jeczfn:v:123:y:2018:i:1:d:10.1007_s00712-017-0559-z is not listed on IDEAS
    3. Hiroaki Ino & Akira Miyaoka, 2016. "Government-induced Production Commitment in the Open Economy," Discussion Paper Series 142, School of Economics, Kwansei Gakuin University, revised May 2016.
    4. Scrimitore, Marcella, 2010. "Managerial Incentives and Stackelberg Equilibria in Oligopoly," MPRA Paper 24245, University Library of Munich, Germany.
    5. Cho, Sumi & Lee, Sang-Ho, 2017. "Endogenous Private Leadership under Subsidy Policy on the Social Enterprises," MPRA Paper 83431, University Library of Munich, Germany.
    6. Etro, Federico, 2016. "Research in economics and industrial organization," Research in Economics, Elsevier, vol. 70(4), pages 511-517.
    7. repec:kap:regeco:v:52:y:2017:i:1:d:10.1007_s11149-017-9334-x is not listed on IDEAS
    8. Cato, Susumu & Oki, Ryoko, 2011. "The top-dog and the lean and hungry look strategies in endogenous entry," Economic Modelling, Elsevier, vol. 28(6), pages 2776-2782.
    9. Toshihiro Matsumura & Atsushi Yamagishi, 2017. "Lobbying for Regulation Reform by Industry Leaders," Journal of Regulatory Economics, Springer, vol. 52(1), pages 63-76, August.
    10. Cato, Susumu & Matsumura, Toshihiro, 2013. "Entry-License Tax: Stackelberg versus Cournot," MPRA Paper 81297, University Library of Munich, Germany, revised 12 Sep 2017.
    11. repec:kap:jeczfn:v:121:y:2017:i:2:d:10.1007_s00712-017-0521-0 is not listed on IDEAS
    12. repec:eee:reveco:v:50:y:2017:i:c:p:1-7 is not listed on IDEAS
    13. repec:kap:jincot:v:17:y:2017:i:4:d:10.1007_s10842-017-0248-1 is not listed on IDEAS
    14. repec:bpj:bejtec:v:17:y:2017:i:2:p:9:n:2 is not listed on IDEAS
    15. Federico Etro, 2012. "Endogenous Market Structures and International Trade. II: Optimal Trade Policy," Working Papers 2012:32, Department of Economics, University of Venice "Ca' Foscari".
    16. Matsumura, Toshihiro & Yamagishi, Atsushi, 2016. "Long-Run Evaluation of Cost-Reducing Public Infrastructure Investment," MPRA Paper 75625, University Library of Munich, Germany.
    17. Wang, Leonard F.S. & Lee, Jen-yao, 2013. "Foreign penetration and undesirable competition," Economic Modelling, Elsevier, vol. 30(C), pages 729-732.
    18. Federico Etro, 2014. "Some thoughts on the Sutton approach," Journal of Economics, Springer, vol. 112(2), pages 99-113, June.
    19. repec:bla:jecrev:v:68:y:2017:i:1:p:115-130 is not listed on IDEAS
    20. Toshihiro Matsumura & Yasunori Okumura, 2014. "Comparison between specific taxation and volume quotas in a free entry Cournot oligopoly," Journal of Economics, Springer, vol. 113(2), pages 125-132, October.
    21. Toshihiro Matsumura & Akira Ogawa, 2017. "Inefficient but Robust Public Leadership," Journal of Industry, Competition and Trade, Springer, vol. 17(4), pages 387-398, December.

    More about this item

    Keywords

    HHI; beneficial concentration; leadership; free entry market;

    JEL classification:

    • 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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